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AARP Bulletin

Financially Speaking

Declutter Your Finances: Put Your Wisdom to Work for You

Consider consolidating accounts, choosing fewer investments

You’ve read, I’m sure, that mental quickness declines with age (I live in grumpy denial of that fact, even though I’ve had plenty of proof). But there’s a much happier story to tell. Older people perform as well as or better than younger people on tests of financial decision-making. Our math skills might slip, but our accumulated wisdom triumphs.

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I learned this from recent research, when I was thinking about financial planning as we age. Behavioral economist Elke Weber, of Columbia Business School in New York, identified two kinds of intelligence: “fluid intelligence,” which we use to manipulate information, and “crystallized intelligence,” arising from a lifetime of experience. The fluid kind springs leaks (hmmm, what was the name of the movie I saw yesterday?). But the crystallized kind — what we’ve always called wisdom — continues to deepen right into our 70s. We get better at making judgments, not worse.

Pare down to essentials

To make wisdom work for us, we have to arrange our finances carefully. Older minds are at their weakest when they’re choosing among many options or dealing with lots of moving parts. We can be misled by complex new investments whose costs and benefits are hard to balance. On the other hand, we’re terrific at assessing potential risk, as long as we’ve seen a similar situation before. Our strength lies in following paths that we know well.

Weber’s advice to us wisdom-based folk? Simplify. Pare your financial life down to essentials that you can keep track of and understand. Call it your Decluttering Project.

You might start by making a list of everything that makes up your current financial life: all the bank accounts, insurance policies, annuities, mutual funds, brokerage accounts, retirement accounts and so on. This should be easy if you’ve kept good files. If not, it’s time to start.

Then begin to consolidate. If you have two or more IRAs, roll them into one. You don’t want small, forgettable accounts hanging around in different places. If you’ve retired, you might have left a 401(k) savings account with your former employer. That’s fine, if costs are low, you like the investments and can draw on the money easily. If not, roll the 401(k) into your IRA. The staffs at your company and the IRA will do all the work for you.

Next page: Declutter your investments and choose fewer funds. »

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