Cognitive Decline: The Boomer Issue that Families Arent Discussing
As boomers enter retirement, their health, life expectancy and lifestyle are taking center stage for their planning teams. Simultaneously, cognitive decline is becoming one of the most pressing challenges faced by families.
While Alzheimer’s disease is one of the most recognized issues, cognitive decline goes well beyond this ailment. The average 65-year-old will live into his or her mid-80s, 25% live past 90, and 10% surpass 95. Estimates indicate that nearly 15% of Americans over age 70 suffer from some form of dementia, increasing to 37% for those 90 and older.
FAMILIES WITH COMPLEX FINANCES
How should planners approach such an emotional and impactful issue? Planning is particularly important for families with complex finances. A family with fixed sources of income and limited assets may have less at risk than a family with accumulated assets that require more individualized management, and more complex medical and estate planning considerations.
The consequences of inaction can be dire. Older consumers tend to make poor financial choices, according to various studies of decision-making. One such study found that financial literacy scores declined by about 1% per year after age 60, while other studies identified declines in investment skill and ability to manage credit.
The Health and Retirement Study, a nationally representative study of Americans over age 50 and their spouses, found that cognitively impaired individuals are either unaware of their situation or are unwilling to acknowledge their impairment.
WHAT TO DO ABOUT IT
Aging clients face a variety of financial considerations. The decline of defined benefit plans creates retirement planning complexity; rising costs of medical care, alongside shrinking insurance coverage, creates stress; and the tax code grows seemingly more complex every year. Cognitive decline reduces the likelihood that clients will make appropriate decisions.
It can be difficult for friends and family to recognize the signs of decline, and there is no widely used symptom-rating system. Changes in demeanor, behavior or personality may be indicators; people who are typically on top of everything may become scattered or disorganized, or may start forgetting recent conversations or correspondence. Therefore, documenting any changes will help confirm a pattern of behavioral change and support what may be a difficult conversation with the client and family.
Understanding the realities of aging can help families better prepare, especially when financial and personal legacies are at stake. Also, the future can be better managed by those willing to share information and responsibilities with trusted family members and advisors.
Those who prepare for cognitive decline should consider three steps: opening lines of communication, formalizing a plan and creating a checklist to ensure critical needs are covered.
COMMUNICATION WITHIN THE FAMILY
The ways in which families interact change as life progresses, especially for those who care for children and parents at the same time. This sandwich generation and the elder generation are considering issues such as investment decisions, maintenance of family-held property, and healthcare needs that expand in step with extended lifespans.
The idea of sharing information is greeted differently from family to family, as dynamics among parents and siblings can create long-term financial and emotional complications. Some families limit transparency to bill payments and basic budgets, while others are fully transparent about their finances.
Parents who keep information under lock and key are bound to create uncomfortable situations for their children. Defensive conversations and financial surprises can cause rifts. Such challenges can be eased by prioritizing items to share or creating a simple checklist of providers and accounts (as detailed below).
In an ideal world, financial goals, personal preferences and estate plans are prepared and shared with family members and advisors long before cognitive decline impairs decision-making.
Living wills and medical directives can provide guidance as to how to handle certain medical situations. A durable power of attorney for healthcare appoints a person to make wellbeing decisions, and can be structured to become effective only upon incapacity. Power of attorney for property can provide continuity of decision-making for business and/or personal affairs.
Other considerations include gifting strategies, trusts and insurance planning. The transition process within the family calls for formal documentation and introductions to advisors. Indeed, meeting in person with trustees, advisors, accountants and attorneys will ensure a seamless transition when a new decision-maker is tasked with managing the estate.
Absent forethought and open communication, decisions could end up in the purview of state government, where assets can be locked until a personal representative or fiduciary is identified and appointed by the court. Untangling the estate invites costly, inefficient and financially risky outcomes. Families that are able to communicate internally will avoid this snare and be empowered when the time of transition arrives.
PLANNING WITH CONFIDENCE AND FORESIGHT
With awareness of decline, advisors can help their clients prepare for difficult decisions and transitions. Estate planners should encourage families to work to create a plan that captures their life goals — not just their financial outlook.
Advisors who act as fiduciary partners will put family finances in the context of the big picture. Before the landscape changes and urgency is required, financial and estate plans should receive stress tests based on the potential long-term impact and cost of home healthcare, nursing homes and other potential expenses. Those plans should be reviewed at least every few years to ensure that new developments are taken into consideration.
When financial, investment, estate, and medical plans and partnerships are in place prior to any apparent cognitive decline, transitions become more fluid and less combative. A trusted advisor will already know the family, will have recommended that legally executed documents be in place, and can quickly coordinate action for relatives and other professional advisors.
CREATING A CHECKLIST
A comprehensive checklist of financial and legal items is one of the most critical tools for families. Working with advisors including counselors, CPAs, attorneys and estate planners should help them identify the locations of legal documents, all accounts and the necessary passwords to access critical information. These details should be available to appointed family members and held in a secure environment. Estate planners can also help families outline any considerations that may fall outside of specified directions, and provide them in a will or trust document.
Checklist items may include:
- Emergency contact information for close family and advisors
- Health insurance information
- Health Care Proxy
- Durable Power of Attorney
- List of accounts
- Legal documents including birth certificates
- Insurance coverage
As generations mature, their personal financial visions evolve dramatically. Those who help aging parents on one side and rapidly growing children on the other must be educated and prepared to meet challenges head on.
The best aid for handling cognitive decline is knowledge. Families will benefit by improving their personal financial literacy, such that they can recognize warning signs and change direction when concerns arise. If they are comfortable communicating with one another, have a grasp on their own capabilities, and delegate when necessary, they can put themselves in a strong position. Their efforts will allow them to be less anxious, and to direct more energy toward emotional needs across the generations.
Renée Kwok, CFP, is President of TFC Financial Management and oversees the firm's financial planning and wealth management services.
Daniel Kern, CFA, is Chief Investment Strategist of TFC Financial Management and is responsible for overseeing TFC’s investment process, research activities and portfolio strategy.
- How to Work Better With Aging Clients
- Advisors: Will Your Clients End Up on Medicaid?
- When to Use Living Trusts for Estate Plans