Financial decision-making is one of the first skills to deteriorate as people age and their cognitive abilities naturally decline, according to a new paper from State Street Global Advisors.
The paper, “The Impact of Aging on Financial Decisions,” emphasizes the need for advisors and investors to put a plan in place for their clients’ potential cognitive decline.
“As our population continues to age, cognitive decline is set to become one of the most challenging intergenerational issues facing the investment industry,” the paper states. “Since the financial crisis, the focus of financial advice has been squarely on saving for retirement; little attention has been paid to how cognitive decline could impact investors and their families.”
When SSGA talks about cognitive decline, it’s referring to three types: mild cognitive decline (“minor lapses in short-term memory or the need for an extended period of time to process information”), dementia (“when an individual’s cognitive decline actually interferes with their daily life”) and Alzheimer’s disease (“the most progressive and debilitating form of cognitive decline”).
According to the The Alzheimer’s Association, mild cognitive impairment occurs in roughly 10% to 25% of people in the U.S. who are 65 and older. Some people may only experience mild cognitive impairment; for others, this condition is a precursor to dementia.
With an aging U.S. population – according to the U.S. Census Bureau, there are 45 million people 65 and older (representing 14% of the population) and that’s estimated to grow to 66 million within 10 years – one can see why cognitive decline could be a serious concern.
And yet, SSGA finds, it’s not being discussed or planned for by many investors and advisors.
SSGA’s research finds that among individual investors there is an overall lack of concern and planning.
According to a survey of 400 financial advisors and 560 individual investors, only about 39% of investors reported that they believed they had a suitable plan for if and when their decision-making becomes diminished.
In another survey of 912 adults who are responsible for investment decision-making of a portfolio of $200,000 or more, SSGA finds that investors have had some planning conversations with family members – but few with their advisor.
When it comes to planning for cognitive decline, the survey finds that 32% have discussed this with a family member, but only 17% have done so with a financial professional. The survey found similar results for “planning for dementia/Alzheimer’s,” with 26% having discussed this with a family member and 19% with a financial professional. To compare, 54% of those surveyed have discussed planning for retirement with a family member and 42% have done so with a financial professional.