Wait, hold on…we didn’t discuss that.
Recently, as a firm, we have experienced a number of situations where clients have made decisions about their financial situation abruptly and without advanced warning. These are clients with whom we have had longstanding relationships and have done extensive financial and investment planning for over ten, fifteen, and in one instance twenty-five years. Needless-to-say, we know pretty much everything there is to know about them. We have a thorough understanding of their financial situation, tax return, investment portfolio, insurance coverages, estate plan, family dynamics, and much more. Knowing all that we do gives us an advantage in tailoring our financial advice to the person/family in a very thoughtful and cohesive way. As a fiduciary, we must act in the best interests of a client and provide services that add value to their life.
So, we have asked ourselves, why have some clients not consulted us before they make significant financial and life decisions? It’s not that we are taking this personally; instead it’s that we have great institutional knowledge about the client and the integration of their money with their life that could be put to good use BEFORE big decisions are made.
Cognitive Decline or Shifting Values? A possible explanation…
How many times have we all seen situations where the elderly parent has resisted downsizing or giving up their driver’s license? This happens all the time. Then one day it’s like a switch gets flipped and they are ready to do these things, TODAY! Yes, that is how things seem to work with people as they age. They resist, then all of a sudden they are moving! Frankly, we think this is at the root of why our advice might be overlooked BEFORE they make decisions. But, why is this happening? One explanation comes from Ifat Levy, assistant professor of comparative medicine and neurobiology at Yale University. She speculates that it may have something to do with the older participants’ life experience. Levy says, “I think maybe they think that they have less to lose as they are approaching old age or the end of life. That could have less to do with cognitive changes and more to do with the shifting value they place on risk and/or benefits as they age.” The important thing is to recognize the dynamics at work and attempt to head off the rush!
Retirement Community Here We Come!
As we noted above, many times this decision is made quickly. We have seen in multiple instances where the announcement is made for a desire to enter a retirement community, but, the facts about entry requirements, options or levels of care are sparse or even unknown. Sometimes we have seen even a complete misinterpretation of what was “learned.” It can be very overwhelming for people, especially as they age, and are faced with a big move. Let’s face it, the devil is in the details, and you want to be sure there are no surprises once you are settled and yet another life transition is occurring only to find out that you can’t do what you thought you could. Some questions to ask – Does the community provide life care services no matter what level of care is needed? Or, are you merely renting space in a condo or cottage? How much is it going to cost? Can you really afford to move? Or, would it be more cost effective to stay in your home? What about the support system and routines that you cherish? What if one spouse requires more care than another? These are all the sorts of questions that are best answered BEFORE you sign the contract! Another set of eyes and ears can help tremendously as well.
Let’s face it, there are always those siblings who are listened to more than others and seem to have more influence over their parents than others. And, very often the influencer doesn’t hold as much knowledge of the situation at hand or financial matters in general as another sibling. But still, they have influence! This is where an impartial advisor can be extraordinarily helpful and work with all sides to look at the pros and cons of any number of scenarios. We are all for listening and keeping the lines of communication open, but, just because Johnny thinks you should do something, doesn’t necessarily mean that it’s the right thing to do or in your best interest.
Here’s Something Better
We’ve written about this time and time again, but people continue to get victimized by unscrupulous salespeople. Most times these people are waiting for you to walk in the front door of the bank. They are the ones in the office that looks to be an employee of the bank, but, are really a representative of a division of the bank that has been created to sell products (annuities!) to bank customers. The bank and the sales rep share in the commissions. It’s a win-win, right? No, not for you! Because the only time they get paid is when you buy something that generates a commission. Why do you think at the end of an annuity surrender period they call you into that office only to say that they think you should switch to something better? The answer is because it generates a new commission for the rep and revenue to the bank. We saw this happen recently with an eighty-five-year-old woman! She swapped a $400,000 annuity for another which probably generated a $20,000 commission and forced herself into another seven-year surrender period. She gave up a contract that even had some living and death benefit riders that just couldn’t be replicated today compared to when the contract was issued eight years ago. Is there a possibility that an eighty-five-year-old might need some of that money in the next seven years? Damn right! Be careful who you think you can trust. And, think about taking someone with you who can ask meaningful questions before you make the change.
Afraid to Spend
As people age many like to hang on to their money. They become unsettled about the future. They worry that they could run out of money. They are terrified of the expense associated with nursing homes. They want to provide a little something to their children when they are gone. However, sometimes these fears are unfounded. Even when we have done the planning that says they have a high probability of not exhausting their assets. Or they have shifted the risk to a retirement community or long-term care contract. Or the estate plan is in place. They still don’t want to part with their money to live life to the fullest today. Scenario planning can really help to ease the fears. Sometimes it takes practice to spend.
I can’t sell that stock, I’ve owned it for 50 years!
Well, what do you think the people who owned a concentrated position of General Electric are saying now? The GE story is not very common, but, some companies do drop out of favor as economic conditions, corporate positioning, leadership, and demographics change.
We see no problem owning individual stocks, but, when one position makes up more than 40% of a portfolio, some serious thought needs to be given to whether to divest of some of the position. In October, GE cut its dividend to one cent a share. In mid-2016, the dividend was twenty-three cents a share. That’s a 95% drop in income. The share price went from $31/share to a low of $7 at the end of last year! If you were relying on GE for income and growth, you are toast!
If you should decide to sell some of a highly concentrated position, just be careful to watch how any capital gain flows through to your tax return. Although the maximum capital gains tax rate is currently only twenty percent, most pay fifteen percent, I’d be willing to bet that any long time holders of GE would be happy to pay that capital gain now if they had to do it all over again.
A Random Email Should not be Taken Seriously
You would be surprised how many calls we get about online snafus. Fear tactics are used very effectively by cyber thieves to scare you into thinking that you need to download a particular program, provide a bank account or routing number, or even provide a credit card number for a solution to a “problem” you don’t even have. It’s a very smooth process that you can easily get caught up in only to panic after it’s all over. Be careful and don’t be afraid to hit delete. If it’s legitimate or important enough, the outfit will try again or get in touch with you another way. The IRS does not email people, they send letters.
Do yourself a favor and sign up for Last Pass today to manage passwords. It will change your life online and add a level of security against those who are trying to defraud you.
Aging can be a wonderful experience despite the challenges that it presents. We hope these scenarios and ideas help you or those you love make smooth, thoughtful transitions later in life.