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Should the Possibility of Dementia Be Considered When Planning for Retirement?

By Julie Jason, JD, LLM

Originally published by the ABA Voice of Experience in February 2022

Unlike death and taxes, dementia is not a given. It is an uncertainty, just like all other uncertainties addressed by investment counsel when they prepare to set a retirement portfolio strategy. Just about everything considered is an unknown: how long retirement will last (time horizon), inflation (loss of purchasing power), sources of income (will Social Security survive?), investment returns (what can we expect?), taxes (probably higher, not lower), the financial markets (where are we headed considering COVID, supply disruptions, Ukraine and Russia, Taiwan and China...?) 

Somewhat easier to assess is the expense side of the household budget for daily living expenses, as long as there are no surprises. These are assumptions about costs to maintain a healthy lifestyle; an idea of discretionary expenses for vacations and indulgences. But what about how you would pay for a major incapacity such as dementia, which could last a lifetime and require round-the-clock care? (According to the Alzheimer’s Association, the average lifespan for people 65 and older, after diagnosis, is 4 to 8 years, or as long as 20 years if the individual is otherwise healthy.) https://tinyurl.com/45uyb248

How does one even begin to think of how to tackle that calculus? There is a way.

1. Set the right tone; face, do not ignore, the contingency as it effects retirement planning: a potential drain on financial resources.

2. Don’t delay. Anyone will no doubt agree that planning for a contingency such as dementia needs to occur while in good health. That means the best time is now.

3. Once you make the do-it-now timing decision, ask yourself, “Do what?” This is all about understanding the unknowns well enough to develop a few rules to live by in the event of a diagnosis. (If X happens, I’ll do Y).

4. Become familiar with resources, which, there are many. I recommend: Alzheimers.gov’s  “Planning for the Future After a Dementia Diagnosis,” “Don’t Let Dementia Steal Everything” (ABA, 2018); and Dr. Jason Karlawish’s “The Problem of Alzheimer’s” (St. Martin’s Publishing, 2021). Alzheimers.gov and alz.org also have checklists to consider.

5. Do some basic research on local facilities that specialize in dementia care. What services do they provide? What are the costs? How do they differ? What are the elements that are important to you?

6. Consider your financial situation to determine if you can self-fund the cost of care vs. purchasing long-term care insurance vs. applying for assistance through Medicaid. This exercise will require getting cost information and incorporating these expenses in a cash flow projection. AARP’s worksheet called ‘Long Term Care’ at https://tinyurl.com/8bpdfp27 can help.

7. Consider your family situation to determine whether any particular arrangements need to be discussed with family members now or later, if at all, especially about health care planning.

8. Consider your wishes about health care and estate planning. Review advance directives such as a living will, durable power of attorney, DNI (do not intubate), DNR (do not resuscitate), and organ donation.

9. Step back to take in the big picture, a safe and secure retirement.

Before you retire, you want to increase your wealth. After you retire, your first and foremost objective is to replace your paycheck (and qualify for pay increases), and perhaps leave a legacy. Incorporated within the analysis would be an assessment of uncertainties that can include contingencies, such as incapacity. The key is anticipating this contingency like all others so that you can understand your options given your financial situation.

With that backdrop, let me ask you this: Will your retirement portfolio serve as your constant friend and benefactor even in uncertain times? If you are not sure, bring in an expert to help you. Dementia is not inevitable, but that doesn’t mean that resource management should be left to chance.