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How to manage the financial impact of ageing

January 2016

By NAB Asset Management


As lifespans increase, it’s important to understand how ageing can hinder our ability to make basic financial decisions. It’s a sad reality that we don’t want to think about, but as we age, our capacity to solve new tasks will most likely start to slow. This is known as cognitive decline.

Ageing is impacting Australians and their personal wealth

In Australia, the over 55s control more than $1 trillion in financial assets, and this excludes their home1. Unfortunately many older Australians, who control so much of the nation’s wealth, will suffer from some form of dementia. Almost one in ten people over 65 and three in ten people over 85 have dementia today.2

Prior to modern medicine prolonging our lives, many people wouldn’t have lived long enough for cognitive decline to set in. So today, while many of us will be living longer, we’ll also be faced with our cognitive intelligence declining.

What does this mean? Understanding that ageing can affect decision making gives us an opportunity to do something now. Planning ahead and making decisions for the future is a way to ensure your wealth is managed according to your wishes.

Ageing can make financial decisions harder

A Harvard University study asked: “How would five individuals equally split $2 million in prize money?”. While nearly 80% of 50 year olds got the correct answer of $400,000, only 70% of 65 year olds and 40% of 80 year olds managed to get the answer right.3

Research tells us the optimum age to make financial decisions is in our early fifties.4 This is generally the point where cognitive decline hasn’t yet set in and life experience is high.

The young and old will make financial mistakes for different reasons. While the young may have the cognitive ability to work through financial issues, their general lack of life experience may cause them to make mistakes. Older individuals have the opposite problem. Their cognitive intelligence starts to deteriorate gradually, but they are compensated with their life experiences to help make decisions.

As investors, how can we manage this challenge?

Knowing that age is a key determinant for good financial decision making, it’s important we plan and use this knowledge to manage this challenge.

Here are two things you could consider doing now:

1. Have an estate plan

Estate planning isn’t simply about having a Will – it’s about ensuring your assets are transferred according to your wishes in the most effective way. And, it ensures decisions about your health and finances are made in accordance with your wishes, even if you no longer have the mental capacity to make the decisions yourself.

By putting an estate plan into place now, you’re tackling the harder issues when your ability to make decisions is stronger.

If you don’t have an estate plan, a financial adviser can help.

2. Adopt a simple investment framework and stick with your plan

One idea is to keep your overarching investment framework simple. The products that you then use within this framework could be aligned with your personal circumstances at the time.

For example:

  • if you find making financial decisions hard and tend to put them off, consider an annuity strategy. It can protect part of your wealth even if investment markets don’t move in your favour
  • if you’re worried about complicated investments or cost, consider portfolios that are diversified and professionally managed. The spectrum of choices is broad – from low cost index portfolios, to those which target a return above inflation. Many investment managers offer a range of options within their diversified portfolios. This means you can easily change your investment mix as your financial needs change, or
  • if you’re a confident investor and like more control, consider using a separately managed account, which gives you direct share ownership while partnering with professional investment managers.

Appreciating the impact ageing could have on your financial decision making ability is important. Taking steps to plan for this now is a good way of ensuring your wealth will be positioned according to your best interests and wishes.
And consider speaking with a financial adviser early on. They can support you through the above process and help you to achieve peace of mind.


1 Australian Bureau of Statistics, Household Wealth and Wealth Distribution, Australia, 2011–12.

2 Australian Institute of Health and Welfare (2012) Dementia in Australia.

3 HRS; Agarwal, Driscoll, Gabaix, Laibson (2009).

4 The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation. Sumit Agarwal, John C. Driscoll, Xavier Gabaix, and David Laibson, October 19, 2009.

Important information

This information is provided by MLC Investment Limited (ABN 30 002 641 661 AFSL 230705) and MLC Limited (ABN 90 000 000 402 AFSL 230694) (together “MLC” or “We”), at 105–153 Miller Street, North Sydney, NSW 2060, members of the National Australia Bank group of companies (“NAB Group”). NAB Asset Management is the asset management business of the NAB Group and provides investment advisory services to MLC. MLC may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers and amounts paid for these services are always negotiated on an arm’s length basis. An investment with MLC does not represent a deposit or liability of the NAB Group.

This information may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. We believe that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of this information (which may change without notice). We rely on third parties to provide certain information and are not responsible for its accuracy, nor are we liable for any loss arising from it.