One of the biggest, and yet, least discussed risks associated with retirement is the issue of cognitive decline as we age - particularly how it impacts your financial decision making.
Nobody likes to think about getting older. Even less so, nobody likes to think about the decline of their mental health. But the harsh truth is that as we get older, our cognitive abilities decline at some point. This is especially true with regard to personal finances.
In fact, research shows that this decline is actually quite predictable. Predictable to the point that we know: On average, after age 60, financial literacy decreases by about 1.5% per year.
Yet, despite this obvious decline in financial literacy, the confidence associated with financial decision making does not decline.
This decline in financial literacy coupled with continued confidence can lead to poor financial decisions. These decisions can include:
- Increased susceptibility to scams and fraud
- Missing a credit card or mortgage payment
- Ill-advised giving to various non-profit organizations who prey on the older population
- Or even elder abuse where children or others you trust may take advantage of you financially speaking
The key is to be prepared for this eventuality. I want to share a few ideas you might consider to establish a better overall strategy to deal with this decline.
Have a Conversation with Your Children
Bring them in the loop - let them know what actions you are taking to prepare for this. Most children are wary of having this conversation with their parents because they don’t want to offend them as it could be perceived as insulting. Don’t make them bring it up - you bring it up. Offer them a guide to your thoughts on the topic and how they might navigate that conversation down the road.
Write a Letter to Yourself
What would you consider the telltale signs that it might be time to delegate your day-to-day finances? Write a letter to yourself reminding you that you have children who love you or people who care about you that want nothing but the best for you. Give this letter to the person most likely to help you with your finances now so when the time comes, they’re prepared. As a safeguarding measure (if applicable), ensure your children are on the same page (or at least the majority are) in the belief that it may be time to present the letter back to you. This can be your cue that it’s time to hand over the reins.
Designate a Trusted Person
At my firm, we offer the option (clients are not required to do this) for clients to designate a “Trusted Party” that can be called upon if we think something isn’t quite right. As you might imagine, there are significant protocols and procedures we are required to follow prior to contacting this person, but I believe this can really help because we may be more apt to notice something is “off” since we aren’t involved in the day-to-day and may want to bring it to the attention of this trusted party.
There may be some initial reticence to doing this, but as an FYI, in 11 years of being a financial advisor, I’ve only needed to bring this up on one occasion. I’ll say it was tremendously helpful for everyone involved when the need revealed itself.
If this interests you, contact the advisor you are working with to inquire about this possibility.
Knowing you are going to decline at some point is an unfortunate fact of life. But making the transition to having someone help you with your finances doesn’t have to be a painful experience. Plan for it. You and your family will be glad you did.
Thanks for reading!
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