Prepare for the Financial Impact of Alzheimer's

Even in the early stages of dementia, financial skills can be diminished. These steps can help protect you or a loved one -- and a retirement nest egg.

In drawing up your financial plan for retirement, you may be setting aside money for new hobbies or extensive travel. But perhaps you also should prepare a financial contingency plan for Alzheimer's disease.

That may sound somewhat alarmist, but consider this: A decline in the ability to handle financial matters is one of the early signs of Alzheimer's. Seniors with mild symptoms -- forgetting to pay bills or struggling to balance a checkbook or calculate change -- are easy prey for fraudsters. And the cost of caring for someone with dementia can devastate even a healthy nest egg.

The risk of at least one spouse developing Alzheimer's disease is fairly significant, which makes creating a financial plan so important. According to the Alzheimer's Association, 13% of people 65 and older have Alzheimer's, and 43% of those 85 and older have the disease. Longer life expectancy among baby boomers will increase the prevalence of dementia.

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As boomers age and the number of seniors grow, financial advisers and physicians are beginning to come to grips with the financial impact of dementia. AARP and the Financial Planning Association have released a guide for financial professionals on the special issues related to older clients. And in a study in the Journal of the American Medical Association in February 2011, researchers instructed physicians on recognizing signs of impaired financial capacity. The researchers also provided guidance to physicians on the legal help that patients and family members could seek to protect their nest eggs.

Daniel Marson, one of the study's co-authors and the director of the Alzheimer's Disease Center at the University of Alabama at Birmingham, notes that it's sometimes difficult for family members to know when a loved one has mild cognitive impairment (MCI). Those with mild cognitive impairment "don't have significant changes in everyday functioning," he says. But, Marson notes, "Ironically, people who have MCI may be the most vulnerable to making poor financial decisions because a lot of families are not yet willing to admit there are significant declines." About 15% of those with mild symptoms develop Alzheimer's each year, says Marson, a professor of neurology.

So how does a loved one identify the early stages of Alzheimer's? In one study funded by the National Institute on Aging, Marson and another researcher compared healthy seniors to those who had early-stage Alzheimer's. The patients with mild symptoms scored significantly below the healthy seniors on such tasks as obtaining change for vending machine use or making an investment decision. Patients with mild symptoms also were unable to explain the risks of mail and telephone solicitations.

Seniors in the early stages of dementia have difficulty understanding basic financial terms, such as loan and interest, Marson says. They also forget to pay bills or pay them more than once. And they are particularly vulnerable to get-rich-quick schemes, he says. As the baby boomers move into their sixties, securities regulators are accelerating efforts to crack down on scams aimed at seniors with failing mental capacity.

Of course, it's best to make plans while you're still healthy, but someone with early-stage Alzheimer's can sign documents and make decisions. Here are some steps you and your family can take to protect your finances, whether it's before you or a loved one is diagnosed, or just after. Many of these plans work well for anyone who is diagnosed with a chronic illness.

Draw up directives. The first step is to draw up an advance health care directive and a financial power of attorney. Together these documents will allow a spouse, adult child or close friend to make decisions about your finances and medical care if you're unable to make your wishes known.

If your spouse becomes incapacitated and has not appointed an agent to make legal, financial and health care decisions, you'll have to go to court to become a guardian. Typically, spouses will name each other as health care and financial agents. Make sure you each appoint a backup agent, perhaps an adult child or a trusted friend.

Select a team. A financial adviser can develop a long-term strategy to pay for care. The adviser should take an inventory of all of the couple's assets, income and insurance policies. A long-term plan is especially important if one spouse is showing signs of dementia while the other has an acute illness, such as heart disease.

An elder law attorney can set up a "special-needs trust" that would pay for the disabled relative's care and protect a family's assets if he or she seeks government benefits. A lawyer also could help mediate among family members who may have different opinions on how to care for Mom or Dad -- or manage the money.

Moreover, a lawyer and financial adviser could develop plans that will take into account the financial needs of the healthy spouse. Even a short time in a nursing home can drain a couple's savings. At that point, a person with Alzheimer's will likely qualify for care paid by Medicaid. Rules vary by state, but generally the healthy spouse can continue to live at home and is allowed to keep some assets that are not counted in determining Medicaid eligibility. If you take action soon after the diagnosis, there are certain strategies that could protect assets for the healthy spouse and heirs while preserving Medicaid eligibility.

You can hire a geriatric care manager to help the family come up with strategies to assume control of the finances. A care manager also will help with day-to-day tasks, such as hiring home-care aides and finding an adult day-care center. You can find a care manager at the National Association of Professional Geriatric Care Managers (

Designate a money manager. Because money-management skills are among the first to slide, a family member or the designated financial agent should start keeping tabs on the household finances. James Sullivan, a certified public accountant for Core Capital Solutions in Naperville, Ill., suggests that a family select two people to watch over the finances. "The family needs to establish checks and balances," he says.

It's not just financial abuse you're watching for, but also negligence. Sullivan recalls one incident where a mother was in a nursing home for five months before the son got around to filing for benefits under her long-term-care insurance policy.

Taking over the finances can be a delicate task if the senior has been in charge of the money. If your husband, for example, does not want to give up control of the finances, Sullivan suggests setting up a small checking account and depositing perhaps $200 or $300 a month. This way, he can still write checks, but the damage would be limited if he were tempted by a questionable financial scheme. "You're not taking away everything at once," says Sullivan, who specializes in planning for clients with chronic illness.

Family members can hire a daily money manager to pay bills, sort through the mail, balance checkbooks and decipher medical bills. You can find a money manager at the American Association of Daily Money Managers (

There may come a time when a physician will be able to conduct a simple brain scan that will show whether you're in danger of losing your financial decision-making capacity. Research funded by the National Institute on Aging suggests a relationship between changes in the brain and diminished financial abilities in patients with mild cognitive impairments. "Wouldn't it be nice if we can tell patients that we're seeing certain changes in the brain that puts them at risk for declining financial capacity?" says Marson, a co-author of the study, published in the Journal of the American Geriatrics Society, in February 2010. "Then they can take protective steps."

Marson says such a scan could be 20 years away. In the meantime, you can watch out for the warning signs and make moves to guard yourself or your loved one -- and the retirement nest egg -- from harm.

Susan B. Garland
Contributing Editor, Kiplinger's Retirement Report
Susan Garland is the former editor of Kiplinger's Retirement Report, a personal finance publication whose subscribers are retirees and those approaching retirement. Before joining Kiplinger in 2006, Garland was a freelance writer whose work appeared in the New York Times, the Washington Post, BusinessWeek, Modern Maturity (now AARP The Magazine), Fortune Small Business and other publications. For 12 years, Garland was a Washington-based correspondent for BusinessWeek, covering the White House, national politics, social policy and legal affairs. Garland is a graduate of Colgate University.