A later life expert has warned that cognitive decline increases the need for a financial planner.
Philip Wise, chartered financial planner (CFP), has claimed that affluent individuals may be more susceptible to fraud and poor financial decisions as they age.
Wise, who is also the retirement income planning director at Surrey-based Informed Choice, said: “Longevity is one of the greatest achievements of the modern era. But, it’s a fact that, as we age, we often experience cognitive decline.
“The longer you live, the longer you have for your financial capacity to reduce; and affluent individuals tend to live longer than the average. And modern retirement assumes that we remain able to manage our own finances.
“Our pensions and other retirement resources are increasingly linked with shares, property and other assets, and then intertwined with complex tax regulations.
“The combination of overconfidence, reducing ability and increased complexity is, of course, dangerous, making us more susceptible to fraud as well as poor financial decisions. These mistakes can be disastrous for others when the family finances are managed by the husband or wife alone.”
The comments were made as part of his blog on Informed Choice’s website and comes after a Harvard University study demonstrated how numeracy declines with age. Interestingly, a study entitled ‘Old Age and the Decline in Financial Literacy’ by Michael Finke, John Howe and Sandra Huston also found that financial literacy declines by 1% per year from the age of 60.
However, Wise argued that there are some solutions to the problem of cognitive decline. This includes forming a relationship with trusted advisers.
He added: “Forming a good relationship with a financial planner will give you peace of mind and freedom to get on with your life.
By forming a relationship before it is necessary, you have the chance to ascertain if the advisers are right for you. It may make sense to have more than one trusted adviser – perhaps a lawyer as well as a financial planner. Non-professional advisers, such as family members or close friends, can also work alongside the professionals, as they may bring a clear understanding of your wishes.”
He added it is also important to agree a written financial plan for retirement, covering anticipated expenditure and income, as well as how resources should be used to achieve objectives.
Wise also added that it is important to establish powers of attorney (POAs).
He said: “These allow somebody else to manage your finance and health needs, but they are complex and require you to make some difficult choices. It is better to deal with these in the early part of your retirement. But the best advice is to do all of these things before you need to – don’t wait till you make a mistake. As you age you will need more support.”
Aamina Zafar is one of the UK’s leading financial journalists. She has previously worked as a senior reporter at FT’s Financial Adviser. The award-winning journalist writes regularly on the IFA community, mortgages, pensions and financial regulation.
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