Dave Carpenter

Seniors should be cautious about finances when facing the challenges of aging

By Dave Carpenter
July 9, 2011

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With age comes wisdom about money - up to a point.

Years of handling your own finances and investments sharpen the ability to make sound decisions. But failing to prepare for the day when growing older hampers your judgment can be costly at an age when more is at stake. Seniors older than 65 hold about $18 trillion in assets, according to US data, or about one-third of the nation’s net worth.

That’s not to say that those in their 70s and 80s can’t stay on top of their finances. But they should take precautions. “Sometimes the senior’s worst enemy is himself or herself,’’ says Andrew Stoltmann, a Chicago attorney and investment adviser. “Poor financial decisions and declining cognitive impairment go hand in hand.’’

What’s more, investment skill has been found to deteriorate dramatically among seniors, particularly after age 70, according to a 2007 study by two finance professors at the University of Miami.

Retirees and other seniors also are at great risk of being targeted by scammers and rip-off artists. The Pew Research Center estimated in a 2009 study that elderly victims lose at least $2.6 billion a year to financial exploitation.

Safeguards can be put in place to avoid fraud, and seniors can head off many problems by enlisting an adviser or family member to manage their money or at least give guidance.

Following these basic guidelines can help protect seniors age 65 and up from the consequences of declining mental health, irrational decisions, and attempts by others to get their money:

Prepare a thorough estate plan. Every senior should have a way to manage and protect assets while you are alive and to conserve and control their distribution after your death. The basics: Prepare or update a will, get a living will, establish durable power of attorney, and health care power of attorney.

But anyone over 65 should go beyond the basics to discuss long-term strategies with an adviser.

Have regular financial “check-ups.’’ If you’re in your 60s and you don’t have a financial adviser, get one. That’s no concession to old age; it’s just sound financial behavior. Besides putting the necessary protective measures in place, a good adviser can discuss and guide you through the financial pitfalls of aging.

Set up a living trust. A revocable living trust sets guidelines for how your assets are handled after you die. Unlike a will, however, it carries benefits for you while you are still alive.

Creating a living trust calls for you to turn over ownership of your assets to the trust and then designate a trustee to manage and administer it. While you can name any adult as the trustee, it may be wiser to hire a large bank’s trust department. Fees can be as high as 2 percent to 3 percent of your assets, considerably more than with investment firms or mutual funds. But banks generally manage client funds very conservatively, and investor complaints are rare.

Dave Carpenter writes for Associated Press.