How to Grow an Elderly Person's Wealth
Principle #1: Success during retirement will be graded by the financial mistakes you avoid, rather than the financial successes you achieve.
A number of years ago my friend's father retired after a long tenure with a major phone company. Knowing that I was in a position to help his father navigate through a successful retirement, he proceeded to tell me that his father had moved their entire portfolio into bonds because, in his father's words, "They were safe." The truth is, my friend's father was scared of other investments and the markets, but for all the wrong reasons. Your elderly parent's biggest fear during retirement is not that there will be fluctuations in their investments—and all investments fluctuate in value, even bonds—but the chance that your senior mom or dad might actually live to see a zero dollar account balance in his or her portfolio. Planning your aging parent's retirement involves making sure they don't run out of money before they run out of life.
Indeed, understanding that short-term, conservative thinking is the enemy to long-term retirement success is crucial. This is a key point to not only preserving your aging mom or dad's wealth, but also for growing it. Contrary to common belief, it is exceedingly easier to grow your elderly parent's wealth during retirement than it is to preserve it. In fact, growing wealth during retirement, when done in a concerted, strategically oriented manner, is not only achievable, but an essential obligation on your part.
A "play it safe" mentality, however, is one of the biggest financial impediments to your senior parent's portfolio's chances for growth, and one that will certainly be a challenge during their retirement years. While I'm certainly not suggesting you take an inappropriate or inordinate amount of risk on your elderly mom or dad's behalf, the benefits you forego by becoming overly conservative is akin to financial suicide, exactly what you're attempting to avoid. In fact, according to a study by T. Rowe Price & Associates, a Baltimore-based investment firm, over a 30-year retirement, a mere 20% from stocks to bonds could result in a 93% chance of your senior mom or dad's portfolio failing to have any money remaining while they're still alive. Think about this for a second. What happens if, as many of the studies indicate, your aging parents outlive their money because of an overly conservative investment approach? Isn't a conservative investment strategy supposed to protect them? Instead, a conservative and relatively small, 20% shift in one direction or the other could determine whether or not your elderly parents are dining on seafood or cat food during retirement.
Alternatively, the same study indicates that had you simply left their investment portfolio in a less conservative allocation, you and they would have had a 38% chance of success of still having one dollar remaining at their life expectancy. While not an ideal scenario of success, I'm sure you would agree that it's better than a mere 7% chance of sustaining a viable portfolio. The less conservative portfolio, when properly structured, leaves you and your senior parents with a greater than 500% chance of having one dollar remaining at their life expectancy.
Becoming overly conservative is not only a poor choice, but one nobody can afford to make. Moreover, by doing the exact opposite you provide your elderly parents with the opportunity to both grow their portfolio and increase their odds for a successful outcome, a much more noble goal.