We all know that planning for retirement is important during our working years. The goal is to make sure you have enough money saved 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 serious illness.
Elder law attorneys work to ensure that clients are protected on a legal basis by ensuring that clients can make advance medical directives, appoint a power of attorney and arrange through trust agreements. But how can you ensure that you are financially protected if you experience a decline in your ability to think?
A study by the Texas Tech Financial Literacy Assessment Project found that our ability to make financial decisions and apply them correctly increases in our early 50s. According to research, that ability begins to decline by about 2% each year after you turn 60. Once your cognitive abilities begin to decline, your accounts take on more risk.
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When cognitive abilities begin to decline
It is important to remember that as you age, your cognitive abilities may begin to decline, which should be taken into account in your portfolios. That means portfolios that include stocks, bonds and mutual funds may no longer be appropriate. Many family members are aware of this but are afraid to talk to their loved ones about such a sensitive topic. Many investors want to protect their nest egg against market risks, but when they look at the interest rates provided by banks, they don’t see any choice.
Major financial institutions recognize this and have created plans that protect against market losses, but still provide an opportunity for higher returns without risking a customer’s principal.
When it comes to planning for your retirement, you can never be too prepared. As you plan, sit down with your financial advisor and think about what steps you can take to protect your finances. You may find that the current plans you have need to be changed.
In addition to talking to your financial adviser, it is important to talk to your family and plan your finances if you have a cognitive disability.
What is your family’s plan?
Here are some important topics you’ll want to discuss as you create your plan:
Appointment and power of attorney. This individual will be responsible for making all financial and legal decisions for you if you are unable to do so. This person should be someone you trust and who has your best interests at heart.
Create a living will. This legal document clearly outlines the medical treatment you will receive if you are unable to make that decision for yourself. You can also appoint someone to make medical decisions for you if you become incapacitated.
Discuss long-term care. It is important to know the plans for long-term care. If you suffer from Alzheimer’s or dementia, you will need round-the-clock care. You and your family should discuss living arrangements and care options if 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 that a nursing home is best, it’s also important to discuss how it will be paid for.
Create a plan for your estate. Use this time to determine how your wealth and assets will be distributed after your death. This will ensure that your wishes are followed and save your family from scrambling to make last minute decisions about your estate.
These conversations are definitely not easy or fun to have, but they are important. Life is unpredictable, and some things are out of your control, but making a plan for yourself and being prepared is something you can control. Make sure to take advantage of it while you can.
This article was written and presents the views of our contributing advisor, not the Kiplinger editorial staff. You can check advisor records using DECLARED by SEC or with FINRA.