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Don’t Forget to Build This Into Your Retirement and Estate Plans


Most people will, sooner or later, want – or need – to surrender control of their finances. 

One of the lesser-known aspects of retirement planning is lining up someone known as an agent or fiduciary. This is someone who can take control of your finances if you experience cognitive decline or are otherwise incapacitated. This is a good piece of overall financial housekeeping, since accidents can happen to anyone, making it a critical part of planning for old age. Many people will suffer cognitive decline as they age, and that can seriously impact their ability to manage their assets. When, exactly, do you hand over control?

Consider working with a financial advisor as you go through the process of building your estate and retirement plans.

According to a new study published by Boston College’s Center for Retirement Research, timing is a serious risk when it comes to using a financial agent. Hand over control of your money too soon, and you can find yourself a perfectly competent person with no control over their life. Hand over control too late, and you can make mistakes that might seriously jeopardize your financial future.

What Is a Financial Agent?

A financial agent is someone who makes financial decisions with you or on your behalf. The exact nature of this relationship depends on your preferences, but most agents will either act as a co-signatory or a sole controller of your financial accounts. A co-signatory means that both you and your agent must jointly authorize any financial transaction. A sole controller means that only your agent can authorize financial transactions to and from your accounts.

This is a type of power of attorney, in which you authorize someone to act on your behalf in a legal capacity and is granted through a power of attorney form. The purpose of a financial agent is to help protect you against mental decline in old age. As the authors of the study write:

“Cognitive decline is a significant risk for older Americans … [and] increasing evidence suggests that cognitive decline is related to financial mistakes. When cognitive decline is unnoticed, the affected individual may continue making financial decisions, increasing the chance of suboptimal decisions and financial losses. Cognitive decline also makes older individuals more vulnerable to financial exploitation and fraud. Thus, people need a timely transfer of control over their finances to a trusted agent to mitigate the adverse impacts of cognitive decline.”

It’s an effect that researchers have found again and again. As economists from the University of Southern California found, cognitive decline leads to “significant reductions in wealth among households whose financial decision-maker experiences such declines. Wealth reductions are less sizeable among those with pension or annuity income and those receiving help with finances from their children.” 

An agent helps protect against those mistakes. An agent can either backstop your decisions as a co-signatory, checking your choices for mistakes, or they take over those decisions entirely, preventing you from making mistakes in the first place. The problem, as the authors of the Boston College study note, is that a financial agent can’t do any good until you actually appoint one.

What Are Timing Risks?

Timing is the great risk of appointing a financial agent. As people age, most of them do consider who will help them manage mental decline or dementia. They generally anticipate that their children or another trusted family member will help with this.

The issue can be, according to the study’s authors, that “the transfer of control must be made at the right time… before the aging individual makes irreversible mistakes.” If you hand over control of your finances too early, you can be forced to live as a perfectly competent adult who needs someone else’s permission to make even routine decisions. In many ways it’s a reversion to childhood, often with your own children now in charge.

But if you wait too long, you can expose yourself to serious financial mistakes. You can fall for scams, make bad investment or money management decisions and more. Timing, far more than finding a trusted individual, is the real risk in appointing a financial agent.

How Can You Mitigate Timing Risks?

Son and father taking a walk to discuss asset control.

The good news is that you have many tools for managing this risk. 

The first, and most important, step is regular medical checkups. Most adults say that they wouldn’t want to hand over control of their finances at the very first sign of mental decline, but rather at some point before serious symptoms emerge. The best way to manage that is by seeing a doctor who can track your mental status over time.

It’s also important to select your agent well before any issues begin. While, as noted above, this is a good best practice for any household, it should be an essential part of all retirement planning. Choose your agent and talk to him or her about the role. That last is particularly important for a Baby Boomer generation famously reluctant to talk money with their children. Make sure your agent is ready, willing and able to take on this responsibility. 

A springing power of attorney form can be useful in preparing for cognitive decline. Having this filled out in advance can ensure that your chosen agent automatically takes charge of your finances if a doctor or judge ever declares you mentally unfit. This is a very useful backstop, but also a limited one. Medical incompetence is a high bar, and financial missteps can come long before a doctor ever declares you unfit.

A better option is to speak with your agent regularly. Once a doctor flags signs of mental decline, start regular check-ins about your mental state. Ask for your agent’s advice and – this is the most important part – take it. If you particularly trust them you can even prepare a power of attorney form for your agent to keep on file. This would allow them to execute the transfer at their own discretion, eliminating the concern that you will wait too long and no longer have the good judgment to transfer control of your finances. 

As with most financial matters, the best way to manage financial control and cognitive decline is through preparation and regular monitoring. Choose your agent in advance. Discuss this with him or her and prepare the paperwork, whether through a springing power of attorney or a simple power of attorney that clarifies how you want your finances managed. Then see your doctor regularly.

Because there’s nothing worse than not being able to trust your own judgment.

Bottom Line

Cognitive decline affects a significant portion of older adults, and it can expose you to serious financial risk. By appointing a trusted agent to help you manage your finances you can protect yourself from that risk, but it’s important not to wait too long.

Tips for Finding a Fiduciary

  • financial advisor can help you build a comprehensive retirement and estate plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you don’t have a family member to do this job for you, then you will want to hire a financial fiduciary.

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