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9 Essential Questions For Protecting Your Retirement, Answered

When’s the best time to plan for retirement?

It depends–there’s no one size fits all approach, and everyone’s individual situation differs. But it’s safe to say that on the whole, the sooner you can start saving, the better. You can decide how you’re going to spend it later.

Why is it important to make your retirement plans before you reach retirement age?

It takes years to grow the amount of money most people are going to need in retirement, and saving alone probably won’t be enough. You need time for compound interest to work its magic, so starting to save early is important. Even just a small amount can make a big difference. For example, saving a mere $50 a month can grow to thousands of dollars. If you stashed it under a mattress for 30 years, you would end up with $18,000. But if you invested it at only 5% percent, you would end up with almost $40,000! And at 8%, which is roughly the long-term average rate of return for the S&P 500, that amounts grows to $68,000.

It’s also helpful to think about how you want to live your life after you are no longer working full time–where do you want to be living, how important is it to you to own your residence, and how will your spend your time? Traveling? Or will you want to volunteer or even work part-time? These all factor into how much income you’ll need in retirement.

Can financial literacy and the ability to make sound decision decline with age?

Absolutely, and this is another reason why it’s a good idea to plan sooner than later. Financial literacy refers to an understanding of the knowledge and concepts needed to make sound financial decisions for yourself and your family. A 2011 study found that average financial literacy scores decline steadily by about 2% each year after age 60. (https://www.researchgate.net/publication/228251107_Old_Age_and_the_Decline_in_Financial_Literacy)

Is it important to work with a friend, relative, or financial advisor you trust if you must make important financial decisions after you reach retirement age?

Based on the research literature, yes. We would recommend a financial advisor who is a fiduciary–someone who is required to put the client’s best interest first, and has no vested interest in the outcomes of the decisions. Or an attorney. Unfortunately, 90% of elder abuse is committed by a senior’s own family members, most often adult children or other relatives.

When is the optimal time to plan for your retirement?

Financially, as soon as possible–the sooner you start saving, the smaller the percentage of income you’ll need to save. In terms of how you want to live your life in retirement, that can depend on several factors. Your values and preferences can change a great deal from your 20s to your 40s and 50s. Again, you can save sooner and decide how you’ll spend it later.

As people age, do they sometimes become overconfident of their ability to make sound financial decisions?

Yes, based on the same study cited previously. It showed that cognitive abilities decline after age 60–but confidence does not. So there’s a documented mismatch between actual and perceived ability. Also see this blog post by well-known economist Annamaria Lusardi.

Are elderly people likely to be targeted for financial scams?

Yes, because of that mismatch between real and perceived decision-making abilities. The National Council on Aging maintains a list of top 10 financial scams targeting the elderly at https://www.ncoa.org/economic-security/money-management/scams-security/top-10-scams-targeting-seniors/.

Do seniors need to be wary when they buy complex investment products, such as annuities?

Yes–if you don’t understand how it works, it’s probably not a good choice for you. And it’s important to know what your tolerance for risk is. While most annuities do not provide a comparable return on investment compared to stocks or bonds, in some cases they may be an option for someone who is most concerned with having a guaranteed income. Deferred annuities in particular can be a form of insurance against outliving your money–but make sure to check the fees and any restrictions.

What can seniors do to protect themselves from being deceived over financial issues?

First, stay active, physically and mentally–that’s also a good way to minimize potential health care costs as you age. Then, take the time to educate yourself about basic personal finance, if you haven’t already. There are tons of free resources available on the web. If one partner in a couple has always taken the primary role in managing joint finances, make sure both are in the loop in terms of information, and involved in making major decisions together. Have a record of all the assets and associated info, such as institutions and account numbers stored in a safe place, so that if something happens to one partner, the other has access to all the necessary financial information. And have a fiduciary financial advisor or attorney as backup. The National Council on Aging has a great list of tips to protect yourself from financial scams that target seniors: https://www.ncoa.org/economic-security/money-management/scams-security/protection-from-scams/.

About The Author: Martha Menard, PhD is a researcher for Questis, Inc., a digital financial wellness solution for the enterprise. Questis’ digital financial wellness platform is designed to enhance existing financial wellness offerings or power entirely new ones. We provide a clear digital roadmap to help clients and their employees make tangible progress toward financial well-being. Visit us at https://www.questis.co/.

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