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Managing Money with Cognitive Decline

Despite the normal cognitive challenges that people in their 70s and 80s inevitably face, most are sharp enough to be in charge of their financial affairs or oversee them.

But the significant minority of seniors who do have trouble is explored in a new summary of the research by Anek Belbase and Geoffrey Sanzenbacher at the Center for Retirement Research, which supports this blog.

One such group is people learning for the first time how to carry out financial tasks. Widows, not surprisingly, are often required to negotiate this financial learning curve, which gets steeper as a senior’s ability to process new information erodes. With guidance from a family member or professional, however, the novices can usually figure things out.

Seniors with mild cognitive impairment might also develop problems. Mild impairment becomes fairly common by the time people reach their 70s, affecting their financial judgment and potentially their ability to manage their affairs in ways that promote their best interests.  Among those with mild impairment, 82 percent can independently handle the various financial tasks they face, such as paying bills, managing bank accounts, and maintaining good credit.  This compares with 95 percent of unimpaired seniors.

Another danger facing seniors with mild cognitive impairment is their vulnerability to fraud.  They are usually aware they’re slipping, yet they may remain confident about their ability to handle their financial affairs. …Learn More

The Late-1950s Boomers: Hit by Divorce

Middle Boomers chartIt’s old news that the many baby boomers who did not get married and stay married are worse off financially than those who did. Unfortunately, the financial damage to one segment of this generation has broken new ground.

Only 44 percent of “middle boomers” – those born in the late 1950s – have remained married to their original spouses, down from 52 percent of their parents’ generation. Middle boomers are also far more likely to have lived with partners without marrying, remained single all their lives, or even to have divorced twice.

The heart of a study is determining which of middle boomers’ choices were most likely to have led to financial distress when they reached their pre-retirement years.

About 11 percent of middle boomers had negative net worth by the time they were in their early 50s – more than double the share for the generation born during the Great Depression when they reached this age. Negative net worth means that middle boomers’ mortgages and other debts exceed the value of their assets; in this study, assets included everything from retirement plans and taxable bank accounts to primary and vacation homes.

To understand why, the researchers culled marital histories from a survey of older Americans. They found that four lifestyles are most strongly linked to middle boomers’ negative net worth: never marrying, going through one divorce and becoming single again, separating from a second marriage, and divorcing from a second marriage.

In all of these situations, the individuals were about three times more likely to have negative net worth than were the continually married middle boomers. The study controlled for age, gender, race, education, health, household income, and the number of offspring.

Middle boomers are the “least prepared for retirement” out of four groups studied, the researchers concluded, and their choices around marriage have been important contributing factors.Learn More

web of connections

Can Work Enhance Seniors’ Social Lives?

Callout boxMaintaining a network of family, friends, or even golfing buddies is critical to cognitive and physical health in old age, research has shown.

What wasn’t known is how work affects the social lives of older people. Does work foster social ties or limit the time one has to socialize?

A new study by Eleonora Patacchini at Cornell University and Gary Engelhardt at Syracuse University finds that those who continue to work have larger social networks.

They analyzed responses to the following question by more than 1,300 survey participants in the National Social Life, Health and Aging Project. The participants were ages 57 to 85 in 2005 and answered the following question then and again in 2010:

“Most people discuss things that are important to them with others. For example, these may include good or bad things that happen to you, problems you are having, or important concerns you may have. Looking back over the last 12 months, who are the people with whom you most often discussed things that were important to you?” …Learn More

Inside the Minds of Older Workers

A decade of research into the impact of cognitive aging shows that workers throughout their 50s and 60s are generally just as productive as the younger people working alongside them.

A new summary of this research, by the Center for Retirement Research at Boston College, explains how older people are able to adapt to the gradual loss of brain mass in the parts of the brain associated with memory and an ability to think on one’s feet – their “fluid intelligence.”

Brain scans

The highly skilled pharmacy profession is a good example of how workers in their 50s or 60s adjust to this changing dynamic.  These pharmacists have an advantage over their younger coworkers in what psychologists call “crystallized intelligence,” which is the deep reserve of information stored up over decades of working in their profession.  They can no longer process drug interactions and other new information as rapidly as they once did.  But they can tap into their reserves to solve the myriad issues that crop up in their work.  This crystallized intelligence – for pharmacists and many other types of skilled jobs – is effectively making up for their loss of fluid intelligence.

Interestingly, older workers who execute routine tasks usually aren’t at risk of aging out of their jobs for cognitive reasons either.  That’s because even though their fluid intelligence is in decline, they have more than enough of it in reserve to complete their relatively simple tasks.

