The Risk in Retirement No One Plans For

The risk of dementia in retirement is one that everyone fears, but no one talks about. Its impact on money management has been little understood beyond the fear that it will devastate retirees in nearly all aspects of their lives.

A recent report conducted by Boston College’s Center for Retirement Research quantified the impact. It found that while most people will be able to manage their own finances in their 70s and 80s despite declining intelligence, a significant share of retirees will need help.

And, when they lose the ability to manage their money, control is often turned over to a spouse who may be a novice at financial management.

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“A recent study assessing financial capacity among the elderly found that 95 percent of participants without any impairment were capable of independently managing their finances,” according to the research report entitled “Cognitive Aging and the Capacity to Manage Money.” “In contrast, this proportion drops to 82 percent of adults with MCI and just 20 percent of adults with dementia. While participants with dementia experienced widespread losses in financial capacity overall, those in the early stages of the disease struggled to perform tasks requiring financial judgment, while those in the late stages had trouble even with tasks requiring only procedural knowledge.”

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The report finds that experts disagree on what should trigger an assessment of financial capacity and who should conduct such an evaluation. “Even with a well-defined assessment process, the legal framework to determine who should assume fiduciary responsibility for an incapacitated person needs to be more clea
rly defined,” the report says. “An additional obstacle is that responsible caregivers who manage someone’s finances often must comply with a patchwork of federal and state regulations designed to prevent financial abuse. Addressing these topics will require further research as well as coordination between institutions in the public and private sectors that may be unaccustomed to working together.”

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