Planning for Cognitive Decline

Senior woman looking away thoughtfully while standing with a cup of tea in her hands. Mature woman enjoying a serene retirement at home.

Cognitive decline doesn't necessarily happen overnight. There is a continuum of deterioration ranging from mild impairment to dementia. Planning for your own cognitive decline is an essential component of your financial plan and can have significant implications if not done in a timely manner. It is vital to consider whether you are prepared if something happens and you can no longer manage your finances.


A recent study by Vanguard surveyed more than 2,400 investors to learn how investors would manage the possible onset of cognitive decline, specifically who they would choose as an agent to act on their behalf, any preparations made to mitigate this risk, and how to handle the eventual transfer of financial control.


While the study found that investors generally had their estate documents in place, such as a power of attorney and living will), they had not planned for more task-specific issues, such as handling financial or care issues. They also underestimated their risk of cognitive decline, not factoring in mild impairment and the impact on financial management.


One of the biggest concerns is when to transfer control of your financial assets. The Vanguard study found that people tend to wait too long to transfer control of their finances, typically delaying until after the onset of a cognitive issue. The study found that investors estimated the impact of a mistimed transfer to be approximately 14% of their net worth. This data illustrates the importance of having plans in place that outline the transfer process and triggers to start the transition.


A financial advisor can help by working with you to design a plan that makes sense for your needs and offering objective advice about the potential impact of decisions. Involving other family members in the conversation can work to ensure that your wishes are followed in the event you need to transfer control of your assets. Having a trusted advisor coordinate advice across multiple professionals, such as your estate attorney or tax advisor, can also be beneficial. In the event of cognitive decline, your advisor can facilitate the transition of financial management to your desired agent (typically done via a Power of Attorney).


While these conversations can be challenging and emotional, addressing these issues while you are still healthy is critical. Waiting too long may result in a mistimed transfer or incorrect application of your wishes. You can maintain control of your assets by outlining your intentions and properly documenting them, even when you can't directly manage them.

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