Navigating retirement decision making with an ageing fleet. Joanne Earl Associate Professor, Flinders Business School

Transcription

1 Navigating retirement decision making with an ageing fleet Joanne Earl Associate Professor, Flinders Business School

2 What I d like to achieve today Introduce myself and my programs of research Discuss some of the facts about dementia Recognising signs of dementia Discuss how big a problem it is in the context of SMSFs Case Study Examples when to be alarmed What to do about it

3 Our latest research projects By training a Psychologist and researcher. At UNSW for 9 years and now at Flinders University RESEARCH AREA 1: Financial Literacy and Cognitive Decline Research Partners Paul Gerrans UWA and Anthony Asher UNSW See article in the Australian Journal of Management ARC Discovery Grant Application 2016 for 2017 RESEARCH AREA 2: Time Perspective Based Training to Improve Retirement Planning Research Partner Hazel Bateman UNSW Trialing an on-line TP based training courses and feedback to improve retirement planning and resource accumulation ARC Discovery Grant 2016

4 What is dementia? Major and mild neurocognitive disorders (NCD): Alzheimer disease (50 75%) most common among older people, especially women. Indications are short-term memory loss, apathy and depression. Vascular dementia (20 30 %) usually caused by cerebrovascular conditions such as strokes. Indicators include short term memory loss and mood fluctuations. Frontotemporal dementia (5-10%) more common amongst men and associated with early onset. Marked by mood and personality changes, language problems and disinhibition. Dementia with Lewy bodies (5%). Characterised by a more rapid onset than Alzheimer's. Presents similar to Parkinson s disease, as well as fluctuations in cognitive ability and visual hallucinations.

5 Signs of dementia The early signs of dementia are subtle and may not be immediately obvious. Early signs of dementia include: 1 1. Memory loss that disrupts daily life 2. Challenges in planning or solving problems 3. Difficulty completing familiar tasks 4. Confusion with time and place 5. Trouble understanding visual images and spatial relationships 6. New problems with words in speaking or writing 7. Misplacing things and losing the ability to retrace steps 8. Decreased or poor judgement 9. Withdrawal from work or social activities 10. Changes in mood or personality Alzheimer s Association. 10 warning signs of Alzheimer s disease.

6 Stages of Dementia Mild or Early Minimal assistance needed. Moderate memory loss for recent events, disorientation in time, moderate difficulties with problem solving Moderate or Middle Increasing level of assistance. Severe memory loss, severe impairment of judgement and problem solving Severe or Late - Almost total dependence. Very severe memory loss, limited language, unable to make judgements or solve problems, not recognising others

7 Economic & Social Implications MACRO Implications Number of people aged 65 + will double by and there will be 2.7 people working for every person that is not (Intergenerational Report, 2015) Population increases. 85yrs + from 2% to 5% and 65yrs+ from 15% to 22.6% Longer does not equal healthier % of people with dementia not likely to reduce without a cure Cases of dementia 308,000 in 2011 increasing to 890,000 in 2055 OECD continues to promote self-sufficiency as a solution to governments increased economic responsibility (OECD, 2013)

8 Relevance to SMSF Management Decumulation coinciding with an increasing proportion of the population at risk Financial abuse when deterioration occurs Diagnosis delay - a lack of early detection and assessment

9 Prevalence 65 years 85 years The decade to 2020 will see the largest growth in people with dementia (39%) Source:

10 What happens to cognition as we age? Financial literacy? Financial judgment?

11 SMSF Obligations Trustees responsibilities include: Preparing, documenting and implementing an investment strategy Ensuring contributions are investment consistent with the strategy and laws Minimum legislated withdrawals during pension phase Submitting annual returns Organising an annual audit

12 The added complexity of paying pensions Calculating and making minimum pension payments Managing assets on a segregated or unsegregated basis Calculating exempt current pension income (ECPI) Correctly claiming expenses

