“What Do I Do When I Get Stupid?”

Finance professor Lewis Mandell was taken aback when asked by a former student, now a physician, about how to handle his investments when he got older:

Asked the doctor —  “My concern is—what do I do when I get stupid?”

It may not be the most eloquently put, but it does express the concern we all feel about how to handle our finances as we age and aren’t perhaps quite as sharp as we used to be.

Cognitive decline is inevitable ….

In a recent edition of Research Magazine, author Michel Finke writes that “scientists no longer view cognitive impairment in old age as simply a misfortune that strikes some who suffer from a random event such as Alzheimer’s or a stroke. There is increasing evidence that cognitive decline in old age is natural and inevitable.”

In fact, academic studies show that, on average, individuals make their best financial decisions when they are in their mid 50s. Their financial abilities at age 90 decline to a point where they are roughly half what they were at age 65.

So while there are always exceptions (Warren Buffet just turned 82, Vanguard founder John Bogle is 83, Viacom founder Sumner Redstone will turn 90 next year), it’s fair to assume most of us will suffer from declining capacity as we age.

And here’s the rub.  While financial abilities decline with advanced age, confidence in one’s ability to make financial decisions does not. That means we think we’re still sharp, but in reality we’re not as on top of things as we should be.

How to prepare for the inevitable

For clients, your financial advisor should be your first line of defense. A good advisor can help keep you safe by serving as your “financial bodyguard,” screening out unwanted sales pitches and scam artists.  Their advice can help you avoid making big and very expensive financial mistakes. They can also help streamline and simplify your financial affairs so you have more time to focus on what really matters in life. As you age, your advisor can help by providing honest feedback and an invaluable “second opinion” to help keep you on track financially. Sometimes, their job is to tell you the things you may not want to hear, but a good advisor always has your best interests at heart.

Mitzi Lauderdale, an attorney and financial planning professor in Lubbock, Texas reminds us that “planning for incapacity or partial capacity is crucial. Documents such as a durable power of attorney, medical power of attorney, will, trusts and advanced medical directives should be implemented well before any capacity concerns arise.”

Based on what I’ve observed during my years as a Trust Officer and Certified Financial Planner(TM), I would strongly second that opinion. It’s essential to work with an experienced estate planning attorney to get these basic documents in order (just ask us if you need referrals to a qualified professional).

When you draft your Durable Power of Attorney or Living Trust you are providing a comprehensive set of instructions to your successor telling them how to handle your finances and your living arrangements, and how to care for those you love or who are dependent on you if you are unable to do so. What could be more important?

If there comes a time when you are not able or willing to make all your financial decisions, someone you’ve hand-selected can step in to help.  That protects you from the exploitation, fraud and neglect that can often affect aging persons.

Financial Tip:  Research says financial decision-making ability peaks in middle age. Plan accordingly by making arrangements in advance for someone to help you handle your financial affairs if the need arises.


About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!


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