How to Deal with Dementia or Alzheimer’s: 5 Retirement Financial Planning Steps
More than 5.5 million people have Alzheimer’s today, and as the baby boomers age, by 2050 that number is projected to triple.
Additional research from the Alzheimer’s Association shows that last year millions of family and friends provided 17.7 billion hours of unpaid care — care valued at $220.2 billion — to loved ones with Alzheimer’s and other forms of dementia.
The costs and prevalence of the disease are hard to ignore, and the toll it takes, both on families and their loved ones, is extensive. One area in which the disease complicates matters even more is finances.
A declining ability to comprehend finances and care choices is often among the first signs of dementia, according to the U.S. Department of Health and Human Services.
So in the coming years, when there will be nearly 16 million Americans who have Alzheimer’s, those people will likely have difficulty managing their financial affairs.
“My mom was diagnosed with Alzheimer’s in 2008 and had retired in 1999, so about nine years into retirement,” says Dave Harris, vice president of the Nationwide Financial Retirement Institute. “Her being diagnosed with Alzheimer’s was quite a blow in two different ways: obviously emotionally, but financially most definitely.”
This rings true both for the individuals suffering from dementia as well as their caregivers.
“Family members are already on emotional overload — adding a financial and legal decision aspect to what they’re already going through is enormous,” Alzheimer’s Foundation of America President Carol Steinberg told CNBC last year. “Therefore, the more decisions made earlier on and with the input of the loved one, the easier it is.”
Five simple financial planning steps can help you better prepare for the future.
Understand the prevalence of the disease and take steps to ensure your finances are protected before you — or a loved one — are affected by the illness.
“The best thing people can do is truly pre-plan,” Harris says. “When you’re going through the retirement income planning process, one of the best things to talk over with a financial adviser is if down the road you would need some extended care — due to something like Alzheimer’s — how are you going to pay for that?”
Understanding how you’re going to handle the costs of care is key to planning for the future.
Alzheimer’s disease is the most expensive condition in the nation, according to the Alzheimer’s Association. This year, the direct costs of caring for those with Alzheimer’s will top $214 billion. By 2050, that cost will skyrocket to $1.2 trillion (in today’s dollars).
In addition, out-of-pocket spending — meaning costs to families and family caregivers — for individuals with Alzheimer’s and other dementias is estimated at $36 billion.
Preparing in advance for these costs is essential.
“Once you’re diagnosed with dementia, a lot of things happen very, very quickly. The plan in place ahead of time is vital,” Harris says. “Unfortunately what we find is that maybe two out of 10 people actually do that.”
It’s important to include others in your financial planning, says Sarah Swantner, certified financial planner with Kahler Financial Group in Rapid City, S.D.
A spouse, an adult child or another trusted family member or friend should also attend meetings with financial advisers to stay “in the loop,” she says.
“One thing we like to do is have some sort of agreement with clients that if we start to observe some changes in behavior we have their consent to notify someone, usually one of their adult children,” Swantner says.
Swantner says her firm has some clients who are exhibiting signs of dementia, so she and other financial planners there are thinking about different ways to prepare these people financially.
While a consent agreement is not a standard process with all of Kahler Financial Groups’ clients, it would be “ideal” to incorporate as part of the initial engagement, Swantner says.
“When they’re starting to exhibit signs of dementia and perhaps they’re not making the best financial decisions, sometimes it’s really difficult to be able to explain that to the person,” she says. “Sometimes it’s best to get a third person involved.”
After Harris’ mother was diagnosed with Alzheimer’s, he was able to take over his parents’ finances, because they discussed this ahead of time.
“We did the pre-planning, so it was a big benefit to my parents. Having those conversations will benefit the parent, the adult child and also the financial adviser,” he says.
Part of the financial planning process includes taking a look at options for long-term care coverage.
One such option is long-term care insurance, which, unlike traditional health insurance, is designed to cover long-term services and supports, including personal and custodial care in a variety of settings, such as your home, a community organization or other facility.
“Something we do for every new client is a long-term care insurance analysis to see if it makes sense for them to buy the insurance as opposed to paying for care out of pocket,” Swantner says.
Long-term care insurance is often called a “use it or lose it policy” because if you don’t use the benefit, you lose it.
“It can really be a lifesaver,” Swantner says. “It’s a gamble like any other insurance, but when you need it, it can be a really great thing.”
For those who buy a long-term care insurance policy at age 60, the probability that they will use it before they die is 50%, according to the American Association for Long-Term Care Insurance.
And for some, that’s a gamble they’re willing to take.
“We’ve had a client who was on the fence and decided to get [long-term care] insurance. It wasn’t long before her husband was diagnosed with a form of dementia,” Swantner says. “He’s been in a facility for six months and she’s so grateful that she bought the insurance.”
Estate planning, which incorporates living wills and powers of attorney, is one of the core topics of financial planning, Swantner says.
While financial planners don’t physically write the documents, they are critical when looking at a person’s finances, especially if the client has Alzheimer’s or another form of dementia.
“We make sure we’re having that conversation with the client,” she says. “We’re facilitating making sure everything’s lined up.”
A living will is a written, legal document that spells out medical treatments you would and would not want to be used to keep you alive, as well as other decisions, such as pain management or organ donation, according to the Mayo Clinic, a nonprofit medical practice and research group based in Minnesota.
You should address a number of possible end-of-life care decisions in your living will, including, among others:
- Mechanical ventilation
- Tube feeding
- and Dialysis
Powers of Attorney
Many financial planners advise appointing durable powers of attorney (POA) for health care and finances.
A POA is a type of advance directive in which you name a person to make decisions for you when you are unable to do so, according to the Mayo Clinic. The person you name may be a spouse, other family member, friend or member of a faith community.
Make sure to discuss with at least one person where all of your financial assets are. This will ensure that your finances are protected in the future.
For example, if you have two bars of gold in a safe, share the safe’s location and passcode with a trusted confidant. Discuss the details of all of your investments with a financial adviser, who can manage those for you in the future.
“It’s better to have everything organized and known sooner rather than later,” Swantner says.
Harris experienced this issue firsthand when both of his parents were ill.
“Personally, I thought my parents had told me everything about where their assets were, but when my dad was in his last couple days, he wasn’t lucid often, but he would bring up different financial assets or investments that we had never talked about and that became very challenging,” he says.
Harris adds, “Having at least one person that can have a very full view and a good picture of everything you have as far as assets and also debt [is critical].”
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