As financial advisors, we help clients with their investments. But there’s more. In my opinion, a good financial advisor looks at the risks his or her clients will face during retirement and then builds a plan to address those risks. So we at Money Matters make it our job to understand the financial risks faced by retirees.
One of those risks is frailty, the result of deteriorating mental or physical health. In this situation, people may not possess sound judgment in managing their financial affairs, or they may be unable to take care of themselves in their homes. Though none of us really want to think about this possibility, it’s a real risk for many: A University of Michigan study reports that one third of retired people over the age of 65 suffer from frailty—and the majority of people will suffer from frailty at some point during retirement. You might notice the focus on “retired” and “retirement.” A British study found that the longer the study’s subjects were retired, the more their mental health deteriorated. Maybe you don’t want to retire early.
What else can you do to address this risk? To begin with, decide who you want to make decisions for you if need be. Is it a family member? A financial advisor?
You can give someone the power to make financial decisions for you through a document called a durable power of attorney. You might also consider creating a living trust, and naming a trustee who will step in for you under specific circumstances you also list in the trust. This is a very good second option and one that we often recommend depending on individual circumstances.
It’s also a good idea to preplan in case of frailty by creating a guardianship document, which spells out how you would like to handle your activities of daily living—who will feed you, drive you to doctor’s appointments, etc.—in case you become unable to do so for yourself.
You can also help yourself and those who are assisting you by simplifying your finances. Having money spread between 17 different custodians (banks, law firms, accounting firms) might work fine for you, but not for others trying to find out exactly what assets you have and where they’re located. By consolidating your accounts, it can be easier for someone else to step in and take over the responsibilities.
I know this isn’t a pleasant topic, but if you’re going to be financially sound, I believe you need to consider all the risks. With luck, you won’t need to worry about frailty. If you do, planning ahead can mitigate what could be a devastating situation.