13 Matt Bambrick, Assistant Commissioner, Self-Managed Superannuation Funds Segment, ATO, Mar 2015 How big a problem is it? SMSFs hold 30% of the $1.9 trillion of total super assets Younger people entering the market. 10% increase in the under 45 market in a 4 year period ( vs ) Sector continues to grow (up 27% since 2013) Now shifting to benefits phase

14 So how big a problem is it? Matt Bambrick, Assistant Commissioner, Self-Managed Superannuation Funds Segment, ATO, Mar 2015 These issues are a time bomb waiting to go off if not addressed now While many trustees remain perfectly capable of effectively managing their financial affairs well past retirement age, there is a risk that some with diminished capacity to effectively manage their fund, may nevertheless continue to do so. Most don t have a plan for what to do if they get to this point

15 So how big a problem is it? Siegel (2015) We have understandably stumbled Ambachtsheer (2015) A change in focus from DB to DC based funds has left individuals bearing the full burden of longevity risk Fridson (2015) requiring them to save adequately but also invest intelligently

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17 And it often goes unnoticed until it s too late Often not diagnosed until well progressed NSW study indicates average time of 23 months between first consultation and first symptoms and 37 months to diagnosis 6 country European survey about 11 months to first health consultation and 20 months to diagnosis

18 Why intervention is delayed Reasons why intervention delayed: Normal ageing Stigma and possible consequences of diagnosis Hard to distinguish from mild cognitive impairment Unsure about how or where to seek diagnosis Knowledge of health care providers Insistence that symptoms be present for 6 months or more to diagnose

19 Challenges with traditional measurement Over a 5 week period in % of people diagnosed using the Mini-Mental Status Examination Other measures rely on observation or self-report Typical items include remembering lists of words, performing physical tasks, drawing a clock But high levels of education, literacy and pre-morbidity cognitive functioning may mask deficits so that people are not diagnosed

20 Research Questions (1) Do SMSF members perform better on financial literacy and financial judgement measures, and are they more confident of their abilities? (2) Is there evidence of gender bias in financial literacy and judgement (i.e. M > F) and does it differ in the SMSF population, given the increased exposure to assets under management negate differences? (3) Is it the case that financial literacy resembles crystallised intelligence and financial judgement resembles fluid intelligence?

21 Research Questions (4) Do we see age related differences in financial judgement and fluid intelligence but not financial literacy and crystallised intelligence? (5) Are those people with lower levels of cognitive functioning also reporting lower levels of mastery?

22 Measures Financial Literacy Basic Advanced Applied Self-Assessed Financial Outcomes Judgements Cognitive Ability Wonderlic (IQ) PAL - CANTAB Individual Attributes Demographics Financial Assets Psychosocial Factors Mastery Risk Tolerance

23 Tests build through 1, 3, 6, 8 shapes Error scores for each number and total Don t necessarily see all tests PAL CANTAB

24 Participants Mainly retirees or semi-retired (SMSF 86%; non-smsfs 89%) Similar in age (SMSFs 67 years vs non-smsfs 68yrs) More males in SMSFs (SMSFs 68%; non-smsfs 58%) Highly educated (Bachelor s degree and above: SMSF 56%; Non SMSF 31%)

25 SMSF vs Non-SMSF Participants RESEARCH QUESTION 1 In general SMSFs better SMSF trustees better than non-smsf on financial literacy measures (basic, advanced, applied) SMSF trustees more confidence in their financial abilities SMSF trustees more risk tolerant Some evidence of self-selection by members so that only the more competent elect to self-manage funds

26 Gender Differences RESEARCH QUESTION 2 Less differences between males and females in the SMSF group than the Non-SMSF Group Within the SMSF group Males > Females on: Applied financial literacy Self assessed ability to make decisions Risk tolerance But within the non-smsf group M > F on: Basic Financial Literacy Advanced Financial literacy Applied Financial Literacy and confidence in skills Self assessed ability to make decisions Risk tolerance

