The best way to keep our money safe as we grow older is to plan for the time when we might need help handling our finances.
It’s not out of the realm of possibility that you’ll have trouble making financial decisions someday in the future.
Consider: Studies show that about one out of five people aged 75 to 79 might have diminished financial decision-making abilities due to mild cognitive impairment or dementia; that risk rises to about one out of two for people in their 80s, according to the co-authors of Thinking Ahead Roadmap: A Guide for Keeping your Money Safe as You Age. What’s more, these people are still confident in their ability to manage their finances and that puts them at risk of significant losses due to mistakes, exploitation, or fraud.
In an interview, two of the co-authors, Marti DeLiema, an assistant professor at the University of Minnesota School of Social Work and Naomi Karp, a lawyer and consulting research scholar at the Stanford Center on Longevity, detailed six steps adults can take now to avoid such outcomes.
Choose Your Trusted Financial Advocate
First, think about who you would trust to help you manage your money in the future should anything happen to you. “We know that the future is uncertain,” said DeLiema. “That became especially true with the Covid pandemic. So that first step is really identifying, who in (your) social circle would be a great money manager if I couldn’t do tasks, like paying my bills on time or managing my debt, or making my investment decisions.”
According to DeLiema, the trusted advocate need not be a financial professional. “We would say that the majority of financial advocates are trusted people in your social circle,” she said.
Karp said a trusted advocate is typically a spouse, partner, adult child, or a close relative. “But those are not necessarily always the best people,” she said. “So, you do need to think outside the box.”
Of course, there are many older adults who are aging alone and might not know anyone in their social circle who could become a trusted financial advocate. “In that case, a professional might be the right choice, but for most of us, it’s someone we know and trust,” said DeLiema.
Organize Your Financial Information
Next, organize and simplify your financial information. A financial inventory will help you understand your sources of income, your expenses, your assets and your liabilities, and other money needs. “You want to make it easy for someone else to take over your finances if they should ever have to,” said DeLiema.
Not sure where to start. You can download the book’s Fillable Financial Inventory and complete it with your specific information that you can then save. Be sure to keep your financial inventory up to date, as well.
Start an Open Conversation With Your Advocate
Once you have your financial information in one place, you’re ready to have an open conversation with your advocate. Among other things, make sure they’re on board; sometimes financial advocates aren’t ready for the conversation. Once they’re ready for the conversation, find a time when you’re alone with your financial advocate and no one feels rushed or distracted and talk to them about what your values are in terms of money management, said DeLiema.
Keep the Conversation Going
Once your financial advocate has agreed to help, it’s important to continue the conversation, said Karp. “You talk some more,” she said.
Among other things, your financial advocate needs to know where your financial inventory is stored and how to access it. “You especially need to talk about how you want your money to be used or spent, and that involves talking about your values and goals,” said Karp.
To facilitate this discussion, Karp said the guidebook has a series of “thought questions” to help people clarify what’s important to them. One example:
If I had an extra $500 per month in the future, what would I want my advocate to do with it?
__Donate it to a charity of my choosing__Use it to help family members__Buy myself something I’d like__Save it for a rainy day__Pay down my debt__Other:
Make It Official
Your financial advocate will need legal authority to manage your money and property, said Karp. This is really critical,” she said. “Your financial advocate will need legal authority to be able to pay bills, make withdrawals, manage any investments you have, and talk to your financial institutions, banks, credit unions, and brokers.”
And for most people that involves drafting a durable financial power of attorney, or POA. A POA is a legal document that gives someone else the legal right to make decisions about your money and property. Among other things, the POA details when it goes into effect; it can be effective immediately, or you can choose to make it effective later, when it’s clear you no longer can manage your finances. The POA also details what your financial advocate can and can’t do.
Karp also said there should be some oversight over the person designated in the POA “to make sure that person is doing the job the right way.”
Planning the Transition
When it comes to determining when your financial advocate should take over, there are no set answers, according to Karp. But there are some red emergency signals — signs to your advocate — they really need to get involved now.
What Are Those Signals?
You often make serious mistakes, such as forgetting to take medications or pay the bills, failing to file tax returns, or pay property taxes or insurance premiums, or you get lost when walking or driving to familiar places.You’ve made some unwise choices and lost a significant amount of money and are at risk of losing more.You’ve been diagnosed with Alzheimer’s disease or a related dementia.You’ve been diagnosed with a serious mental illness or traumatic brain injury.Your spouse or partner who manages your money passes away or is diagnosed with a condition such as dementia, making it hard for them to continue handling things.New “friends”’ appear and seem to have access to your home, computer, or finances.
There are also yellow-light caution signs that, taken together, might indicate you need some help, said Karp.
Some examples:
You start neglecting tasks like looking at your account balances, home maintenance, housekeeping, and food shopping and preparation—chores that you used to do just fine.You forget to pay a few bills on time, or you pay the same bill twice.You start having trouble doing business over the phone or handling familiar tasks on the computer.
Don’t Delay
By the way, your retirement age is a good time to start taking steps to prepare for the future but it could be as early as in your 30s.
Karp also warned that even those with mild cognitive impairment are at risk of losing their ability to manage their finances. “They are starting to have cognitive challenges, but they’re not at the point where they have full-blown dementia,” she said.
And many of those people are still very functional with respect to their activities of daily living. “And yet we know that the ability to manage finances is often one of the first kinds of capacities to go,” she said. “So, it could be deceptive, and people don’t even always know themselves that it’s happening… The risk is waiting too long and not having done it. So, you really want to do it when you’re still healthy, both physically and cognitively, because you need to really think it through, and then you need to take these various steps to put your plan in place. So, people should not delay.”
