TITLE

The Impact of Aging on Retirement Income Decision Making

AUTHOR(S)
Kasten, Gregory W.; Kasten, Michael W.
PUB. DATE
June 2011
SOURCE
Journal of Financial Planning;Jun2011, Vol. 24 Issue 6, p60
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
The otherwise healthy senior client may experience substantial declines in cognitive function over time, even without clinical dementia. After peaking in middle age, the ability to make effective financial decisions declines. This presents the ongoing challenge to help older clients understand ever more complex retirement income planning. Pre-retirees and retirees tend to have hyper loss aversion. The brain sets aside rationality when it gets the benefit of supposedly expert opinion. The brain tends to give up responsibility, and instead transfers decisional authority to a perceived "expert" with little independent thought. Experts have recommended evaluation of two criteria for determining prudent retirement income strategies: first. clients' emotional capacity to deal with risk and uncertainty, and second, their financial capacity to deal with variations in portfolio value, longevity, and income delivery. We believe a third criterion should be added-clients' cognitive ability to grasp and integrate the implications of the retirement income solution. A new retirement income language and presentation skill set are needed to help retirees make better-informed decisions. Because the senior population is so vulnerable, and the impacts of financial decisions have such great consequence on their lives, we recommend that all retirement income decision planning and management be delivered by advisers serving in a true fiduciary capacity to their clients.
ACCESSION #
61354048

 

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