Signposts of financial success for those aged over 80
LAST year this column ran a series of articles which focused on various age groups and the types of financial decisions that influenced their overall wealth.
I found it interesting that many of those ‘‘markers’’ of success were not related to earning capacity, but due to learned behaviours. In December’s column I considered the 65plus age group and I thought my article series had come to a natural conclusion. However, a recent client meeting reminded me that there is a further age group worthy of specific mention: the 80plus group.
Not too many years ago this group would only have been mentioned as a footnote. Today this group makes up 12% of the population over 65 and statisticians tell us this number is likely to double over the next 30 years.
One of the realities of this age group is that it is generally a period when we can expect to experience some cognitive decline. Overseas studies have shown that at age 80 about 15% of the population will have some form of dementia and the rate doubles every five years as age increases.
The reason for including these statistics is not to cause a bout of depression, but to highlight that if success in one’s early years is driven by learned rational behaviours, then we cannot necessarily rely on these same behaviours to continue in our twilight years.
This is a time when prudent behaviour needs to be ‘‘hardwired’’ by good systems, trusted relationships and legal structures.
So what behaviours need to be hardwired to protect this group?
Trusted Relationships: Longstanding relationships are important, but it is critical to avoid conduct behind closed doors. Regardless of whether it is a trusted neighbour, or the client’s financial adviser, one way to stay safe from potential abuse is to maximise the visibility of advice and transactions. I encourage my clients of this age to bring a family member to their review meetings. If the client does not want to involve their family directly then I like to receive agreement to allow copies of any recommendations to be sent to another trusted adviser (perhaps their accountant or solicitor). If a trusted neighbour or family member is helping with finances, copies of bank statements need to be accessible (and reviewed) by another person.
Enduring Powers of Attorney (EPAs): I encourage all clients to see their solicitors and have current EPAs in place in relation to both Property and Personal Care & Welfare (these are separate documents).
Wills: Your ability to make and update a will is dependent on whether you have ‘‘legal capacity’’. Part of that legal capacity test relates to your state of mind. This is yet another reason for ensuring that your will is kept up to date.
This 80plus phase can often involve significant financial decisions relating to the retention or sale of assets.
This can sometimes lead to conflicting views within the family and a parent who is confused about what to do. Having an independent person sitting at the table to assist with such decisions will have a shortterm cost but it often generates a greater range of options and a more reasoned conclusion. In short, be prepared to pay for advice.
From my observation it is not all doom and gloom. To take the ‘‘glass half full approach’’, at age 80, 85% of the population will NOT have dementia. For most people their basic cost of living reduces in this phase of their life. However, this cost reduction can sometimes be more than offset by resthome charges or increased medical costs.
For some clients, investment matters become simpler as their capital is drawn down over their remaining years. For others, the reality that they will most likely leave a considerable estate becomes evident.
This is a time when some clients choose to distribute capital to family and/or charities because they would like to see the benefits of their philanthropy while they are alive.
During this phase of our lives there are some issues many of us would rather not think about. But by putting some relatively simple systems and structures in place you can ensure your finances are not one of those worrying issues.
APeter Ashworth is a Principal of New Zealand Funds Management Limited, and is an Authorised Financial Adviser based in Dunedin. The opinions expressed in this column are his own and not necessarily that of his employer. His disclosure statements are available on request, free of charge.