While the majority of older workers do not lose their productivity due to cognitive aging, two groups are vulnerable.   One group is those for whom the work demands on their fluid intelligence are extremely high.  A 2009 study of air traffic controllers highlighted this challenge – and demonstrates the logic behind a Federal Aviation Authority requirement that controllers retire at age 56. …Learn More

Money vortex

Early Social Security Filers Afraid to Lose

Retirement experts and financial advisers maintain there is a right way and a wrong way to approach Social Security.

For most people, the right way is to view waiting until your late 60s to sign up for benefits as the route to boosting your retirement income and protecting against out-living your savings.  People who delay will have a larger Social Security check to pay the bills that come due every single month for as long as they live.

The wrong way is to make a decision based on fear – the fear of losing money if you don’t sign up soon after turning 62, the earliest age allowed under the program.  While you might feel that delaying means losing out, delay can, in fact, protect you and your spouse from a more consequential loss in the future: inadequate monthly income when you are very old.

A study on this issue used a new technique to identify which individuals possess this fear of loss.  In six different online surveys, the researchers asked some 7,000 working-age adults to choose between numerous pairs of gambles showing the probabilities of scoring a financial gain (45 percent), losing money (45 percent), or breaking even (10 percent).  In each pair, one gamble had a smaller potential dollar loss than a second gamble in which they could lose more money – but also win more.

Loss aversion was prevalent. They found that about 70 percent of adults showed some degree of loss aversion, meaning that they preferred the gamble that risked a smaller dollar loss.

Next, the researchers analyzed whether the people who were most loss averse also plan to claim their Social Security benefits at younger ages.  In all six surveys, the most loss-averse workers were significantly more likely to claim their benefits earlier.

The researchers hope their new technique and findings improve the ability to identify who is loss averse, so that experts can design better ways to help people make smart decisions about their Social Security, the bedrock of most Americans’ retirement security. Learn More

Feature

Seniors Enjoy More Disability-Free Years

Persistent increases in U.S. life expectancy are widely recognized. But if we’re living longer, what’s also important is whether those additional years of life are healthy years.

Even using this higher standard, the news is good.

A 65-year-old American today can expect to live to about age 84 – or about one year and four months longer than a 65-year-old in the early 1990s, according to a new study. But there was a bigger increase – one year and 10 months – in the time the elderly enjoy being free of disabling medical conditions that limit their quality of life.

The researchers, a team of economists and biostatisticians at Harvard, pinpointed two conditions that are the dominant reasons the elderly are remaining healthier longer: dramatic declines in cardiovascular conditions in the form of heart disease and stroke, and improved vision, which allows seniors to remain independent and active.

The study used medical data from a Medicare survey that asks a wide range of questions about the respondents’ ability to function and perform basic tasks.  The researchers found a decline in the share of seniors reporting they have some sort of disability – to about 42 percent currently – and most of this decline occurred during the final months or years of a person’s life.

They also tried to identify the primary reasons for the health improvements, though they were cautious about these results.   Heart attacks and strokes are major causes of death in this country.  But cardiovascular disease is being treated aggressively – with statins, beta-blockers, even low-dose aspirin – and the treatments might have reduced mortality and the prevalence of heart attacks. …Learn More

Produce shelves at grocery store

Lift SNAP’s Asset Test and People Save

When a low-wage worker has a dental emergency or the car breaks down, it can set off a chain reaction of financial problems. Losing a job due to that car problem is a catastrophe.  It’s not an exaggeration to say that having just a little money in a bank account is a lifesaver.

But low-income Americans are discouraged from saving due to the asset limits in joint federal-state assistance programs such as food stamps, Medicaid, and Temporary Assistance to Needy Families. These asset limits create a Catch-22: if the recipient builds up the savings crucial to their financial well-being, they lose their assistance, which is also critical to their well-being.

This illustrates just how difficult it is to design programs to help the poor and low-wage workers.  Without asset limits, a relatively well-off person who earns very little would qualify for food stamps.  But using asset limits to restrict who qualifies can harm our most financially fragile populations.

SNAP logoNew research looking into the impact of asset limits among recipients under the Supplemental Nutrition Assistance Program (SNAP) – once known as food stamps – confirms that asset limits inhibit saving.

“Having a policy where people don’t save or draw down their assets before they apply for benefits can really harm long-term economic success for these families,” said Caroline Ratcliffe, a senior fellow at the Urban Institute who conducted the study. …Learn More

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