FINANCIAL IMPACTS OF DEMENTIA
By MARY LYNNE DAHL, CFP®
April 16, 2019
One day, he checked into his office before heading out to the job site and ended up in an angry exchange with his boss over an error he had made on a report. Soon, this was happening weekly, then daily. Finally, after 2 years of errors and arguments with his bosses, he was fired. He had been with the company for 25 years and always got great job reviews, until the last 2 years. Something was wrong, but his employer did not recognize it. Neither did Jeff.
In the US, 12% of people over the age of 65 have developed some sort of dementia but it is a growing problem in much younger people as well. Dementia means that they are experiencing cognitive deficits to some degree. At some point, these deficits will impair their ability to grasp financial concepts. Often, it begins with loss of short term memory and/or changes in personality or social behavior and can be hard to detect initially. Family members of patients with dementia often say that they did not notice the changes in their parent/spouse/loved one until something dramatic happened, like getting fired at work, or being in a car accident. Getting that sort of wake-up call is often sudden and shocking.
According to the Alzheimer Association, there are 11 forms of dementia. Some show up in older people, usually in their 60’s and 70’s while others show up in people in their 50’s or even 40’s. Treatment for the most common form of dementia, Alzheimer’s, has gotten the most attention and research money, but it cannot yet be “cured”. For many other forms of dementia, confirmation (proof) of the disease can only be provided via autopsy, so it is difficult to say for sure in many cases exactly what type of dementia is present and consequently, how to treat it. The results are that many patients go undiagnosed and untreated until reaching the severe stage of the disease, making them prone to doing a lot of financial damage to their families and themselves.
For example, Jeff felt that his boss was unreasonable in his criticism of the errors Jeff repeatedly made, so Jeff publicly began to refer to his boss as “a jerk”, making it clear that by being a jerk, the boss was wrong and at fault for Jeff’s growing problems at work. Jeff was in the process of a personality change that no one recognized as dementia. Jeff lost his ability to do simple math, so he ignored the necessity of using it to manage his money. He stopped recording expenses in his checkbook and credit card accounts. His spending became out of control. He bounced checks regularly, forgot to pay routine bills for electricity, car payments and insurance premiums. His cable subscription and cell service lapsed for nonpayment. He began talking about quitting his job in order to get a different job working for someone who was not “a jerk”, and declared that he would use his retirement funds to get by if he quit and did not find another job immediately. Within a year of this sort of financial dysfunction, Jeff had spent thousands of dollars out of savings and had no idea how he had spent the money. He was going downhill financially, fast.
To his family, Jeff had become a serious liability. He put all of them in financial jeopardy, running up bills, using up savings, risking other assets and compromising his family’s financial stability. He would eventually need specialized medical care, probably institutional. What would that cost and what resources were needed to pay for it? The future had changed from a normal, upper middle class lifestyle to one of major financial hardships and challenges for Jeff and his family. The hard part was that Jeff was unaware of all of this as it happened. He neither recognized it in the early stages nor cared about it in the severe, latter stages of dementia.
Various kinds of dementia have differing stages of progression. Some last longer than others, but in general, patients with dementia live 6-10 years on average (source: Alzheimer Association).
At some point in the disease, the patient with dementia will be unable to work. If he or she is under retirement age, this means a major loss of income to the family. In addition, it may and usually does mean that expenses will go up. In cases where a patient had been working, it often also results in a loss of medical insurance benefits, causing a very expensive increase in the family budget. A loss of this kind of employer provided benefit is major and will create greater expenses, more risk of catastrophic loss as well as a reduction in medical services in many cases, just at a time when the family will actually need specialized medical services such as Jeff required.
Some types of dementia can progress more rapidly than others, making it hard to predict outcomes of the disease in individual cases. This makes it hard for caregivers to plan financially. Do you plan for home care assistance now or next year? What does that cost? What happens if the patient becomes unable to stand and walk independently? What happens if the patient remains physically capable but is mentally impaired? What happens if the patient denies being impaired entirely and will not cooperate?
From a financial planning perspective, what are the steps a family can take to protect themselves from these horrific risks?
Well, first of all, couples should not separate their family finances. This means that neither husband nor wife should alone be responsible for handling the finances, paying bills and making financial decisions. One spouse may actually pay the bills, but both should be 100% aware of them, totally on board with the budget and able to take over for the other spouse in an emergency or decision to change responsibilities. Spouses should have a household account from which to pay all bills, not splitting the bills and each one paying certain bills only. Both spouses should deposit to the household account in amounts sufficient to cover the total household expenses annually.
