Caring for elder family members: cognitive decline

August 15, 2021

Topics: Health Care | Life insurance | Disability insurance

Media type: Article, Podcast

Caring for elder family members: cognitive decline

3.8 minute read • 

August 15, 2021

September 10, 2021

Investing in life events

family and relationships

health care

individual high net worth

According to Vanguard’s recently published research article The Risks of Cognitive Recession, deciding when to relinquish financial control is critical to planning for a cognitive recession and can have significant implications for investors:

Investor awareness and preparation. The paper surveyed more than 2,000 investors and found that investors tend to underestimate the risk of cognitive decline. 1

“While the majority of respondents have plans in place, they are less likely to be having proactive conversations about nursing and transferring financial control,” said Anna Madamba, senior investment strategist at Vanguard Investment Strategy Group and author of the article. because incorrect timing can have a significant financial impact.”

The cost of an incorrect weather change

The article describes cognitive decline as a continuum from mild impairment to a diagnosis of dementia. The average perceived risk of decline shown in the survey broadly reflects the actual risk of experiencing the most extreme form – the lifetime risk of dementia – but misses most of those at risk for less severe forms.

“In our survey, investors, especially women, underestimated the risk of cognitive decline,” she said. Madamba said. “This is important because the economic consequences can occur before the symptoms become apparent.”

Investors were asked how much they predicted cognitive decline. Writing a living will or power of attorney is the most frequently performed task, performed by at least seven out of ten investors. A few appoint someone to check mail or pay bills, arrange care in advance (anticipating next steps in living conditions or care), or prepare guidelines for the transfer of financial control.

Figure 1. Plans vary by activity

The source:

Pioneer, 2021

“People checking mail and paying bills, arranging care ahead of time, and creating guidelines for transfer of control are increasingly common among people age 85 or older,” she said. . Madamba said. “This suggests that planning for these activities may be reactive rather than proactive.”

One of the most important decisions for an investor suffering from cognitive decline is when to entrust control of their finances to a candidate. However, fewer investors said they were preparing for this transfer than for any other survey assignment. We then asked them to determine the ideal moment to transfer this control. More than eight in 10 believe it will be after the onset of the recession but before total incapacitation.

Figure 2. Many investors have waited too long to transfer financial control

The source:

Pioneer, 2021

To measure the social costs of incorrect transfers, the survey asked investors how much compensation they would need to compensate for delayed or pre-ideal transfers. On average, benefits transferred in error cost the equivalent of 14% of net worth, or more than $300,000.

“The substantial benefit costs underscore the importance of having plans that define the triggers for transferring financial control to a surrogate, as well as the process for identifying triggers and executing the transfer,” she said. declared. Madamba said.

Implications for Investors, Agents and Advisors

The results reveal several key points for investors, agents and finance professionals, including:

Investors should be aware that the risks are broader than they realize and that it is necessary to plan for cognitive decline, including periods of mild impairment. The symptoms may not be obvious, but the financial consequences are real and investors should consider giving up control of their finances sooner rather than later. When planning for cognitive decline, it is important for investors to determine who will act as a surrogate and take over their business in the event of incapacity. It is essential that investors communicate with their surrogates to ensure that they understand their specific responsibilities and are not just identifying a candidate for the job. One consideration when choosing an agent is distance. Not all agents live nearby and investors should consider identifying local contacts to help with day-to-day duties and care.

Investors should consider naming multi-generational surrogates. A large part, especially those without children, designate a contemporary as a substitute. But using this approach increases the chances of selecting people with a similar risk of cognitive decline.

Financial advisors can play a variety of roles with clients who are preparing for cognitive decline. They can develop a plan that accounts for cognitive decline. They can also coordinate with agents, other experts and local resources. They may even act as surrogates themselves.

“Integrating cognitive decline risk into wealth and health planning requires a multi-stakeholder approach,” she said. Madamba said. “It’s not just about having all the legal documents in place, it’s about having the right conversations with family, suppliers and experts.”