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Age-proof your finances

Allan Roth McClatchy-Tribune

Baby boomers are about to confront two grave threats to their financial future: a decline in the ability to handle our money, and a stubborn denial that the former is really happening.

According to a study by Michael Finke and Sandra Huston of Texas Tech University and John Howe of the University of Missouri-Columbia, financial-acuity scores drop by about a percentage point every year after age 60. Troublingly, financial confidence increases. And the older we get, the bigger the gap between our perceived and actual skill levels.

Fortunately, here are some things you can do to deal with this decline:

Get moving. Many studies have found a link between physical exercise and improved cognitive processing.

“Exercise is free and good for both physical and mental health,” says Laura Carstensen, director of the Stanford Center on Longevity.

Buy a bigger safety net. Finke suggests a single-premium immediate annuity. You make an upfront payment and an insurance company sends you a fixed amount monthly for the rest of your life.

“This protects you from your own mistakes,” he says.

Get help. Though it can be difficult to discuss financial issues with family members or even close friends, they can be useful sounding boards. A good financial adviser can also help. Make sure the adviser is willing to tell you the total fees you are paying as well as the risks.

Consider a trust. Specifically, a revocable living trust with an incapacity clause. That gives control of your assets to a trustee in the event that you make a disastrous financial choice, such as suddenly deciding to give most of your net worth to an unfamiliar charity.

Keep it simple. The best financial solutions tend to be clear and simple. You can get one low-cost index fund from Vanguard, Fidelity or Charles Schwab that owns practically every stock in the world. These funds manage risk for you by buying stocks in down markets and selling after surges. Your fees should be under 0.25 percent annually (meaning you’d pay under $2.50 for each $1,000 invested).

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