You see it all too often: A caretaker is arrested for stealing funds from a senior under his or her care. What you don’t see as frequently—though I believe it’s a great deal more prevalent—is family financial fraud, primarily targeting seniors. It generally takes the form of identity theft and account takeovers. It often involves close family members, in-laws, and friends, and it can leave seniors virtually destitute.
How does your ability to make financial decisions change over time?
One research study suggests that, across the population, financial skill follows a hump-shaped pattern. In our youth, we start with low levels of financial knowledge. Over time, our ability grows through experience. However, as we age, our cognitive faculties begin to decline. Over time, the decline in ability outpaces the growth in experience, and as a result our net ability falls. Hence the idea of a hump-shaped curve: from a low in youth, to a peak in middle age, to a slope downward in our older years.
I’m a little tired of reading about how “buy and hold” is dead, and diversification doesn’t work, and how “target-date funds don’t work,” and that there was too much risk, especially for pre-retirees, in these balanced funds. These stories seem to continue regardless of what’s going on in the real world.
So I won’t discuss much. Instead, here’s some math.
There’s a savings vehicle in which all earnings, appreciation, and interest can be free of income tax forever. If the rules are met, there’s no RMD to be taken, no income tax due on withdrawals, and, while the account assets are included in your estate, withdrawals by your beneficiaries can also be tax-free. It hasn’t been available to everyone because of income limits, but it soon will be.
I’m speaking about the Roth IRA, of course. Until now, higher-income taxpayers ($100,000 modified adjusted gross income or higher) couldn’t convert their savings from a traditional IRA to a Roth. But that’s about to change.
There are only two reasons you appear on the cover of Time magazine—either you are receiving plaudits from the media, or you’re about to be tarred and feathered. 401(k)s are featured on the cover of Time this week, and it’s not because they’ve been named “plan of the year.”
