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When dementia threatens clients' money: Retirement Scan

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Our daily roundup of retirement news your clients may be thinking about.

When dementia threatens clients' money
Dementia poses a challenge for financial advisers who serve clients showing symptoms of the disease, according to this article on Money. For starters, slow progression of the illness may make onset difficult to ascertain. And symptoms are similar to ordinary, age-related memory loss. Clients also may be in denial, or even hide symptoms. And complicating matters even more, they also can fall prey to scammers, even family members, raising the specter of elder financial abuse. FINRA has addressed the issue, proposing a requirement for firms to make reasonable efforts to get a trusted contact person for each customer, and permitting firms to place temporary holds on withdrawals from a customer account if there is a reasonable suspicion of financial exploitation. Advisers should discuss the topic with their clients early on and take the necessary steps to prepare for the possibility. One strategy is to put up a revocable living trust funded with the clients' assets. Having long-term care insurance is also recommended, as dementia may last up to 20 years and could be very expensive. Other concrete steps include working with a care manager and a knowledgeable elder lawyer to petition the court to appoint a guardian and/or conservator. Additionally, it may be useful to set the client up on an automatic bill pay program.

As the nation's 76 million baby boomers retire and live longer, advisors can expect to encounter more clients with memory and cognitive issues. Here are some of the red flags advisors should watch for.
August 25

Helping clients put savings and investing on auto-pilot
Financial advisers can help their clients eliminate the risk of having inadequate funds for retirement by helping them set up an automated savings and investing plan, writes a wealth manager in The Wall Street Journal. "Automated savings is an easy way to establish the habit of saving for retirement. It’s an efficient and effective way to accomplish financial goals," writes the expert. "If clients have trouble saving large amounts immediately, have them start off small; it will depend on the client’s financial situation. But eventually push them to increase what they’re having automatically deducted."

Inflation turns every investor into a loser
Clients should factor in the impact of inflation when planning for retirement, as it could significantly reduce the value of their investments in the future, according to this article on MarketWatch. Even a modest rate of 3% annually, inflation can be a problem. Say a client retires on a fixed income of $50,000. Initially, that's more than adequate, but if the cost of living increases 3% a year, after 25 years they would need $104,700 to replace that same purchasing power. One strategy to mitigate the inflation risk is to include stocks in the portfolio. Historical data show that these securities appreciated more than the inflation rate. (Note: as our next item illustrates, clients can overdo it on stocks.)

The problem with putting retirement savings all in stock
Holding an all-stock portfolio is not a viable strategy for retirees, as it increases their exposure to risk from market volatility, according to this article on CNNMoney. Retirees may also not be able to bear the emotional and financial impact of volatile markets for a longer period, preventing them from enjoying their golden years. Retirees are advised to create a more comprehensive retirement income plan that includes the amount of annual income they need to cover their expenses and a feasible withdrawal rate for tapping into their retirement accounts without outliving their savings.

Pension payment: Lump sum or monthly check?
Clients who have defined-benefit pension plans should weigh their options carefully before deciding whether to take a lump-sum distribution or a monthly payment option, according to this article on CBS Moneywatch. As much as possible, clients should create a guaranteed income stream that can adequately cover their daily living expenses. For example, they should take a lump-sum pension payment if their Social Security benefits are enough to cover their living costs and they want funds for travel and other discretionary expenses. The monthly pension is recommended if their Social Security income is insufficient for their living expenses. They should also consider using their savings to buy a lifetime annuity if their guaranteed income still falls short of covering these costs.

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