People are generally living longer. This is good news! We have more time to do things we want to do, go to places we want to go, and spend time with people we want to spend time with. Longevity, however, does come with challenges, and one of them is the possibility of experiencing cognitive decline in the later stages of life.
Cognitive decline can adversely affect one’s decision-making abilities. It poses significant risk not only to one’s health but also to one’s financial well-being. Many associate cognitive decline with its most severe forms, dementia or Alzheimer’s, but it can also occur in less severe forms often referred to as mild cognitive impairment. A study on Cognitive Impairment in the U.S. published in the National Institute of Health estimated that two out of three Americans could suffer from some form of cognitive decline in their lifetime, with 37% of women and 24% of men experiencing some form of dementia. In a different study conducted by Vanguard, investors underestimated the likelihood of experiencing cognitive decline, associating it with dementia rather than the more common, though less severe forms of impairment. In other words, many of us tend to underestimate our susceptibility to cognitive decline. This is just one reason why it’s important to understand the risks and put preparations in place to manage them.
In fact, a fundamental part of financial and retirement planning involves managing risks – hoping for the best but preparing for the worst. Cognitive decline is one of these risks, because financial decisions made under the effects of impairment can lead to undesirable consequences and even derail an otherwise sound financial plan. Fortunately, there are steps you can take to mitigate these risks in the event of impairment or incapacity.
1. Obtain or update appropriate documents to permit others to step in if/when necessary. This includes establishing a financial power of attorney, healthcare power of attorney and living will, and potentially certain types of trusts. Powers of attorney grant an appointed agent the ability to make decisions on behalf of an individual in the event of incapacity. A power of attorney should be granted to someone you trust to act in your best interest in the event you cannot do so. A trust may also be set up to direct the management of your assets according to your wishes. A trustee will manage the assets according to the terms you specify in the trust. This can also be a family member or close individual, a corporate trustee with experience managing trusts, or a combination of both. It is important to work with a qualified attorney experienced in estate planning or elder law to help with these legal documents.
2. Establish trusted contacts with your financial professionals and account custodians. This will enable your financial professionals to contact an individual whom you trust in the event that you are unable to be contacted or if the professional suspects you to be at risk of financial exploitation. A trusted contact may be a spouse, close family member, or other person on whom you can rely to act in your best interest. It is important to note that just because someone is a trusted contact, this alone does not give them the ability to make decisions on your account. Rather, a trusted contact is someone who will simply be informed if abuse or cognitive impairment is suspected.
3. Have a plan in place for care. Arguably most important is having a plan for assistance with day-to-day activities, depending on the severity of impairment. Everyone’s situation is different. Some may have family members willing to donate their time to provide care. Others may need to rely on hired care. If the latter, it is important to consider the costs of long-term care, as these expenses are typically not covered by Medicare or other primary health plans.
4. Protect yourself from scams. With advances in technology and artificial intelligence, fraudsters are increasingly able to target those most vulnerable in the elderly population, where cognitive challenges are most prevalent. A quick google search will provide many different tips to spot and avoid fraudulent schemes. The Federal Trade Commission (FTC) has some simple guidelines as a starting point. One common scam to be particularly aware of involves perpetrators purporting to be the IRS or some other government agency such as the Social Security Administration or Medicare in order to steal personal information and financial account details.
5. Understand when it is time to transfer financial responsibilities. This is a hard step to take, but it may avert costly financial mistakes and preserve assets that can be directed toward providing additional care and comfort. In the study conducted by Vanguard, developing a plan to transfer control of financial responsibilities was the activity least considered by those surveyed. While we all hope to be self-sufficient until the end of our days, reality may not necessarily align with our hopes. It’s important to know the right time to hang up the gloves and allow others to help.
Our obvious hope is to be fortunate enough to avoid the effects of cognitive decline as much and for as long as possible. Taking steps to lead a healthier lifestyle can certainly improve our chances. Equally as important, however, is being proactive about preparing for a scenario where life takes a turn in a different direction than we had hoped. At JFS our goal is to help plan for the unintended paths you may find yourself on and provide a sense of comfort and control along the way. If you or someone you know would like some assistance, please don’t hesitate to contact us.
