Cognitive Decline and Your Finances

One of the talking points of financial advisors is that even if right now you’re able to handle your own investments, tax planning, and other aspects of personal finance, you may face cognitive decline later in life.  The implication is that maybe you should get a financial advisor now before it’s too late.

The challenge here is that many people who hold themselves out as financial advisors are little more than sellers of expensive mutual funds.  Some might even be inclined to take advantage of your cognitive decline to churn your account and generate excess fees.

What you may need is a good financial advisor.  Some financial advisors are excellent.  They range from those who charge by the hour for advice only to those who manage your investments directly for you.  However, if you’re in cognitive decline, it won’t help to just get the occasional portfolio checkup.  The advisor would have to directly manage your investments.  But it’s hard to get this type of advisor without at least a million dollars invested.

If you do meet an advisor’s asset threshold, you're still faced with the dilemma of determining whether you’ve found a good advisor.  One strategy is to reduce the size of the problem.  The more guaranteed income you have, the less important your investments become.  If you or an advisor mangle your investments, having a higher guaranteed income will be valuable.

Here are three possible ways to increase retirement income:

1. Delay the start of CPP and OAS

The formula for increasing CPP and OAS benefits if you delay their start is quite generous.  Any delay up to age 70 gives you more money per month.  The fact that these benefits are indexed to inflation is very valuable.

2. Buy an annuity

Typically annuities are not indexed at all, but you can get one whose payments increase annually by a fixed percentage, such as 2%.  Buying annuities isn’t as beneficial as delaying CPP and OAS, but it does create more guaranteed income to protect you from yourself in the case of cognitive decline.

To reduce inflation risk, you could wait until later in life (but not too late!) to buy an annuity.  One strategy might be to buy more than one annuity at different ages.

3. Work somewhere that offers a defined-benefit pension

This option is certainly more extreme than the other two, particularly if you would have to change careers.  But if it’s something you don’t mind doing, a defined-benefit pension takes away many retirement worries.

Family help

Another alternative to getting a financial advisor is to get help from younger family members.  I’ve gone to a lot of trouble to learn how to invest, manage taxes, and run the rest of my personal finances.  I’ve been passing this knowledge along to my sons in small steps.

A time will come when I’ll start showing them how my finances work in preparation for when they might have to start helping.  This feels natural for me, because once my wife and I are gone, they’ll get what’s left anyway.

Not everyone has family members whose intelligence and morals they trust enough for this kind of help.  But if you do, they can help protect your finances from your mistakes.

The financial advisor path

A good financial advisor is likely to benefit you most when family assets are complex.  But you still have the challenge of figuring out whether a financial advisor is good and honest.  I feel like I have the knowledge to judge an advisor’s competence, but you almost have to know how to do it yourself to be able to judge an advisor.

Another path is to get help choosing an advisor.  If you know someone you trust who is knowledgeable about finances, they may be able to help.  But that still requires you to judge whether the person you trust is truly knowledgeable rather than just someone who talks about stocks a lot.

Conclusion

Unfortunately, there are only a certain number of good advisors to go around, and many people are destined to never work with one of them.  The best I can offer is to consider the three ways of increasing guaranteed retirement income, consider direct help from family, and if you choose to find a financial advisor, do your best to find a good one.