We all know that planning for retirement is crucial during our working years. The goal is to make sure you have enough money tucked away to maintain your standard of living and support yourself in the event of a major life change, such as the death of a spouse or a severe illness.
Elder law attorneys work to ensure clients are protected on a legal basis by making sure clients develop advance medical directives, appointing a power of attorney and sorting through trust agreements. But how do you make sure you’re protected financially if you experience a cognitive decline in your abilities?
A study by the Texas Tech Financial Literacy Assessment Project found that our ability to make financial decisions and apply them correctly peaks in our early 50s. According to the research, that ability starts to decline around 2% each year after you turn 60. Once your cognitive abilities begin to decline, your accounts are at an increased risk.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When cognitive abilities start to decline
It’s important to keep in mind that as you age, your cognitive abilities may start to decline, which needs to be accounted for in your portfolios. That means portfolios that include stocks, bonds and mutual funds may no longer be suitable. Many family members realize this but are afraid to talk to their loved ones about such a sensitive subject. Many investors want to protect their nest egg against market risks, but when they look at the interest rates being provided by banks, they do not see any other options.
Very large financial institutions have recognized this and have created plans that protect against market losses, but still provide an opportunity for higher returns with zero risk to a customer’s principal.
When it comes to planning for your retirement, you can never be too prepared. As you’re planning, sit down with your financial adviser and figure out what steps you can take to protect your finances. You might find that the current plans you have in place need to be updated.
In addition to talking to your financial adviser, it’s important to talk with your family and figure out a plan for your finances if you become cognitively impaired.
What to plan with your family
Here are some important topics you’ll want to discuss as you make your plan:
Appoint a power of attorney. This individual will be responsible for making all financial and legal decisions on your behalf if you are unable to do so. This person should be someone you trust and who has your best interest at heart.
Create a living will. This legal document explicitly outlines the medical treatment you are to receive should you become unable to make that decision for yourself. You can also designate someone to make medical decisions on your behalf when you are no longer able.
Discuss long-term care. It’s important to figure out plans for long-term care. If you end up suffering from Alzheimer’s or dementia, you’ll need care around the clock. You and your family will need to discuss living arrangements and care options in case that happens.
Will you live with your children so they can take care of you, or will you live in a nursing home? If you decide a nursing home is what’s best, it’s also important to discuss how that will be paid for.
Create a plan for your estate. Take this time to figure out how your wealth and assets will be distributed after you die. This will ensure that your wishes are followed and will save your family from scrambling to make last-minute decisions regarding your estate.
These conversations certainly aren’t easy or enjoyable to have, but they are crucial. Life is unpredictable, and certain things are out of your control, but making a plan for yourself and being prepared is something you can control. Be sure to take advantage of it while you can.
Related Content
- 10 Things You Should Know About Estate Planning
- Three Overlooked Benefits of Estate Planning
- 14 Rapid-Fire Estate Planning Tips
- Seven Big Mistakes People Make When It Comes to Estate Planning
- Estate Plan Check-Ups: Don’t Just Set It and Forget It
-
Cord Cutting Could Help You Save Over $10,000 in 10 YearsHow cutting the cord can save you money and how those savings can grow over time.
-
The '8-Year Rule of Social Security' — A Retirement RuleThe '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
You Were Planning to Retire This Year: Should You Go Ahead?If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get ItThe Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning PlaybookConsider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
Your Home + Your IRA = Your Long-Term Care SolutionIf you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a RecessionRecessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income PlanningOnce you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
-
Why Smart Retirees Are Ditching Traditional Financial PlansFinancial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
To My Small Business: Well, I've Been Afraid of Changin', 'Cause I've Built My Life Around YouWhile thinking about succession planning might feel like anticipating a landslide (here's to you, Fleetwood Mac), there are strategies you can implement to manage the uncertainty and the transition.
