Older investors like US Presidents need to know when to throw in the towel

You might call it ‘the Biden bind’. As we all know, US President Joe Biden left it too late to throw in the towel.

In Australia, many older Australian investors may face a similar dilemm of how long can they remain capable investors.

In reality, cognitive decline is all too real as Australians live longer.

What’s more, the risk older Australians will blow decades of carefully cultivated wealth by not making proper handover plans is rising.

Centaur Financial Services adviser Hugh Robertson says: “The Biden story really puts the issue into perspective.”

“We are having many more conversations with clients as they get older about how they may deal with the future. If you believe the rule that financial literacy declines 2 per cent a year after 60, then by the time you get to 85 it is problematic.”

Gemma Dale, head of SMSF and investor behaviour at nabtrade suggests: “It is a terribly difficult dilemma and one of the outstanding problems is timing. You don’t want to leave it too late.”

The dilemmas associated with powers of attorney capture many of the wider questions raised in trying to protect assets in the event of future incapacity.

The ability to give someone else the legal power over your money – if you become unable to manage your money yourself – is the ideal arrangement when it works well.

But, the timing of such an arrangement is difficult to do correctly. If it is done too early, the investor may be upset by how their money is managed. If it is too late, the option of accessing the powers of attorney process can be removed.

The issue of knowing when to pack it in can be at its most acute in the Self Managed Super Fund sector, where more than one million Australians have their life savings.

A rugged independence may have been an advantage to the active investor, but in advanced age it can heighten risk.

Robertson says he tries to guide older clients through this difficult phase by getting clients to see their money in ‘buckets’ with different ambitions for each allocation. One of these buckets can be devoted to investing strictly for the long term.

As Australian investors get older they should be aware of the ‘Biden bind’ to avoid the mishandling of their funds. Picture: Mandel Ngan/AFP

Other advisers suggest a feasible way to test the handing over of money management is to allocate a set amount – perhaps 20 per cent of wealth – to an adviser on a provisional basis for a set period of time.

This allows both the adviser and the investor to see how the exercise turns out. If the arrangement is successful then the adviser can steadily take over the entire portfolio.

Similarly, many older investors may reconsider having their money managed by a larger institution.

Usefully, SMSF money can be transferred to large institutions such as industry super funds if the trustees of the SMSF agree it has become too difficult to keep the fund going.

Mr Robertson says it is not just obvious issues such as cognitive decline which appear as investors get older, there are more subtle issues, such as changes to risk tolerance.

He explains: “Of course investors can ‘roll over’ their SMSF to a big super fund and let someone else run the money. Alternatively, they might want to open the SMSF to the next generation”.

SMSFs can now have a maximum of six members, allowing older couples to steer their super savings to the next generation inside the same investment vehicle.

Talking to advisers about the ‘Biden bind’ several key points seem to dominate the conversations they have with investors worried about the day they may have to throw in the towel as managers of their money.

1. Move early
As Ms Dale explains, cognitive decline may often be a slow process where the trouble does not become clear to the investor or those around them until it is too late.

2. Create a professional team
Sooner or later financial advises and lawyers will need to be involved in the future care of your wealth and investment. Decide who those people will be now — or the team will be picked by someone else.

3. Have a key document
As lawyer Melisa Sloan suggests, every family should have one key document which captures the absolute essential financial information of the family. For those worried about cognitive decline, a key document with property titles, insurance arrangements, death nominations and even computer passwords will be very useful for others in your family.

It’s hardly rocket science — Australians are living longer which means the number of older investors who leave it too late to prepare their wealth for a handover is going to accelerate.

The numbers are stark. The Alzheimer’s Disease International group says the number of people living with dementia is expected to double every 20 years.

Of course every individual has a different story, and age is not the sole deciding factor for investment ability — a lot will depend on circumstance and personal health.

Joe Biden is 81 and he has now handed over the Democratic nomination to Kamala Harris. At the same time, the world’s greatest investor is Warren Buffett, and appears smart as a tack at 93.

Nonetheless, as 43 year-old financial adviser Mr Robertson suggests: “I don’t know if I’d want to manage my own money when I am 80.”