How to Protect Your Finances as You Age

Tackling a few simple tasks now can help you maintain control of your finances throughout your life.

• Build your network: Forming strong bonds with people you trust can make it easier to ask for help if the time comes. Two types of individuals, in particular, can assist with both day-to-day matters and larger concerns in the event of cognitive decline:
  • A trusted contact is a designated family member or close friend whom Schwab may contact if you are unavailable or to address concerns regarding your account, such as suspected financial exploitation.
  • A financial advisor not only helps you meet your financial goals but can also help you adjust your plan as your needs or goals change. Many advisors have been trained to explain options in concrete terms since some clients may have difficulty with conceptual planning. This can mean presenting investment choices in terms of specific goals rather than abstract concepts like risk capacity.
• Streamline your finances: Consider consolidating multiple bank, brokerage, 401(k), and IRA accounts. It's hard enough to keep track of even two or three when you're younger. Simplifying your accounts can make things easier for you and anyone else involved in your finances.
• Consider long-term care insurance: Consider long-term care insurance in your 50s or early 60s—generally the most cost-effective time to buy a policy—to offset the high costs of nursing care in the event of significant cognitive decline. Insurance is cheapest and easiest to obtain when you're healthy, but a little more in premiums may still far outweigh the cost of care later in life. Currently, the national average cost of care in an assisted living community exceeds $70,000 a year.

While the hope is you'll never need someone else to manage your affairs, it's a strong possibility for many of us. These three documents are key to clarifying your wishes well ahead of time.

• Living trust: A last will and testament takes effect after your death, so it won't address how to manage your assets in the case of dementia or other illnesses. For that, consider creating a revocable living trust, which allows you to appoint a second trustee upfront, or assign a successor trustee to take over managing the trust and its assets in the event of incapacity. When selecting alternate trustees, think not only about their skills but also about potential conflicts. A corporate trustee can be a good option if you're concerned about, say, appointing one child instead of another.
• Power of attorney (POA): This legal document gives a trusted individual control over any financial matters you specify, such as paying bills, making gifts, managing property, or even altering estate plans. Without a POA, a court may need to appoint a conservator to manage your financial affairs. Durable POAs are preferable to springing POAs, which take effect only when the creator becomes incapacitated. This can be difficult to prove. Durable POAs, on the other hand, are in effect upon creation and until canceled by the creator.
• Advance directive: Also called a living will, this legally binding document allows you to spell out your preferences regarding medical intervention and end-of-life care. Even the best health care directive covers only those situations you explicitly include in the document. Because you can't account for every eventuality, it's wise to also create a health care proxy (sometimes called a medical POA), which gives a loved one the legal authority to make medical decisions regarding any situations not covered by your directive.

It's vital to have a plan that ensures you have others who can help if you ever have difficulty making decisions. Sites like The Conversation Project offer tips for getting these discussions started, and you can also consult a Schwab wealth advisor for guidance.

This aspect of planning should be approached from the heart. It’s about building a trusted team that is deeply familiar with your situation and can assist you when you may need help.