Navigating Financial Decisions and Aging

Talking about money is hard. Talking about aging is even harder. Mix the two, and things get really messy. But, while medical practices continue to improve, physical and mental deterioration, and death, remain inevitable. These steps will help aging individuals and their families navigate the financial decisions that come with aging.

1. Communicate early and often

Conversations about care, finances, and end of life are difficult conversations, and they do not get easier with time. Like any uncomfortable task, the more you practice, the better you become. Start discussing these topics as early as possible, even if these topics do not seem immediately relevant. The more family members know about the wishes of their elders, the better they can help advise and guide the difficult decisions that are an integral part of aging.

Importantly, these conversations should be ongoing rather than one-offs. Instead of a threatening “talk”, make a point to discuss these matters on an ongoing basis and adjust to changing circumstances. These conversations should cover decisions about end of life care, ‘what if’ questions around mental capacity, financial priorities, living arrangements, as well as the topics that are discussed below.

2. Understand care options

Decisions about care must align with the elderly’s wishes, their mental and physical conditions, the realistic availability of family support, and financial resources.

For the independent elderly, downsizing to a better suited residence, supplemented by visiting home services and caregivers, may provide adequate support at a relatively low price tag. This includes living with family members who can provide assistance and company.

Individuals can also choose to live alone but within a community that provides a variety of services, in either an independent or assisted living arrangement. The latter is geared towards those who need greater levels of care such as help with bathing, dressing, and personal care. Retirement communities typically have an upfront buy-in cost and monthly fees thereafter. Finally, for individuals with physical or mental conditions, a skilled nursing facility or memory care unit may be required. These facilities are typically the most expensive.

A decision between these different options must first take into account the priorities of the elderly and their families, and these can only be discerned through dialogue. Any decision must balance the tradeoffs between location, living conditions, independence, community, access to health and other services, and cost. When in doubt, it is recommend that you consult an elder care expert who can advise on the different options.

Long term care decisions should include a medical care plan that takes into account Medicare — the government health insurance that is available to all individuals age of 65 and older. Medicare has multiple parts, some of which are optional, and many choose to purchase additional medical insurance. It is highly advised to consult with a medicare expert when devising a medical care plan.

3. Develop a financial plan

It’s always a good idea to have a financial plan, but for those living off their savings, this step is especially acute. A sound financial plan will take into account all available income including savings, social security, retirement benefits, and assistance from family. Based on these, a budget and investment strategy can be devised to ensure that the money lasts as long as necessary. Some financial advisors offer access to financial planning services at no additional cost.

Today’s market conditions pose unique challenges to those living off their savings. Though there is consensus that we are nearing the end of the business cycle, no one can time the next recession. Given the volatility in the markets, it can be difficult to identify investments that meet both income and liquidity needs of the elderly. Ask your financial advisor to help you devise a customized fixed-income portfolio that will address these challenges.

Finally, a financial plan will also account for bequests the elderly wish to make and their philanthropic goals. A variety of tax structures including trusts, foundations, donor-advised-funds, as well as decisions about individual securities and assets, can help reduce the tax burden and ensure that these goals are met. Importantly, the new tax code makes it harder to gain tax relief through charitable contributions. A tax professional can help optimize these decisions.

4. Get affairs in order

Completing the relevant legal documents at an early stage can help avoid confusion and frustration. These documents can later be updated as necessary. They will include:

• A will, and in many cases, a trust
• Medical instructions via a health care proxy and living will, including clauses for Do Not Resuscitate (DNR) orders and organ donation, if desired
• Releases via a HIPAA (Health Insurance Portability and Accountability Act) form for an agent to be able to access any and all health care records
• Durable Power of Attorney that will enable a third party to handle financial affairs in case of incapacity

Trusts serve multiple purposes, from expediting the distribution of inheritance by avoiding probate, through tax optimization, to controlling future distributions. They can be funded during the grantor’s lifetime, or after death via the will. The former offers several benefits, namely, in case of loss of capacity, the Trustee can step in and keep the grantor’s affairs in order without interruption from any third parties or financial institutions. There are multiple types of trusts, and an attorney who specializes in trusts and estates can be helpful here.

It’s important for both the elderly and their families to keep an eye out for difficulty in managing financial affairs. Don’t wait until a costly mistake has been made to put safeguards in place- family members or hired help can assist with managing day-to-day finances, and finance professionals can help with larger financial decisions. In addition, gathering contact and financial information in a known location will prove to be extremely helpful.

5. Protect from fraud

Who among us has not been fooled by a particularly compelling phishing attack? A wide array of scams and fraud attempts specifically target the elderly. These include calls from individuals disguised as family members asking for money, service providers requesting private information, or technical support suggesting individuals install harmful software.

Discussing these threats and creating a safe space for elders to consult family members is the best way to prevent fraud. A variety of professional services can also be used to protect electronic devices against malware as well as monitor identify theft.

Final Thoughts

With increasing longevity, the challenge of navigating financial decisions and aging has crept up on many families. By then, decisions must be made under the pressure of changing circumstances and often with inadequate knowledge of the elderly’s priorities. By engaging with these questions early and often, we can reduce the distress and trauma that comes with aging, both to elderly and their families.

Additional Resources

Being Mortal: Medicine and What Matters in the End, by Atul Gawande. This fantastic book discuss the state of eldercare and hospice care in the U.S., and provides important guidance on having difficult conversations about end of life decisions.

Eldercare Locator. This government-run website can assist with finding local support services and caregivers within the U.S.