Baby boomers saving for retirement are often confronted with a confusing array of financial choices to secure their future. That security can depend in part on making smart choices.
If you haven't saved enough for your particular point in life you may feel added pressure to score higher returns. That's when it's easy to make mistakes, choosing a risky investment or, worse still, falling for a scam.
Even under the best of circumstances aging Boomers are likely to make “stupid” mistakes with their nest eggs, according to Lewis Mandell, professor emeritus of finance and managerial economics in the University at Buffalo School of Management.
When you “get stupid”
Mandell's latest book, “What to Do When I Get Stupid: A Radically Safe Approach to a Difficult Financial Era,” serves as a warning to the Baby Boom generation. It lists many of the mistakes this aging generation makes and offers the reasons why.
For the average person, says Mandell, financial reasoning usually peaks around age 53 and then declines sharply, especially after age 70. At that age people are more vulnerable to pitches for risky investment schemes and serious lapses of financial judgment.
To make things even more dicey for seniors, as they age they become more confident in their own financial judgment, even though the reverse is true. It's bad enough that markets have been so volatile over the last decade, seniors must also guard against their own poor decisions, he says.
Mandell argues for, by his own admission, a radically conservative approach when it comes to seniors investing their assets. One of the best places to put it, he says, is in a home that is owned free and clear, unincumbered by a mortgage.
“A fully paid, age-in-place home may be the single best investment we can make,” Mandell said. “By staying at home, we can keep ourselves or our loved ones out of expensive nursing homes, which can quickly deplete our assets.”
Mandell also stresses the importance of securing a lifelong income, well before financial reasoning declines. Investments in dividend-producing blue chip stocks and bond funds are not conservative enough for Mandell.
Champion of annuities
To make investments idiot-proof, he recommends a single-premium immediate fixed annuity, even though annuities have low returns and high fees. But the money gets locked up while producing a modest income stream and won't get lost investing in the latest pyramid scheme. A little income, he argues, is better than no income.
In addition, the book re-evaluates common practices, such as retaining a financial advisor or moving to a continuing care retirement community, and casts doubt on the effectiveness of long-term care insurance. And for Boomers, the time to consider these issues is now.
“It is therefore wise of us to take future financial decision-making out of our own hands while we still have the mental capacity to do so,” Mandell writes.
A number of seniors and their financial advisors might question Mandell's emphatic and somewhat rigid advice to give in to inevitable financial incompetence. However, if his book serves only as a warning to approach late-in-life financial management with extreme care it may serve as a useful public service.
A big part of the problem, of course, are the high-pressure sales pitches that are often directed at seniors. The damage these schemes and scams have done to older consumers has been well documented.
For example, a 2009 survey by AARP found that 10% of Americans over age 55 had accepted an invitation to attend a free lunch or dinner at which there would be an investment seminar or presentation. These “free lunches” are notorious for pushing risky investments.
Seniors are often victims of the so-called “affinity scam,” in which an individual in the victim's church or civic group offers a “can't miss” investment opportunity. Because the victim knows and trusts the offerer, they throw caution to the wind.
A recent study by Investor Protection Trust found 20% of Americans 65 or older had “been taken advantage of” in the purchase of an investment, either through high fees or outright fraud.
Baby boomers saving for retirement are often confronted with a confusion array of financial choices to secure their future. That security can depend in par...