Both spouses should sign on the household checking account, so that in case one is unable to function for whatever reason, the other can handle the household expenses. It is ok for each spouse to have an account on the side, for discretionary spending, but this should not be a large account that accumulates from joint or household withdrawals of funds. Side accounts are sometimes referred to as “fun accounts” or something similar and simply allow the owner to have some money to spend for extras and fun things. This kind of account assumes that the family has some excess income to designate for these kinds of accounts, which can be a checking, savings or debit/credit card account. In any case, they should be insignificant in amount and known to both spouses.
Another important way to manage the risks of financial incompetence resulting from early stages of dementia, when patients often deny that they have any deficiencies, is with a durable power of attorney (DPOA). Every spouse should have a signed DPOA for the other spouse. This allows the DPOA to act on behalf of the spouse who cannot or will not recognize their cognitive dysfunction. In Jeff’s case, his wife would have the authority to close accounts, take over management of the family finances, make inquiries about his wages, sign documents on his behalf and generally keep him from spending down the savings or running up big credit card bills. A DPOA enables a spouse to prevent the financial damage that can be done in early stages of dementia by allowing him or her to take control of the finances at a critical point in the development of the disease, prior to it becoming recognizable and diagnosed. It is at these early stages that many patients do the most damage to a family’s finances, so having a DPOA to take financial control and limit or eliminate the potential for financial mismanagement is critical.
Having a DPOA also allows a spouse to apply for Social Security disability for a husband or wife who is under retirement age and unable to work due to the progressing disabilities of early stage dementia. This can be very important to the welfare of the family if the patient has lost his/her job, as in Jeff’s case. It may provide enough income to avert the necessity of selling assets or moving to a less expensive home. Social Security disability income is not easy to qualify for and often takes several years to obtain, but with dementia patients, it is generally available eventually.
In fact, Social Security offers an “expedited application process” in the case of disability due to verifiable dementia. It requires medical data done by physicians and/or diagnosticians. It asks for proof of dysfunction and cognitive incompetence, but for most patients in early stages of dementia, these requirements are not difficult to get if the patient has a primary care physician and medical insurance.
It is also a good idea for a working person to take advantage of long term disability insurance that is often available through employment as a supplemental benefit. This usually costs the employee and is deducted from his/her pay, but it is relatively inexpensive as a benefit and can help dramatically in cases like Jeff’s. In his case, once he is diagnosed as “impaired”, he has a good chance of being eligible for long term disability income from his employer, even after leaving his job, assuming he can demonstrate that he became impaired while still employed. Many employers will help an employee who is leaving employment for this reason to apply for and get long term disability, but not all of them do. In any case, you cannot get benefits if you do not sign up for the insurance in the first place, so it is wise to do so, just in case you or your spouse is one of the 12%.
I also recommend that spouses maintain joint ownership of all of their cash, non-retirement accounts and credit cards. Once someone develops dementia, it is hard to access their bank accounts, investments and credit accounts if these accounts are only in the name of the other spouse. You cannot cancel an account if you do not sign on it. Even if only one spouse actually uses the account in question, such as a “fun account”, the other spouse should, in an emergency, be able to access it for management of it. Keeping all of these types of accounts in joint name is how to achieve that. This includes car and real estate titles, too.
Finally, both spouses should have a medical directive for themselves and name the other spouse as being in charge in the event that they become incapacitated. This should be a no-brainer but often is overlooked between spouses. It is said that “every marriage ends in death or divorce”, but this is only partially true. When your spouse develops dementia, the marriage, while technically intact, gradually ends as well, leaving you first with a dependent who becomes childlike and incompetent. You lose your adult spouse and gain a dependent child until their death. It is a cruel and painful experience to lose a spouse this way. Planning for some ways to minimize the pain is possible, but it is a very unpleasant subject to consider. Doing it while you are both well is much easier. Once you begin to see the signs of dementia, it becomes harder, particularly when the patient in question denies he or she is impaired in any way. Unfortunately, denial is common, but understandable. Nobody wants to admit that they are deficient or impaired.
Let’s hope you never have to deal with this, but some of you will, so take steps today to protect you, your spouse and your family. Dementia in all of its forms is increasingly being reported in the US, for whatever reasons, and cannot be avoided in all cases. It strikes regardless of education, social status, income level and overall health conditions. No one is immune, but everyone can reduce the pain and damage it can cause, with some straightforward financial planning strategies .
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