For an aging population, cognitive decline is an unnerving challenge. The average 65-year-old will live into his or her mid-80s. Affluent individuals have actuarial life expectancies beyond the averages, and often have complex financial considerations requiring high levels of cognitive function. The potential for cognitive decline is an important consideration for financial advisors and estate planners.
Dementia is the loss of mental function severe enough to impair a person’s daily life. Estimates indicate that nearly 15% of Americans over age 70 suffer some form of dementia, according to a 2013 study by Joanne Hsu and Robert Willis.
According to the Mayo Clinic, mild cognitive impairment (MCI) is an intermediate stage between the expected cognitive decline of normal aging and the more serious decline of dementia. It can involve problems with memory, language, thinking and judgment that are greater than normal age-related changes. Individuals with MCI may be aware that mental function has “slipped.” Family and close friends also may notice changes, but they often aren’t severe enough to interfere with day-to-day life and activities.
Among 71- to 79-year-olds, 16% suffer from cognitive decline that falls short of dementia, increasing to 39% of those age 90 and older. In total, about half of 80-year-olds suffer from dementia or MCI, a 2010 Center for Retirement Research at Boston College (CRR) study found.
The importance of planning for cognitive decline is associated with the complexity of each family’s finances. A family with fixed sources of income may have less at risk than a family with accumulated assets that require individualized management, and more complex medical and estate planning considerations.
Economist and Harvard University Professor David Laibson investigated these concerns and found clear trends based on data tracking the ability to retain and recall facts. He noted that when interviewees in the University of Michigan Health and Retirement Study were asked to immediately recall words from a list of 10 simple nouns, the difference in accuracy between age groups was striking. At age 51, the average performance was 6.2 words out of 10. By age 90, the average (controlled) performance was three words out of 10, according to CRR.
Studies of decision making have identified tendencies of older consumers to make poor financial choices compared to middle-aged consumers.
One such study found that financial literacy scores decline by about 1% per year after age 60, CRR found in 2015. The annual Rush Memory and Aging Project, for example, assesses cognition individuals in the Chicago metropolitan area to identify the impact of cognitive decline on financial literacy, confidence in the ability to manage money and willingness to seek help in managing finances. At the time of the initial assessment, individuals were able to answer most questions correctly, were reasonably self-confident and were primarily responsible for managing their own finances.
Declines in cognition led to lower financial literacy scores — but despite the decline in general levels of self-confidence, confidence in managing finances remained high. The “stickiness” of confidence in managing finances may indicate that older individuals fail to recognize the impact of declining cognition on their financial decision-making ability. Although older individuals are, according to the survey, reluctant to give up control, it did indicate that those with declining cognition were willing to seek some degree of help from others.
What to Do About It
With more than 14% of the U.S. population now over age 65, finding the best way to keep personal finances secure and organized is a goal shared by a wide cross-section of families and professionals.
There isn’t a widely used measurement system for cognitive decline, which complicates the task of identifying whether an individual is impaired enough to need help. Look for changes in demeanor, behavior or personality to identify potential indications of cognitive decline. People who are typically on top of everything may become scattered or disorganized, or may forget recent conversations. Document what you are noticing to confirm a pattern of behavioral change and support what may be a difficult conversation with the client and family.