Who Makes Financial Decisions If You Can’t?
A comprehensive financial plan gives you options.
Working with a fiduciary advisor gives you a trusted partner who can help you sort through those options and make informed and thoughtful decisions.
But what happens if you aren't capable of making decisions for yourself?
When assessing potential risk scenarios in a financial plan, cognitive decline and incapacitation are every bit as important as market volatility and liquidity.
Maybe even more important.
You can always earn more money. You can adjust your spending. The markets, historically, bounce back.
But health is a resource that we can't always renew. That's why a secure retirement plan must include a clear, actionable process for protecting you and your assets against these cognitive risks.
1. Managing Complexity
Letting go is hard.
In your prime earning years, you probably made major money decisions for both your family and your company with ease. You balanced the books. You brought projects across the finish line on time and under budget. You knew your portfolio inside and out, maxed retirement accounts, and made prudent, diversified savings and investment contributions according to your plan.
But every senior faces that moment when they have to admit they shouldn't have the car keys anymore. And when it comes to managing one’s financial resources, it can be harder to recognize the signs that someone else should be driving.
Even seniors who stay sharp into the later years of retirement might find themselves overwhelmed when it's time to transition from the accumulation phase to the spending phase. Medicare, Social Security, taxes, and account withdrawals all have unique sets of intricate rules that affect each other. One wrong click or swipe and you could make a mistake that's difficult, if not impossible, to recover from.
2. Avoiding Fraud
Why do so many financial frauds target seniors?
Because seniors tend to be wealthy, and because many of them aren't up to date on the latest scams. Also, an affluent retiree's diversified portfolio often has many moving parts, which can create multiple vulnerable entry points for scammers.
As we will discuss on our next podcast, there are some simple, common-sense steps everyone can take to safeguard their assets against crooks. But as you age, it's only going to get harder to spot the warning signs and avoid emotional triggers that could make you susceptible to fraud.
3. Mitigating Decision Risk
After decades of building up your risk tolerance and watching your nest egg grow, you know that market downturns can offer strategic opportunities for a disciplined investor to "buy low" and reap gains once the markets rebound.
Cognitive decline can erode that wisdom and that confidence.
Compromised financial decision-making might start small, like missing utility bills or falling behind on your property tax payments. But if your mental and physical health take a serious turn, your choices might get worse as well. Emotional reactions to what's happening in the news might trigger panic sells, locking in losses on investments that could rebound. Or, at the other end of the spectrum, you might make impulsive splurges on things you don't really need or give away more money than you can afford to give.
4. An Absent CFO
Many marriages have a CFO: a Chief Financial Officer, the spouse who takes the lead on managing the household's money.
While dividing responsibilities like this might have been the best option when you and your spouse were working and raising your kids, retired couples both need a working knowledge of their financial plan and the professionals who are helping them manage it.
Too often, if the "CFO spouse" passes first, the survivor is unprepared to manage even simple household bills. They may not know what kinds of accounts the couple has, which financial institutions are holding their money, or how their retirement plan has been supporting them since their paychecks stopped. Senior women who focused on raising their families are especially vulnerable to this scenario because, according to the numbers, women tend to outlive men.
Neither spouse needs to become a Wall Street expert. What matters is a shared understanding of what your high-level strategy is, where to find important documents, such as your estate plan, and whom to call in the event of an emergency.
Your Action Plan
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Review your estate plan.
In addition to designating beneficiaries and assigning assets, your estate plan should include a health care directive, power of attorney, and living will. Review these documents at least annually or if you and your spouse experience a significant change in your health.
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Simplify Your Finances.
Do you have multiple 401(k) accounts from multiple former employers? Individual bank accounts from before you and your spouse were married? Consolidate them.
Do you have outstanding debt spread across several credit cards? Focus on paying it down.
Do you have extra vehicles you don't use? A cabin you rarely visit? Consider selling them or transferring ownership to family members who will be able to enjoy them.
Are you still writing checks for your monthly bills? Set up auto payments so you have one less thing to worry about at the end of the month.
Are your essential documents scattered all over the house? Create one master legacy plan file.
Do you have all your account passwords written down on a piece of paper? Are they all variations on your last name? Migrate to a password manager or authenticator.
Assemble Your Team
Spouse: Have the tough conversations while you're both still able. Discuss how your financial plan works, what you want your legacy plan to look like, and how you each want to be cared for in the event that you're unable to make decisions for yourselves.
Adult Children and/or Close Friends: Your heirs and beneficiaries don't need to know everything about your finances. But your loved ones should have a general idea of what your wishes are and who you're entrusting with settling your estate. Establish clarity now and there will be a smaller chance of confusion and hurt feelings later.
Attorney and CPA: Your attorney will ensure that your powers of attorney and living trusts are legally enforceable. Your fiduciary advisor, working alongside your CPA, ensures continuity for your annual and long-term tax strategies.
Fiduciary Advisor: The "quarterback" of your financial life, whom you can always trust to put your best interests first.
Planning for Dignity
Almost one-third of Americans 65 and older are living with cognitive decline. That's not pleasant to think about. But planning ahead can help to protect your personal and financial well-being and give you and your loved ones the practical tools you'll need to face any healthcare challenge with love and dignity. And experiencing how your plan made difficult times a little bit easier can be one of the most powerful gifts you include in your legacy.
My team at Keen Wealth is skilled at facilitating complex estate planning conversations. Whether you and your spouse need to get on the same page or you're struggling to communicate your wishes to your family, our comprehensive planning process could help you open dialogues that can lead to more confident decisions.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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