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Precautionary Steps to Help Secure Elderly Parents’ Investments

Parents are responsible for helping their children make smart decisions. In several American families, those roles reverse later in life when adult children aid their elderly parents whose intellectual abilities have declined.

According to the Alzheimer’s Association, someone in the United States develops Alzheimer’s disease every 67 seconds. The disease affects more than 5 million Americans.

Severe mental degeneration in older adults is commonly known as dementia, of which Alzheimer’s disease is the most common cause. It progressively destroys nerve cells in the brain causing the loss of memory and thinking skills.

People suffering from Alzheimer’s and dementia have difficulty processing information and making decisions, the very skills necessary to responsibly manage their finances and investments. Considering that the average investor is apt to make behavioral mistakes when managing their finances, it may be imperative to take precautionary steps to assist your parents with their investments as they age. Doing so can help reduce the challenges and stress of caring for an aging parent, as you also concentrate on investing and preparing for your own retirement.

Start early

Imprudent decisions are not obvious to those suffering from Alzheimer’s and dementia, so it’s important to offer assistance during the earliest stages. A declining ability to process information makes elderly investors and their assets vulnerable to financial fraud.

A study by MetLife with the National Committee for the Prevention of Elder Abuse and the Center for Gerontology at Virginia Tech found that older victims lost over $2.9 billion in 2010 from financial abuse.

Encourage your parents to create a plan

The hardest part about implementing a plan to help your elderly parents invest may be simply starting a dialogue about such a sensitive subject as their personal investments, financial needs and financial goals. As Paula Spencer Scott, author of Surviving Alzheimer’s, writes:

“What to say about sensitive subjects can also be tricky because you have different goals…adult children want to solve the problem and move on. Their parents, however, want foremost to maintain a sense of control and dignity in a season marked by many losses. Your goal in how to have "the talk": Balance both sides’ needs by moving forward slowly and with care.”

Ultimately, opening an early dialogue concerning how to handle their investments before a diagnosis of Alzheimer’s or dementia allows your parents to participate in the decision-making process and clearly express their wishes. However, don’t be discouraged if you are unable to devise a plan during the first conversation. Scott also advises:

“Remember that transitions involve an ongoing dialogue. Difficult as that first conversation about a sensitive topic is, it’s only the first of many you’re likely to have as you strategize your way toward a solution that everyone can feel better about.”

Gather financial and legal documents

Alzheimer’s and dementia are known to significantly impact short-term memory, which could cause your parents to misplace important documents. Gathering and organizing your parents’ financial and legal documents can reduce future time and expenses to get their estate in order.

Financial documents include investment and bank account statements, Social Security information and outstanding bills. Some important legal documents are wills and living wills, trust documents, and both a healthcare and financial power of attorney.

These financial and legal documents will help you make an inventory of your parents’ different accounts, insurance policies, trusts or other relevant information. From here, you should be able to identify the firms that hold their assets or policies as well as key contacts. Perhaps more importantly, you should be able to identify beneficiaries and determine who has the authority to make financial decisions on your parents’ behalf.

Help secure their investment assets

In the published paper, “Do Older Investors Make Better Investment Decisions?” researchers George Korniotis and Alok Kumar show investment skill sharply declines around the age of 70. Cognitive aging can make it harder for investors to judge risk, which can lead to irrational investment decisions.

Therefore, it may be in your parents’ best interest to adopt a long-term, index investing strategy. Index funds are generally broadly diversified, which spreads risk and can help lower volatility in their portfolio. An investor is less likely to make rash decisions when experiencing low volatility. Additionally, index funds are cheaper, on average, than active mutual funds, allowing investors to keep more of their earnings. Since index funds track a published market benchmark, they are also transparent and easy to understand.

You may also want to ensure your parents’ assets are in good hands. An investment adviser shouldn’t be in business to sell commission-based products, but rather provide access to low-cost investments and a strategy tailored to meet their client's specific financial goals. The adviser should not only help secure their client's assets using a diversified portfolio, but also create a withdrawal strategy to draw those assets down as a sustainable income stream for future financial needs, such as healthcare costs.

Plan for the long term

Cognitive disorders like Alzheimer’s and dementia are irreversible and only worsen over time. Eventually, you may have to make critical arrangements that reach far beyond investments.

The Alzheimer’s Association provides a wealth of useful information to learn the warning signs and more about how your family can prepare. Taking precautionary measures is a smart way to help ease the process. It is the kind of smart decision your parents raised you to make.