Financial Planning in the Age of Dementia

By
Jeff Motske, CFP®
May 29, 2018
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We live in a dynamic and inspiring time. Advancements in healthcare are doing wonders for retirees. Many are living longer, in greater physical health, maintaining their mobility and independence. However, there has also been a growing impediment to that independence – dementia. This syndrome that characterizes the decline of cognitive functions and encompasses degenerative diseases like Alzheimer’s, Parkinson’s and Huntington’s is impacting more and more every year. While it can be very uncomfortable to consider yourself or a loved one suffering from such an illness, living in this age of dementia makes planning for its onset a necessary endeavor.

The statistics are sobering. Those who are diagnosed with Alzheimer’s disease can typically live four to eight years after the initial diagnosis. However, there are also those who can live up to twenty years after their first diagnosis. As this is a disease that wrecks the mind, not the body, some can live up to 5 years in long-term care, rather than the typical two years of other illnesses. Needless to say, the costs of care can be staggering. With expenses ranging from various prescriptions, personal care supplies, limited or long-term care services, there is clearly a lot to plan for. Many rely on Medicare to cover the expenses. Yet, Medicare does not cover everything, oftentimes paying up to 80% of costs, only covering fees that are considered “medically necessary” and taking time to determine what falls under that qualification.1 When you or your loved one is struggling daily with the complications of dementia, hope can seem far off or entirely out of reach.

Due to the subtle ways symptoms can first appear, many can go years without a diagnosis. Unfortunately, that does not mean that the illness is not affecting their lives. While there are specific stages of decline with various forms of dementia, financial matters are generally impacted immediately. Memory suffers, with individuals forgetting to stay current with their bills or having issues understanding their bank and account statements. With subsequent stages, financial skills, along with others, decline further. It can be a rapid and steep decline. An individual’s independence, financial and otherwise, can be compromised very quickly.

This is why it is very important to discuss financial and legal matters once a loved one has been diagnosed, regardless of whether it may feel awkward or uncomfortable. The sooner these conversations take place, the better. There is a lot of information to cover and a lot of decisions on the possible future to make. Most importantly, the earlier the conversations are started, the more of a role the diagnosed person will have. At the end of the day, that is what we all want, for our loved one's wishes and desires to be upheld, even when they may no longer be able to vocalize them.

In addition to helping our loved ones afflicted with these diseases, we cannot forget the loved ones providing the assistance. The strain that can get placed on a familial caregiver can often get overlooked. If not adequately planned for, some will dip into their savings and sell their investments to cover the mounting costs to care for their loved ones. Additionally, the stress of the situation can detrimentally impact the physical and emotional health of the caregiver, which can put both individuals at risk.

Clearly, there is a lot to consider, and for many, it is easy to get overwhelmed, flounder in all the unfamiliar information and overlook that which we are not well-versed on. This is where your financial professional can assist you, both in the midst of this difficult time and also well before the actual diagnosis. They can help you make decisions and preparations, as well as educate you on the myriad of things you may not be aware of but need to know. Additionally, Trilogy Financial advisors are trained to not only identify when clients may be exhibiting symptoms of dementia but to continually monitor these behaviors as well. We truly do take our clients’ well-being seriously. Many individuals I have encountered have two distinct fears about growing older. The first is running out of money. The second is becoming a burden to their family. With dementia, those two fears can become a reality. However, with the proper preparation and planning, they don’t have to be.

Sources: 1. https://www.medicareresources.org/faqs/what-benefits-does-medicare-provide-for-alzheimers-patients/

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By
Steve Hartel, MBA, AIF®
March 19, 2018

In 2001, the Securities and Exchange Commission (SEC) adopted a new rule to supposedly prohibit mutual fund names that may mislead investors about a fund’s investments and risks. The rule required a fund with a name suggesting that the fund focuses on a particular type of investment (e.g., “stocks” or “bonds”) to invest at least 80% of its assets accordingly. Previously, funds were subject to a 65% investment requirement.

This rule resulted in many funds changing their names, changing their investments, or both. In general, things are better now than they were before the 2001 rule. However, today’s mutual fund names and categories can still be confusing and/or misleading.

Blurred Boundaries

For example, let’s look at names that connote where the fund buys its investments. These names usually contain words like “Domestic,” “International,” “Global,” and “World.” Imagine a Domestic Large-Cap fund, whose name suggests it buys large, U.S. companies. But if the fund owns mostly companies in the S&P 500 Index, those companies might be generating up to 50% of their revenues outside of the U.S. The large multinational firm might be based in the U.S. but do business in countries all around the world. The opposite may be true of funds with “Global” or “World” in their name; those companies based in foreign countries may be deriving some or all of their revenue from dealings with the U.S.

Undefined Jargon

Another confusing category of funds is called “smart beta”. Investopedia defines Beta this way1:

“Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns.”

