A while back Michael Finke, Professor of Retirement Planning at Texas Tech University hosted a webinar about financial planning in the context of longevity and aging. None of us likes to think about the deterioration of our physical and mental abilities. Yet how we navigate these changes, and equally importantly, how we plan for them, will have significant effects on our future happiness.

Life expectancy has increased for a number of decades and the trend continues. Finke concludes that definite connections exist between income, health, social activity and longevity and happiness. Generally, those people with higher income tend to enjoy better health and are more socially engaged. These factors contribute to greater longevity and increased satisfaction in retirement. The webinar raised a number of interesting questions in regard to retirement. I’d like to discuss two issues. First, should you remain in your home as you age? Second, how declining cognitive abilities affect the management of your finances.

Retirement Planning and the Decision to Stay in Your Home

Surveys confirm that most people want to remain in their own homes as they age. A study done in 2007 concludes that satisfaction with this decision begins to wane around age 80. As mobility and social life become more limited, happiness can be negatively affected as well.

Finke recommends having the discussion about moving out of the home and planning to move before it becomes a necessity. Making a choice to live in a community that offers appropriate supportive services and social opportunities, as opposed to being forced to move, changes the psychological impact of the transition. If the move is experienced as a loss of independence, it can be very negative. If, however, you’ve planned for it in advance as a way to benefit your happiness, the picture is quite different.

My Financial Literacy Will Decline?Literacy and Confidence

According to data presented by Finke, financial literacy and decision-making acumen peak in the early 50’s. The graph was an eye-opener. It shows that between age 60 and age 90, financial literacy declines by almost two thirds.* Yet over the same interval, confidence in decision-making varies little. In fact, it actually shows a modest increase. To put it in plain terms, we continue to think we’re good at making financial decisions and are even confident in that belief. The truth is that as we get older, we’re not nearly as good at managing our finances as we think.

Who Will Manage Your Finances Later In Life?

This raises an important question: who is taking care of your finances in the last decade or two of life? Finke points out that we tend to become more cautious as we age and are more prone to making rash decisions. A common example? Selling stocks at the bottom of a downturn, that may not be in our best interest. When should you consider getting help with managing finances? And who will be best suited to help you?

I came away from the presentation realizing how critical it is to be aware of the challenges ahead, but also the importance of retirement planning. Addressing the realities of inevitable declines in health and cognitive abilities can help us to appreciate what we have now while taking steps to plan for future happiness.

*Finke, Howe and Huston, 2013

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