Financial Administrivia

By |2019-01-30T17:30:35-04:00August 30th, 2018|8,000 Days Series|

“We have a longevity paradox. Now that we have achieved what humankind has tried to achieve since it has walked – living longer – we really don’t have a good idea of what to do with all that additional time.”

– Dr. Joe Coughlin, Director of the MIT AgeLab

The AgeLab was established at MIT in 1999 as a multidisciplinary research program that works with business to improve the quality of life of older people and those who care for them. The AgeLab applies consumer-centered thinking to understand the challenges and opportunities of longevity and emerging generational lifestyles to encourage innovation across business markets. Their insights are critical for anyone who is nearing retirement, or who has loved ones such as parents, aunts, or uncles who are entering this stage of life. This article in our series discusses the “Managing Longevity” phase and explores the difficulty of keeping up with your finances as you grow older.

The “Managing Longevity” Phase

As we discussed in our last article, the folks at the MIT AgeLab have proposed a new name for the “retirement years,” the stage of life that begins roughly at age 66 and extends for 25 or more years through the end of life. According to the AgeLab, these years should be named the “Exploring” phase of our lives, as opposed to “retirement.”

In their model for aging, the AgeLab also suggests that there are four distinct phases that people experience as they live through their “Exploring” years. The first of these is the “Honeymoon” phase, named because it marks the period of time when this whole idea of exploring our freedom is brand new to us. But, there are also a number of adjustments that must be made as we acclimate to the changes in our lives.

The second stage is called the “Big Decision” stage because this is a time when we are faced with a number of very important decisions that may have impact on our quality of life for the rest of our lives, and in particular, decisions about where we will live.

The third stage is known as “Managing Longevity.” This is a period of time when managing the complexities of life may become more challenging. The daily details of life, or “Administrivia,” begin to increase, as healthcare, financial, legal, and household logistics begin to become more complex, and cognitive changes may make it more difficult to keep up with these details. Below, we discuss the role of this on our financial and legal affairs.

Managing Financial and Legal Affairs

Personal financial and legal management may be one of the most complex areas of “Administrivia” that we face as we age, and it is perhaps the topic that is most fraught with real dangers.

It is fairly common for couples who have been married for many years to assign roles and responsibilities for the management of the family and household, and one of those roles is the management of the family’s finances.  Although this is not always true, our experience is that most families appoint one spouse to act as Chief Financial Officer of the household, while the other spouse is far less involved or, in some cases, not involved at all in the financial management of the household.

The Family CFO is the person charged with writing checks, paying bills, filing tax returns, executing mortgage documents, applying for life insurance, executing wills and planning documents, making investment decisions, and communicating with the various family advisors who may be assisting with these functions. In some cases, the CFO may even do all of this without the assistance of advisors because they don’t trust anyone to help or think the fees aren’t worth it.

As the couple enters the “Managing Longevity” phase, new issues can arise for the Family CFO, as cognitive challenges may begin to surface. Although the CFO may not suffer from full-blown dementia, they may start to become more forgetful, have a harder time remembering details, and have more difficulty keeping track of details, particularly when it comes to financial management.

However, real problems can result from the onset of dementia. The Family CFO may be unable or just unwilling to understand the signs of dementia, making them reluctant to give up control of the CFO role. This can be particularly difficult for grown children, or the “non-CFO” spouse, who are left wondering about the status of financial details. Common concerns may include:

  • Cash management and checking account errors, including missing the payment of important bills or perhaps making payments that weren’t required.
  • The possibility of falling prey to fraudulent behaviour, especially internet scams. Cognitive decline makes aging parents easy targets for scam artists, misleading advertising, and offers for high-priced, unnecessary goods and services.
  • Improper trading of brokerage accounts or inappropriate investment decisions.
  • Missing required tax payments for quarterly estimates or property tax payments.
  • Missing important tax filing deadlines or errors in preparing returns.
  • The lack of adequate estate planning documents.

Financial management can be a particularly tricky topic for families to discuss. Delegating financial authority or accepting help from family or outside advisors may be more than just a financial and administrative decision, as it is commonly a very emotional decision. Being “smart with money” is often considered a sign of strength, control, and intelligence, and it may be an important part of the Family CFO’s self-image and sense of self-determination.  Abdicating management of these functions may feel like an admission of vulnerability and a loss of control. The CFO may feel like this is a sign that they no longer have sharp financial acumen, and it may even be a reminder of their mortality.

In many cases, this issue can be compounded because the CFO may have difficulty finding someone suitable to delegate these functions to. Their grown children may be a natural first choice, but the CFO may be reluctant to share their financial details or cede financial control to their kids. Many couples don’t want their children to know how much money they have, and what their plans are for the disposition of their estate, particularly if that distribution plan calls for unequal treatment among the children or large gifts to charity. Still others fear the loss of their autonomy and freedom if they give up control of their money to their kids, or they may struggle with the risk that family squabbles can result in when they choose which of their children to put in charge.

Many families turn to outside advisors for help.  However, the CFO may have a difficult time trusting anyone to do the job well. This is one of the reasons that it is wise to develop trusting advisory relationships earlier in life, so that these relationships are solidly in place when they are needed most.

Very often, the result of this situation is that we end up neglecting to properly execute estate and legal planning, including wills and legal and medical powers of attorney. The unfortunate outcome is that the family is left in a very difficult position if and when the CFO becomes incapacitated without the proper powers of attorney, or they pass away and leave the non-CFO spouse without the proper support infrastructure.

It cannot be overemphasized how important it is that trusted people are selected to make decisions when necessary, and it is in our best interest to put these plans in place while cognitive and physical functions are adequate and desires can be communicated clearly. If not, we risk the possibility of losing full involvement and control in decisions about the management of our estate. In the worst-case scenario, family members may have to go to court to obtain guardianship over an aging parent, which is a cumbersome and possibly contentious process.

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By |2019-01-30T17:30:35-04:00August 30th, 2018|8,000 Days Series|

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