Got that? Let’s assume you totally understand beta and CAPM. So, what is “smart” beta? If beta is a measure of volatility, then a reasonable person might assume that “smart beta” is a more intelligent measure of volatility, right? Let’s see if the definition of smart beta contains the word “volatility.”

Investopedia defines smart beta this way2:

The goal of smart beta is to obtain alpha, lower risk or increase diversification at a cost lower than traditional active management and marginally higher than straight index investing. It seeks the best construction of an optimally diversified portfolio. In effect, smart beta is a combination of efficient-market hypothesis and value investing. Smart beta defines a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization-based indices. Smart beta emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way. The increased popularity of smart beta is linked to a desire for portfolio risk management and diversification along factor dimensions, as well as seeking to enhance risk-adjusted returns above cap-weighted indices.

Hmm. Not a single mention of volatility. Are you confused yet?

Growth, Aggressive Growth, Capital Appreciation, Equity Income

Growth sounds good, but how is it different from capital appreciation? Don’t they mean the same thing? Does aggressive mean faster, riskier, meaner, or something else? Equity income funds are supposed to be stocks that pay dividends, right? So, what category do you think the Dividend Growth Small & Mid-Cap Fund3 is? It has both “dividend” and “growth” in its name, but are they separate or together? Does the fund invest in companies whose dividends are growing, or does it invest in growth companies that also pay dividends? An investor would need to read the fund’s prospectus to find out for sure. I’m sure all good investors thoroughly read those prospectuses from cover to cover.

Reporting Problem

The SEC requires mutual funds to report complete lists of their holdings on a quarterly basis. So, the manager of the hypothetical Blah-Blah Domestic Large Cap Fund could buy a bunch of foreign small-cap stocks on January 1 and hold them until March 28. Then, the manager could sell them and replace them with domestic large-cap stocks, and report on March 31 that the fund was properly holding domestic large cap stocks as required. On April 1, the manager could buy back the foreign small cap stocks and repeat that process every quarter.

Conclusion

Mutual fund names and categories are more informative than they used to be, but they can still be quite confusing or misleading. Investors (and advisors) need to do their due diligence, fully read those prospectuses, and closely follow the actions of the fund managers. Is your advisor recommending mutual funds? Are they confident of what’s really in those funds? Are you? If you have any questions about the mutual funds in your portfolio, email me at steve.hartel@trilogyfs.com and I if I can’t answer your question, I will find someone who can.

  1. https://www.investopedia.com/terms/b/beta.asp
  2. https://www.investopedia.com/terms/s/smart-beta.asp
By
David McDonough
July 2, 2019

Retirement is a big deal, and there are a lot of moving components to plan out. Those issues multiply when there is another individual added to the mix. My definition of retirement is the financial freedom to move into the next chapter of your life, and that next chapter is different for everyone –especially spouses! This is not the time to assume the two of you are on the same page or decide that the two of you will figure it out later. Most people know that I’m a big proponent of talking to your spouse about everything financial, and retirement is no exception.  Be sure to take the guess work out of this process so you can enter the next chapter of your life in harmony.

It’s not uncommon for couples to not see eye-to-eye on retirement. About half of couples don’t agree on what age to retire[i]. Less than 10% of surveyed couples retired at the same time[ii]. And 47% disagreed on how much they would need to save for retirement[iii]. With so many areas to disagree, from where to retire to how to spend your days, how do spouses work together to achieve their cumulative goals?

I always like to recommend the couples start off by taking my financial compatibility quiz. Not only does this show the areas you may not see eye-toe-eye on, but the quiz generates a lot of conversations. Continue these conversations at monthly financial date nights to make sure that the two of you continue on the same path towards the same goals. Talk about the details – at what age do you want to retire, how do you want to spend your days in retirement, and how much of that time will be spent together. Keep in mind that most people have spent over 40 hours a week away from their spouse for decades. Retirement frees up all that time, which can be too much “togetherness” for some couples. This is why I like to take my clients through a discussion on “your time, my time, and our time,” well before it is actually time for retirement. Discussing these things in advance can allow you to compromise on issues before emotions flair and make a world of difference between living together happily in retirement or, in worst cases, filing for divorce.

Once you have an idea of what your retirement goals are, you need to formulate a plan. An experienced financial planner can be a great resource at this time, bringing up things you may not have touched on and running “what if” scenarios for you to see how your retirement dreams can be converted into actionable goals. Please start these discussions early because financial independence takes many forms, but you can’t figure out when you’re going to get there until you plan your route.

Marriage is many things, but ultimately, it is a partnership. The two of you work together to move the household forward. You may not always agree, but you find common ground by talking and sharing and compromising. If you plan ahead and plan together, you can find the right way to your coupled vision of retirement.

Take our FREE Financial Compatibility Quiz here.

[i] https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/couples-retirement-fact-sheet.pdf

[ii] https://assets.aarp.org/rgcenter/general/retired_spouses.pdf

[iii] https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/couples-retirement-fact-sheet.pdf

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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