As Elder Law attorneys, we recommend durable power of attorneys, advanced directives and trust agreements to help protect clients on a legal basis. We balance our client’s need for independence against their need for protection. We focus on the legal protections but are we losing site of the financial protections. When should we talk to our clients about protecting their nest egg against the decline in their cognitive abilities?
If you ask any elderly person what worries them most, you will learn that running out of money is at the top of their list. Sadly, in today’s current economic times, throwing money into a CD and living off the interest is no longer a viable option. This forces clients into riskier investments in hopes of better returns. If this is the case, planning for a client’s cognitive decline is imperative and it must be done before it is too late. As we all know, time is never on the side of our elderly clients when it comes to volatile markets.
A paper written by Michael Fink, Investing and the Aging Brain, “What do I do when I get Stupid”; Advisor One, July 26, 2012; sheds light on the fact that cognitive impairment in old age is no longer considered a random act. There is increasing evidence that cognitive decline is natural and inevitable. Research shows that education or intelligence levels have no effect. Our brain, like the rest of our body loses its ability to respond quickly and precisely over time.
Mr. Fink referred to a study by the Texas Tech Financial Literacy Assessment Project which actually showed that the decline in our ability to make financial decisions and apply them correctly peaks in the early 50s and then starts to decline about 2% per year after the age of 60. What’s most shocking though is while financial decision-making abilities decline with advanced age, confidence in one’s ability to make those financial decisions does not. In fact, the study determined that respondents in their 80s feel more confident in their financial decisions than those respondents in their 60s.
Clients must be ever diligent in keeping an eye on their accounts to guard against known risks, as well as unexpected calamities, which could have a devastating effect on their retirement accounts. If a client is asleep at the wheel because of a decline in their mental health, their accounts are at an increased risk.
It is imperative for the attorney to realize as their clients advance in age and are faced with a decline in their cognitive abilities conventional investment portfolios that include stocks, bonds and mutual funds may no longer be suitable. Many family members realize this, but are afraid to talk to their loved one about such a sensitive subject. Many clients want to protect their nest egg against market risks but when they look at the dismal interest rates being provided by banks, they don’t see any other options.
Very large financial institutions have recognized this rising epidemic and have created plans that protect against market losses but still provide an opportunity for higher returns with zero risk to their principal. I like to say that these plans dementia-proof your nest egg. You would never have to worry about market crashes again. Having the attorney start this dialogue can be a lifesaver.
For more information, please feel free to contact Simasko Law, 586-468-6793. We’re located at 319 N. Gratiot, Mt. Clemens, MI 48043.
Patrick M. Simasko