Financial Planning for Older Adults

When Greg Brandt’s father decided the time had come to replace his aging navy blue Buick Park Avenue, the 87 year-old did what any conscientious consumer would do; he scheduled a visit to the local auto mall in Lansing, MI and test drove vehicles that seemed like suitable candidates to meet his budget and transportation needs (1). At each of the dealerships the young salesmen were polite and quite eager to demonstrate the superior qualities unique to their particular brand and model. By the time Greg’s father returned home later that evening, the octogenarian proudly announced he had made a down payment and executed a purchase agreement to trade in the old Buick and take delivery of a new vehicle from the factory manufactured to his specifications. By all accounts, it seemed like a successful outing.

The problems arose several weeks later when it became evident the retired professor had placed factory orders for 3 separate vehicles with 3 different dealers…and made substantial down payments for each. While the auto dealers demonstrated remarkable understanding in helping to unwind the mess, it wasn’t entirely a painless process for anyone.

For most of us, knowing exactly when it might be time to step in and assist an aging parent manage their financial affairs isn’t always quite so obvious. It can be equally as challenging for the person requiring assistance to know when it's the right time to ask for help. Nobody really likes to think about the onset of diminished financial capacity (either for ourselves or for those we are closest to). However, simply ignoring red flags can not only extract a financial toll on a retirement nest egg, it also can impose an emotional toll on family members and loved ones.

The good news is that you don’t have to be an expert in diagnosing early stage cognitive impairment or possess an advanced degree in forensic accounting to help establish effective guardrails that help safeguard assets. Of course nobody wants to lose their independence, but aging isn't something that can be avoided. Unfortunately, mental and physical health can change rapidly. You or a loved one might seem fine one month, but then exhibit worrisome behavior the next. Consequently, it's important to have thoughtful conversations with family members and trusted advisors BEFORE an unguarded moment creates conditions that might undo a lifetime of careful savings and investment habits. Here’s how to get started.

What's Your Plan "B"

Like so many things, an ounce of prevention is worth a pound of cure. If it's been a while since you've dusted off your estate plan, a great place to get started is by consulting a experienced attorney specializing in elder care. Divorced, widowed, or older adults who are single probably have unique circumstances that require even more extensive planning. Regardless, you'll want to make sure any estate planning conversation explicitly includes creation of a fallback plan in the event you can't (or no longer want to) handle the day to day chores of tracking your personal financial affairs.

Sometimes, it can be as simple as having a family member receive duplicate copies of statements and periodically reviewing bills with you (including both traditional data mailed to the home as well as any online data). Keep in mind that family members, no matter how well intentioned, may not always have the temperament to be an effective advocate on your behalf. Let's be honest, not everyone is cut out for the responsibility. You'll want to carefully consider both the amount of available time as well as the skill set of anyone who volunteers to help out. If a family member isn't a suitable choice, a CPA, a fiduciary advisor, a bank trust officer, or even a court supervised conservator may turn out to be the best solution.

While needs can vary tremendously, most people first think about finding someone to be that second set of eyes keeping watch for sudden changes in behavior that appear impulsive or uncharacteristic: Have you been making new and risky investments without considering the impact of potential losses or reduced liquidity? Are you considering a large charitable donation to an organization where you have no evidence of a deep connection? Are unpaid bills starting to accumulate and creditors starting to call? Did you order 22 deluxe juicing systems from the Home Shopping Network last month? These are significant red flags that should never be ignored.

Like many advisors, one of the things we frequently hear from clients is a strong desire to avoid becoming a financial or emotional burden to anyone. While rounding up others to help create a financial plan "B" may feel like too big of an ask, chances are it's a whole lot easier than needing someone to return multiple cars to the dealership.

(1) While the incident described is based on actual events, the names and some details have been altered to protect the identity of the individuals involved.