Baby Boomers’ Biggest Financial Risk: Cognitive Decline
Live life when you have it. Life is a splendid gift, there is nothing small about it. –Florence Nightingale
For baby boomers who manage their own nest eggs, a risk is looming that has nothing to do with stock prices or interest rates.
The risk is cognitive decline, which can rob them of their judgment, often without much warning. One big mistake—or a series of smaller ones—can go unnoticed by loved ones, and potentially ravage a lifetime of hard-earned savings.
In the next 10 years, nearly half of the oldest boomers face the likelihood of some cognitive impairment. The rates for mild cognitive decline and dementia rise from a combined 12% for ages 70 to 74 to 45% for those 80 to 84, according to a 2017 report by the Center for Retirement Research at Boston College. Even a mild decline “can rapidly erode financial capacity,” the center said.
The challenging math of asset allocation and withdrawal rates from 401(k)s and individual retirement accounts creates “an enormous problem that we are only vaguely aware of,” says David Laibson, an economics professor at Harvard University who co-wrote a study that found financial skills peak at age 53. Without mechanisms in place to delegate such decisions, investors with cognitive decline may “hold on to the reins ever more tightly and steer the horse over the cliff.”
A Dark Topic: Dementia
Baby boomers themselves also can take steps to prepare.
First, though, they have to be willing to acknowledge the potential risk. A 2014 survey co-sponsored by the Merrill Lynch unit of Bank of America Corp. BAC -0.35% found that fears about dementia outweighed all other possible illnesses combined. “This is a dark topic. Most people are scared of it,” says Surya Kolluri, head of thought leadership for Bank of America’s retirement group.
One key element of a plan is identifying a person or service provider who can help manage one’s financial affairs, preferably under the kind of legal authority embodied in a power-of-attorney or trust. Another is collecting for that person—either in a binder or an internet vault—a list of goals and all the relevant financial account numbers and passwords, as well as regular monthly bills and important records.
“Having a plan and picking someone who understands your objectives is really important,” says Anna Rappaport, a retirement-security advocate and former Mercer consultant. “The do-it-yourself person needs to have help in a transition, and that might be very difficult to do. People are often totally in denial and don’t want to do anything about it.”
To mitigate these risks, there are things baby boomers and others can do now to prepare for any problems.
4 TESTS BOOMERS CAN USE TO
MITIGATE COGNITIVE DECLINE
Test Yourself
Baby boomers can also get clues to their cognition levels. There are simple tests, such as starting with 100 and subtracting by 7 repeatedly. Other more-formal tests include the Short Test of Mental Status, the Montreal Cognitive Assessment or the Mini-Mental State Examination. (Sample Mini-Mental question: What is today’s date?) While meant to be administered by doctors, they can also be found online.
Helpful Apps
Some apps can even detect possible cognitive issues and alert designated individuals, such as EverSafe, which tracks payment patterns for signs of trouble, offered by Fidelity and Raymond James Financial Inc. RJF -1.33% An app called SyncUP Drive, available through wireless carrier T-Mobile,measures changes in driving patterns, another possible sign of decline.
Tips & Tools
This year AARP, the over-50 group, is sponsoring a “Thinking Ahead Roadmap” with a how-to summary for shifting oversight of finances to a “financial advocate” and alternate—with power of attorney—who may be family members, outside professionals such as accountants, or both. Just starting the conversation “can feel like the hardest step,” says lead author Marti DeLiema of the University of Minnesota.