The financial decisions that older adults must make as they reach retirement age are increasingly more difficult today than at any other time. Not only does the older population have more wealth and resources to manage than in the past, but with the introduction of IRAs and 401(k)s in the 1970s and ’80s, older adults have had more savings and investment options than previous generations. Since about half of the population between the ages of 80 and 89 either has dementia or has been diagnosed with cognitive impairment without dementia, there are some concerns about whether older adults are able to manage their own financial resources.

According to new research by the Brookings Institution, financial decision-making skills peak around age 53. Other studies in behavioral economics have shed light on how individuals make financial decisions, and the results have far-reaching implications for financial product design and the role of the insurance producer when dealing with senior clients.

When working with senior clients, consider the following facts:

  • The prevalence of dementia explodes after age 60, doubling with every five years of age.
  • In a cross-section of prime borrowers, middle-aged adults were shown to borrow at lower interest rates and pay fewer fees in comparison with younger and older adults. Averaged across 10 credit markets, fee and interest payments are minimized around age 53.
  • The Brookings study analyzed 10 types of financial choices, such as credit card balance transfers and home equity financing. The study found that people in their late 40s and early 50s make the most optimal financial decisions in every situation, indicating that both the very young and the very old need financial advisors the most.
  • In an experiment where participants had to allocate $10,000 among four indexed funds and were paid whatever gains they made, older individuals chose high-fee funds, paying more attention to average annual returns since inception. Even after having the charges laid out, most participants continued to choose high-fee funds, despite sensing that they were making a mistake.

Given this information, it’s clear that you, as an insurance advisor, are in a unique position to be of assistance to seniors. If you work with seniors, be sure that you spend more time with them than with your younger and middle-aged clients, and explain everything to them as clearly as possible. To be sure the senior understands the concepts you’ve presented, have the client explain it back to you. If possible, include the client’s family in the financial decision-making process.

You also want to be sure to broach this subject lightly. You can’t simply say to an older client, “Because of your age, you may not have the cognitive skills to make this decision. I think we need to bring in your family and spend some extra time together.” That would be insulting. Instead, express concern over your client’s financial safety, and note that you’d like to spend as much time as needed together in order to find the right insurance solutions for their needs. Also be on the lookout for any suspect decisions, and have a plan for how to broach the subject if your client seems to be taking a big risk.

For more information on how to effectively work with senior clients, including which products are right for seniors at different life stages, check out our March national print edition. Don’t have a subscription? Get one here.

Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at 800-933-9449 ext. 225 or HTrese@AgentMedia.com.