As many boomers approach retirement, they feel confident in their ability to make financial decisions. But how long will that financial acumen last? A new study argues: not long. For peace of mind, you may want to make plans for your future self.
A new study by Michael J. Finke of Texas Tech University has shed light on our decline in financial acumen as we age. Households age 60+ own over 51% of the United States’ wealth, a percentage set to rise with the aging population. But these Americans are tasked with greater responsibility for managing their own financial assets, as reliance on funding retirement through defined contribution plans rises. However, new studies show that our knowledge of investments, insurance, credit and money basics fell about 2% each year starting after age 60.
“One of the great dangers is that when you reach retirement age, your ability to make financial decisions is pretty strong,” says Mr. Finke. “You are near your peak of financial decision-making, and it can be often difficult to acknowledge that after this age, your ability to make decisions is going to decline.”
Here are Finke’s three tips for minimizing risk as your financial wit weakens:
- Acknowledge that you won’t be capable of making sound decisions forever. If you can absorb this truth early on, you can avoid the detrimental effects of misplaced confidence.
- Set up a retirement-income plan that eliminates the need for complex decision-making down the road. Delegate these decisions to a trusted expert or family member.
- Consider annuitizing your income, preferably in a straightforward annuity-type product or a mix of annuity and investment products. Consider also passive investments that automatically rebalance.
Don’t allow the retirement plans you’ve spent a lifetime establishing crumble under unsound decision-making. Take the pressure off your future self by planning ahead, and limiting the likelihood of making a mistake down the line.
How are you planning for your future self? What individuals can you entrust with decisions down the road? How can you minimize your risk of faltering in the future? Share any ideas with the community!
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