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In Retirement, When Do You Turn Over Your Accounts?

Timothy McCarthy

There are many life decisions every one of us must eventually face. The most difficult may be, "When should I no longer be responsible for managing my money?" It is such an emotional topic and I realize that whatever I say, there will be some people who disagree. Given what I have lived through with my own loved ones, it is difficult for me to sit down and express what I have learned. But the intensity of the topic is exactly why it should be discussed more openly.

I have come up with a series of guidelines below, not as a medical professional or gerontologist or estate lawyer, but rather as a person who, during my career in investments, has often seen what happens when people make money mistakes in their later years.

1. How do I prepare for the day I can no longer manage my finances? This is an excellent question and to be fair to all of your loved ones and to yourself, you do want to address all the details in advance.

First off, while you are still young (in your 60s), you want to sit down with your financial advisor and understand whether you are realistically going to have enough funds, in case both you and your spouse live deep into your 90s. The hardest part is assessing your health care situation, especially if one of you might need costly assisted care. The reality is that many people today will not be able to completely cover all their costs until the end. So it is better to face the reality now and see what you and the rest of the family can do to save as much as possible.

If you have the good fortune to have saved up more than enough money to cover you and your spouse's retirement and medical circumstances, the next consideration is to sit down with your estate attorney again to make sure you have finalized your wills. It is best to make all these important decisions well in advance, considering various possibilities, such as you and your spouse pass away early or you both live for many decades.

It is better for you to make the tough decisions about what assets are to go where and to whom. I have seen many families get into bitter and permanent disputes simply because the parents did not want to make these decisions in advance. In my opinion, the way to think about making decisions about the remaining assets is that it will be better for your children to be mad at you after you have passed rather than be angry with each other.

It is also important for you and your spouse to spend time with a trusted physician to learn about the various permissions and powers of attorney. These forms include the "Do not resuscitate," and even the "Do not send to hospital," release forms that you may want to decide on in advance, rather than leave to the sole discretion of a medical professional.

After finalizing your plans, it is good to sit down with the persons you plan on turning over your financial responsibility to. I understand, in some cases, you might not feel comfortable with letting them know ahead of time. But I would recommend that you have these conversations while you are still able to. At least it allows you to see how they will react.

Lastly, make sure to have some advisors and people you trust who are considerably younger than you. It means there is a better chance they will still be active in case you live into your 90s.

2. How do I know it is the right time to give up control? At what age do I say "Okay, it's time"? This is such a personal decision, but let me just say that it is better to plan to turn over your control when you are still able to understand what you are doing. Doing it too early in the hand over is so much better than being too late, for everyone concerned. As to age, I've often found that 72 tended to be the magic age when people finally recognized they are entering their senior years. Of course, people often still have a lot of life left in them at that age, but at least they have already put the plan in place for their future hand over and have communicated that to the involved parties, even if it is 10 or 15 years away.

As to signals to watch out for, you do want to listen to results of the cognitive tests. You may be able to manage your money well into your 80s, or may not be able to do a proper job much earlier. It just depends on each person's individual "life clock." The important thing is to take the tests and the results seriously. I appreciated my mother's decision, made well in advance, that once she turned 82, she wouldn't drive. And she stuck to it. She just felt that it was too much stress. The same kind of process can work with your financial decisions.

3. Who should I trust? Of all the questions, this may be the most difficult one to answer. I do realize that many children do an excellent job of managing their parents' finances and estate. But I have seen so many cases of members of a family mishandling their senior's money for their own personal benefit, I must recommend that it is wise to also bring in an outside advisor or professional, like an estate attorney to be named as a co-executor. I know it costs money but at least it increases the chances of the funds being allocated in a fair manner for both you and your estate. It also means that more than one person is responsible. You do want to make it easy to administer, but having a second person involved does decrease the chances of unfair behavior.

4. What if I don't like how they are handling my money? It is difficult to generalize but it can be a natural reaction of many people, especially if they were once top financial experts themselves. But in this case, you still have to listen to what the experts are saying. Of course, some may be looking out for their own best interests, but if you hear from multiple capable people, you should listen to them.

I know these are among the hardest decisions that people must make in their lives. But it is best to confront these questions and discuss with the involved parties years before it is necessary, if you want to have an overall positive outcome.

Tim McCarthy is the author of "The Safe Investor," released in February 2014, and former chairman and CEO of Nikko Asset Management Co. He has also worked at other large financial institutions such as Fidelity Investments and Merrill Lynch.

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