27 Financial Literacy and Cognition RESEARCH QUESTION 3 Match between intelligence and literacy? Some preliminary evidence. IQ related to basic, advanced and applied financial literacy CANTAB errors (fluid) predicted Advanced Financial Literacy after controlling for IQ People making errors on the CANTAB tablet based measures more likely to do nothing in investment scenarios RESEARCH QUESTION 4 Age related differences? On the CANTAB but not financial measures. Those who are younger and with higher IQ scores make less errors on the CANTAB tablet based measures No differences on financial measures across age RESEARCH QUESTION 5 Mastery and PAL errors related? Yes Increased errors on the PAL related to lower levels of mastery

28 Case Study 1 Lydia has been your client for the last 7 years. Her husband was your main point of contact but late last year he died leaving Lydia to manage their SMSF. She visits your office looking flustered and confused. She missed her appointment with you last week and today she forgets to bring some important documents with her. The other documents she presents you with are a jumbled mess. Lydia says she can t remember what she was supposed to do. After staring into space for 10 minutes, Lydia suggests that you reschedule when she s feeling up to it. Is Lydia suffering from dementia?

29 This is Lydia Would it also help to know that Lydia is still grieving and suffering from depression. It s also Xmas time and things have been pretty hectic around home lately. There are visitors flying in next week, beds to organize and food to prepare. Lydia has a lot of things to do before her visitor s arrive.

30 But would your answer be different if this was Lydia? Forgetting things from time to time is normal particularly when there are a lot of distractions. Anxiety, depression and delirium can all contribute to confusion.

31 Case Study 2 You last saw Michael 12 months ago. He has been a client for the last 8 years. He missed the last two appointments with you and is now complaining about getting lost on his way to your office. He presents you with some paperwork with most of the information blank, although previously he had no problem completing it. When you asked him why he complains that he can t find his glasses. During conversations he struggles to find the right words and then uses other words inappropriately.

32 Case Study 2 In this case study there are more signs that Michael is at risk not finding his glasses might be the reason but it might also be an excuse. The best course of action for Michael would be to visit his Doctor so he can be better assessed remember assess don t guess.

33 So what can you do? Prepare clients early-on especially on entry to discuss the possibility and best course of action Promote retirement planning across multiple domains not just financial Finances important but so is Health, Social, Emotional, Motivational and Cognitive well-being Planning ahead will help to avoid more complicated scenarios (applying to the Guardianship Tribunal for a financial management order)

34 So what can you do? Ensuring genuine involvement of all trustees in the management of SMSF funds. If your client intends to appoint an attorney then also encourage their involvement early on. Agreeing in advance about decision points and exit decisions Having a will, appointing an enduring guardian and power of attorney. See THE FUTURE? On-going monitoring of cognitive functioning (an OPSM for brains instead of eyes?)

35 How do you get help if you think you or someone close to you has dementia? Assess don t second guess Research shows that when people think they have dementia (and really don t) this can influence their withdrawal from activities that otherwise keep them cognitively well. Seeing a GP is generally the first step for preliminary testing. A GP may referon for further testing. Get an assessment by a neuropsychologist. You can find one by visiting here: Attend specialised development events by groups like Capacity Australia and check out the mini-legal kits for each State

36 Practical Implications Risks mitigated by younger SMSF trustees take up, replaced by increased population growth in 85 years+ Evidence of self selection amongst SMSFs and gender differences and this could be an exposure effect A reticence for action could reflect a perceived or actual decline An opportunity to discuss lifecycle advice, planning, products and services

37 Research Implications Applied Financial Literacy measure captures different information to the basic and advanced literacy measures Financial literacy is not the only or necessarily ideal yardstick for cognition Applying financial literacy, making decisions and evaluating information represent higher order functioning CANTAB an innovative way of measuring ability Non-verbal Less susceptible to learning and practise effects Identifies age related differences in processing

38 Thank you

39 Disclaimer SMSF Association 2016 This presentation is for general information only. The material and opinions in this presentation are those of the author and not those of the SMSF Association. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. This presentation was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author.