Financial Decision Making in Later Life
The World Health Organization reports that by 2050, 2 billion people (22% of the World’s population) will be age 60 and older, up from 605 million (11% of the population) in 2000. Older adults must make important, and often irreversible, decisions that impact the rest of their lives.
Examples include when to take pension benefits, whether to buy long-term care insurance, how to most efficiently draw down savings and whether to annuitize assets.
Unfortunately, while advances in wealth and medical science have led to rising life expectancies, longer lives create the risks of running out of financial assets sufficient to support a minimally acceptable life style. The longer we keep going then the risk of cognitive impairment increases, which, amongst other things makes us more susceptible to becoming the victim of financial abuse.
Thoughts of retirement can be dreams of being free of job responsibilities and enjoying travel, leisure activity and having fun. We look forward to having time to do the things we didn’t have time to do. Our thoughts usually do not include fear that someone is going to rip us off. Unfortunately, financial abuse does happen, even to the smartest people.
Most of us do not want to face the fact that, over time, we may lose our mental acuity. However, declining mental sharpness is inevitable for many. That makes us more vulnerable. Even if you do not suffer any decline in mental sharpness, there is no guarantee you will be untouched by those seeking to exploit you.
Determined, professional thieves know that many older people have nest eggs that can be stolen. Educated and powerful people can be taken advantage of and manipulated right along with those who lack these advantages. No one is immune.
Carolyn Rosenblatt, who is a well-known American expert and author with extensive experience working with both healthcare and legal issues offers the following checklist of warning signs of cognitive impairment (which can increase the risk of financial abuse):
- It appears to others you trust that you are no longer able to process simple concepts.
- You appear to be forgetful, with short-term memory loss.
- You appear unable to recognise or appreciate the consequences of financial decisions.
- You make decisions that are inconsistent with your long-held goals, investment philosophy or commitments.
- You demonstrate erratic behaviour.
- You refuse to follow appropriate investment advice, which you have generally accepted in the past.
- You seem to others to be paranoid about someone taking your money or missing funds that are not missing.
- You lose the ability to understand recently completed financial transactions.
- You appear in any way to be disoriented, get lost in familiar places, such as finding your way home, or you forget where you are.
- You forget to groom, bathe or take basic care of your physical needs.
If you (or a loved one) are experiencing these signs, it’s time to seek help. You do not want to wait until after the damage is done.
Rosenblatt also offers the following 10-point smart retirees’ checklist that generally covers many of the bases of how to help your family and you be best prepared for things you need to manage in this phase of life and avoid abuse. The bottom line here is transparency and open communication.
1. Decide with whom you want to communicate about your future. Set a date and get together.
2. Have a signed and registered lasting power of attorney in place to cover finances.
3. Have a signed and registered lasting power of attorney to cover health and care decisions.
4. Make a list of all bank accounts, investment records and financial planning you have done, and provide contact information.
5. Provide written permission to your loved ones to talk with your solicitor, accountant and financial planner.
6. Make a list of all insurance policies, including life, disability, health, property and anything else you own that will protect your heirs.
7. Make a copy of your mortgage statement, any other loans, financial statements and bank statements. Keep them in one place. Update when changes are made.
8. List your doctors, care providers and medications. Give written permission for your loved ones to speak with your doctors.
9. Put in writing your wishes for burial or disposition of your remains.
10. Update your will and/or trust with a local solicitor. Laws change and documents need to be up-to-date.
Have a family meeting to share and explain items 2 to 10 to your loved ones. Carpenter Rees can provide a list as to what should be included here to enable you to prepare a folder of relevant documents and contact details.
If you or your family don’t have such a plan already in place, maybe treat this as a timely reminder to act.