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Is Cognitive Decline the Baby Boomers’ Biggest Financial Risk?



This question was posed by Randall Smith in a recent Wall Street Journal article. Mr. Smith concentrated on boomers who manage their own portfolios in his piece.


Baby Boomers, now between 57 and 75 years of age own more than one-half of the $50 trillion of US household financial assets. Of the $26 trillion or so, $6.5 trillion is invested by do-it-yourself investors.


Smith writes that in the next 10 years, nearly half of the oldest boomers will face the likelihood of some cognitive decline. According to a 2017 report from the Center for Retirement Research at Boston College mild cognitive decline and dementia rates are 12% for ages 70 to 74 and 45% for those 80 to 84. They went on to say that even a mild decline “can rapidly erode financial capacity”.


How does one prepare for times like these? Well, do-it-yourselfers are often overconfident, and by default, rely on themselves. But, mutual fund companies like Vanguard are addressing this matter already. They now have a 14-member investor protection group on the lookout for cognitive decline. They, along with most brokerage firms, have been required to ask customers to designate a trusted contact person who can be notified of possible problems. But only 25% of investors have done so to date.


There is no one size fits all plan to deal with cognitive decline. Family dynamics, estate size and complexity vary among investors. Some may distrust their children or have no family members qualified to help them.


How does one even know if they need help? Simple math tests like starting at 100 and counting down to zero by subtracting 7 is a well-known cognitive awareness test. Some apps can detect changes in behavior, such as those that track spending and driving habits.


Investors who rely on fiduciary advisors have an advantage. They have people who they can rely upon to do the right thing for them as they age.