Cognitive decline has become a devastating reality for millions of Americans. This progressive condition, which largely impacts those over the age of 65, not only diminishes memory but can also create complex legal and financial challenges. Without preparation, these pressures can be overwhelming for individuals and their families alike.
While legal planning helps establish authority and document your wishes, financial planning is also important. Taking proactive steps today to prepare financially can help protect your assets, provide clarity for loved ones, and reduce stress during an already difficult time.
Create Your Financial Planning Team
Whether planning for legal or financial matters, the first step in preparing for cognitive decline is assembling a trusted team of professionals who can help you get organized and focused on key priorities. A comprehensive financial planner, particularly one who specializes in retirement planning and long-term care, can serve as the central coordinator. They can help align your financial goals with the realities of potential cognitive decline and build out a complete team of professionals to address other related concerns.
An estate planning attorney complements this work by confirming your financial strategies are backed by important legal protections. They can help you create or update key legal documents, such as wills/trusts, powers of attorney, and healthcare directives, which play a crucial role in protecting your assets and fulfilling your transfer wishes. An accountant adds another layer of support, offering tax guidance and helping you navigate complex tax implications related to medical expenses and retirement accounts.
Adjust Portfolio Positioning
Cognitive decline often spans many years, making it important for your investment portfolio to be adaptable and balance your need for short-term liquidity with long-term growth. For short-term needs, consider maintaining sufficient liquidity with assets such as cash or short-term bonds that can cover immediate expenses like medical bills or caregiving costs without being forced to sell long-term investments during market downturns. For long-term needs, consider maintaining a diversified portfolio with a focus on growth-oriented assets like stocks, real estate, and hard assets to keep pace with the ever-rising costs of extended care.
It is key to regularly review and rebalance your portfolio with your financial planner to help ensure it aligns with your evolving needs.
Plan Ahead for Cash Flow
Cognitive decline also presents significant cash flow considerations, particularly related to taxes and healthcare costs. Take time to review your retirement accounts, such as IRAs and 401(k)s, because withdrawals are taxable and could impact your income tax bracket. After-tax brokerage accounts can offer more flexibility, as capital gains taxes may be lower than ordinary income taxes.
It is also important to be mindful of Medicare Part B and D surcharges, which increase with higher income levels, potentially raising healthcare costs. On the other hand, medical expenses, including memory care, may qualify as tax deductions if they exceed 7.5% of your adjusted gross income (AGI). Consider consulting an accountant to help maximize deductions and optimize cash flow.
Start Preparing Today
By proactively assembling a trusted team, adjusting your investment portfolio, and planning for potential changes in cash flow, you can take meaningful steps to prepare for the financial impact of cognitive decline. Thoughtful preparation may provide clarity, reduce uncertainty, and help ease the burden on loved ones. Starting early is especially important; acting now gives you the opportunity to make well-informed decisions while you have the time and clarity to do so.
For more helpful content delivered directly to your inbox, sign up for our newsletter at the bottom of the page.
Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC [“Welch”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information serves as the receipt of, or a substitute for, personalized investment advice from Welch contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither Welch’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Welch is engaged, or continues to be engaged, to provide investment advisory services. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Welch’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Welch client, please contact Welch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
IMPORTANT VIDEO DISCLOSURE INFORMATION
The video segment by The Welch Group, LLC (“Welch) was intended for general information purposes only. No portion of the video serves as the receipt of, or as a substitute for, personalized investment advice from Welch or any other investment professional of your choosing. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. Neither Welch’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Welch is engaged, or continues to be engaged, to provide investment advisory services. Welch is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the video content should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Welch is engaged, or continues to be engaged, to provide investment advisory services. Copies of Welch’s current written disclosure Brochure and Form CRS discussing our advisory services and fees are available upon request or at www.welchgroup.com.