Safeguarding your finances against cognitive decline

<p><strong>Christine Benz:</strong>&nbsp;Hi, I'm Christine Benz for Morningstar. I'm here at the Morningstar Investment Conference, and I'm delighted to be joined today by Carolyn McClanahan. She is cofounder of Whealthcare Planning and she is going to be talking to us today about cognitive decline and how individual investors and potentially financial advisors who are assisting them can help assist their clients in protecting against cognitive decline affecting their financial plans.</p> <p>Carolyn, thank you so much for being here.</p> <p><strong>Carolyn McClanahan:</strong>&nbsp;It's a pleasure to be here. Thanks for having me.</p> <p><strong>Benz:&nbsp;</strong>Carolyn, let's talk about what percentage of the population aged 65 and older is experiencing some type of cognitive decline.</p> <p><strong>McClanahan:&nbsp;</strong>Well, the numbers are very high. Once 65, it's about 10% of people have Alzheimer's, so true dementia. And then, an even higher number have mild cognitive impairment, which means you can still function well, but you just don't think as well as you used to. The older you get; the numbers get scarier. So, it's important for people to plan for this.</p> <p><strong>Benz:&nbsp;</strong>Let's talk about the risk factors that tend to make us more vulnerable to experiencing cognitive decline.</p> <p><strong>McClanahan:&nbsp;</strong>Well, of course, the No. 1 risk factor is aging. The older you get--and those are obvious, but women are at higher risk. People who have chronic medical illnesses such as hypertension, diabetes are at higher risk. People who smoke are at higher risk. So, anything that kind of affects the blood flow to the brain puts you at a higher risk.</p> <p><strong>Benz:&nbsp;</strong>Okay. So, obviously, the results and the effects of cognitive decline can be devastating in many different ways. But one area that I want to focus on is the financial piece. So, people who are experiencing cognitive decline are susceptible to making financial mistakes and they are also susceptible to financial fraud. So, let's start with the first piece. If I'm an individual investor, and I know a lot of our audience would consist of dedicated individual investors, how can I kind of build a fireproof wall into my plan to ensure that I can't make too many mistakes to really ruin everything?</p> <p><strong>McClanahan:&nbsp;</strong>Yeah. The most important thing as an individual investor ages is to start to simplify things. Because as we age, we lose the flexibility in our brains to make complex decisions, especially if we need to make them quickly. And so, by buying more simple investments, staying away from complicated private placements and things like that is really smart. The other thing is, it's really important to police yourself. Now there are tools out there, like one of the tools we developed through Whealthcare Planning, so that investors can test themselves to see if they are having issues with finance decision-making.</p> <p><strong>Benz:&nbsp;</strong>Okay. Let's talk about the financial fraud piece. It seems like maybe the gold standard of protecting yourself against financial fraud would be to align yourself with a financial advisor who you've worked with for many years. But say we are talking about people who have really constructed their financial plans on their own and have been managing on their own. What can they do to protect themselves against financial fraud?</p> <p><strong>McClanahan:&nbsp;</strong>So, as we age, we tend to become more concrete in our thinking and it's important for you to understand, What is it that puts you at risk of fraud? And if you rely on your gut decisions for making financial decisions, that's a bad thing. If you tend to go on what other people say and trust what people say instead of doing your own research, that puts you at risk. So, there are a number of factors that put you at risk. So, to learn about your factors is really important, so you can guard against those. What we lose in flexibility in our brains as we age, ideally, we have replaced with wisdom. So, people need to understand themselves early, start policing themselves in their 50s or early 60s before they develop problems, understand how the brain works so that when they age and they are becoming more concrete, ideally, they've had--they've put those building blocks in place to reduce the risk of fraud and abuse.</p> <p><strong>Benz:&nbsp;</strong>Are there other ways to build in safeguards, like maybe bringing a trusted adult child onboard your financial matters?</p> <p><strong>McClanahan:&nbsp;</strong>Absolutely. It's very important. Ninety percent of fraud is actually done by people who are close to us.</p> <p><strong>Benz:&nbsp;</strong>Within the family.</p> <p><strong>McClanahan:&nbsp;</strong>Within the family or our close friends. They don't steal as much money, though, as the other 10%. The other 10% are like Nigerian prince scams and all those crazy things that people still fall for. And so, the ideal way to prevent fraud and abuse is to create transparency within your financial situation. So, for example, a lot of older people don't want to share their business with their children. It's important to share it with multiple people, so that as you age, people can start looking in. And when I say share your business, you don't have to give them access to accounts. You can use things like a financial portal, like Mint.com or eMoney, where they can monitor you and see what you are doing without actually having access to your accounts.</p> <p><strong>Benz:&nbsp;</strong>Okay. Carolyn, I'm thrilled to have you here. This is such an important topic.</p> <p><strong>McClanahan:&nbsp;</strong>Yes. Thank you.</p> <p><strong>Benz:&nbsp;</strong>Thank you so much for being here.</p> <p><strong>McClanahan:&nbsp;</strong>It's been a pleasure.</p> <p><strong>Benz:&nbsp;</strong>Thanks for watching. I'm Christine Benz for Morningstar.com.</p> <p>&nbsp;</p> <p>&nbsp;</p>