Retirement planning

A Checklist for Financial Decisions as You Age: Plan Ahead

It’s not impossible that you might experience difficulty making financial decisions in the future.

Think about it: According to the co-authors of Thinking Ahead Roadmap: A Guide for Keeping your Money Safe as You Age, studies show that about one in five people aged 75 to 79 may have diminished financial decision-making abilities due to mild cognitive impairment or dementia; that risk rises to about one in two for people in their 80s. Additionally, these people continue to have faith in their capacity to handle their finances, which puts them at danger of suffering substantial losses as a result of errors, fraud, or other forms of abuse.

Two of the authors, Naomi Karp, a lawyer, and Marti DeLiema, an assistant professor at the University of Minnesota School of Social Work, outlined six actions that adults may do right away to prevent these effects in an interview.

Select Your Reliable Financial Advocate

First, consider who you would trust to assist you in managing your finances in the event that something were to happen to you. We are aware that the future is unpredictable, DeLiema remarked. The Covid epidemic made that especially true. Decide who in your social circle would be a wonderful money manager if you were unable to handle chores like paying your payments on time, managing your debt, or choosing your investments as the first step.

DeLiema contends that the valued advisor need not be a financial expert. She added, “We would say that the majority of financial advocates are people you can trust in your social circle.

A trustworthy advocate, according to Karp, is frequently a husband, partner, adult kid, or close relative. But those aren’t necessarily the best individuals, she added. “Therefore, you do need to think creatively.”

Of course, a lot of senior citizens are aging alone and may not have any friends or family members who may serve as a reliable financial advocate. DeLiema added, “In that situation, a professional might be the best option, but for most of us, it’s someone we know and trust.

Organize Your Financial Information

Next, arrange and streamline your financial data. You can better understand your sources of income, expenses, assets, liabilities, and other financial needs by taking a financial inventory. If necessary, you should make it simple for someone else to take over your finances, according to DeLiema.

I don’t know where to begin. You can download the Fillable Financial Inventory from the book and fill it up with your own details before saving it. Maintaining a current financial inventory is also important.

Open the Line of Communication with Your Advocate

You are prepared to talk openly with your advocate after you have all of your financial information in one place. Make sure they’re on board, among other things; occasionally, financial advocates aren’t prepared for the discussion. When they’re prepared to chat, pick a moment when you and your financial advocate are alone, no one is hurried or distracted, and discuss your principles for handling money, advised DeLiema.

Keep the dialogue going

It’s crucial to carry on the dialogue once your financial advocate has expressed a willingness to assist, according to Karp. You talk a little bit more, she said.

Your financial advocate needs to be aware of where and how to access your financial inventory, among other things. Talking about your values and aspirations is necessary when discussing how you want to utilize or spend your money, according to Karp.

Karp explained that the guidebook includes a series of “thought questions” to assist readers in identifying their personal priorities in order to foster this dialogue. Among them:

What would I want my advocate to do with an extra $500 each month in the future?

Use money to assist family members, donate to a charity of my choice, purchase something for myself, put it away for a rainy day, pay off debt, or do something else.

Make it a formality

According to Karp, your financial advocate will require legal permission to handle your finances and property. This is quite important, she remarked. To be able to pay your bills, withdraw money, handle your investments, and communicate with your financial institutions, including banks, credit unions, and brokers, “your financial advocate will need legal power.”

And for the majority of people, it entails creating a POA, or lasting financial power of attorney. A power of attorney (POA) is a legal document that grants another person the authority to manage your finances and property. The POA specifies, among other things, when it takes effect; you can opt to make it effective sooner or later, once it’s obvious you can no longer manage your finances. What your financial advocate can and cannot do is also specified in the POA.

Karp added that the person named in the POA should be subject to some supervision “to make sure that person is doing the job properly.”

Creating a Transition Plan

There are no predetermined rules for when your financial advocate should take over, claims Karp. However, there are a few red emergency signals that should serve as a warning to your advocate.

What Do Those Signs Mean?

  • You frequently commit grave errors, such as forgetting to take medications or pay the bills, neglecting to complete tax returns, paying missed payments for insurance premiums or real estate taxes, or getting turned around when you’re walking or driving to a site you know well.
  • You’ve made some poor decisions, lost a sizable sum of money, and face further loss.
  • You’ve been told you have Alzheimer’s or a similar dementia.
  • You have a significant mental disease or traumatic brain damage, according to your diagnosis.
  • Your partner or spouse who manages your finances dies or receives a diagnosis of a condition that makes it difficult for them to continue managing things, such as dementia.
  • Your house, computer, or finances seem to be accessible to new “friends” who suddenly emerge.

Additionally, there are yellow-light caution indications that, when combined, can suggest you need assistance, according to Karp.

Some instances:

  • You begin to put off things that you used to complete without issue, such as checking your account balances, maintaining your home, keeping it clean, and shopping for and preparing meals.
  • You make a few late payments on bills or pay the same bill twice.
  • You begin to experience difficulty conducting business over the phone or performing routine computer operations.

Don’t Wait

By the way, it’s a good idea to start planning for the future when you reach retirement age, albeit it might happen as soon as your 30s.

Karp also cautioned that people who have minor cognitive impairment run the danger of losing their capacity for financial management. They are not yet at the stage of having full-blown dementia, she noted, but they are beginning to experience cognitive difficulties.

And a lot of those people are still highly functional in terms of everyday living tasks. And yet, she continued, “we know that one of the first capacities to go is frequently the capacity to manage finances.” “So, it might be deceiving, and sometimes people aren’t even aware that it’s occurring to them… The danger is postponing too long and failing to act. Because you need to give it some serious thought and then take these numerous actions to implement your strategy, it is best to accomplish it while you’re still mentally and physically well. People should thus not wait.

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