Are Older People Aware of Their Cognitive Decline?


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Jan 31, 2008
This is a really interesting paper. “Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision Making” (link here) It makes the case that people unaware of their cognitive decline suffer greater financial losses than people aware they have cognitive loss. People unaware of their own loss make poorer choices and are more easily taken advantage of by others, including family.

That conclusion makes sense but it shifts the focus away from actual cognitive loss and emphasizes the awareness. It reinforces the benefit of having a social network, because friends are more likely to be aware of the cognitive loss before anyone else. It points to the advantage of having a simple portfolio that is easy to manage. Finally, it does suggest seniors should be more aware of their cognitive health and review their options while they are still healthy.

We investigate whether older people correctly perceive their own cognitive decline, and the potential financial consequences of misperception. First, we document the fact that older people tend to underestimate their cognitive decline. We then show that those who experienced a severe cognitive decline, but are unaware of it, are more likely to suffer wealth losses compared to those who are aware or did not experience a severe decline.

These losses largely reflect decreases in financial wealth and are mainly experienced by wealthier people who were previously active on the stock market. Our findings support the view that financial losses among older people unaware of their cognitive decline are the result of bad financial decisions, not of rational disinvestment strategies.
I like to think I'm too smart for being scammed, but that's my 53 self. Ask me again in 20 years.
I depend on my family, small circle of friends and my doctors to alert me if they see/suspect anything. Right now I think I'm still okay, my wit is still quick (not practiced here much), do my own taxes, do my own investing, pay my bills, like word/number puzzles, can figure out anything on computers/smartphones, etc. Now, physical decline is another story. :(
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It has been an interesting history with my Dad's mental decline. He goes into and out of phases where he recognizes (or doesn't) his deficiencies. It was harder when he thought he was more competent than he actually was - as the OP's article probably says - because he was more prey to scams and bad decision making both with his finances and his health.

The tricky thing is: How do you know if you're overestimating your own abilities? The only way I can think of is to cultivate relationships with friends and family who you trust completely to tell you that you're losing it and that you should stop driving, or move into the CCRC, or turn over financial decisions and management. And that you'll either trust them with that advice, or that you'll, in a moment of clarity, see that you should.

Thankfully my Dad turned over his finances and mail to me about a year ago. I am pretty sure I'm making better decisions, but I also see myself sometimes missing a step or making a small mistake here or there. It can be humbling.

The other thing that I think is a good idea which I implemented with my Dad was to talk with him about all of his finances and how he liked stuff managed. Now that I know his preferences, I can maintain his finances that way even if he can't communicate that stuff anymore and even if I might do it differently were it my finances.

Finally, it's a good idea to have a long transition period. My parents were going over their finances with me easily a decade before the handoff last year, so I already knew where all the accounts were, what all the bills were, which credit cards they had, which doctors/pharmacists/hospitals my parents used, etc. Taking over things was still a bit of work to change all the mailing addresses and phone numbers and emails, but not bad in the big scheme of things.
With 90ish parents this is a concern. Their assets are non trivial. From what I know, which is fairly minimal, it’s mostly straightforward. While there is some inevitable cognitive decline with dad he doesn’t make big changes and is very skeptical such that fraud is less likely. There’s not a lot they need to do other than make RMDs each year. Is their allocation optimal for the age? I don’t know but there is virtually zero chance of running out of money.

I’ve had discussions about how I could help but there is resistance there. I think things are probably OK at the moment but things can change.
As we near seventy, this thought is on my mind. We have one DS, but he lives over 300 miles away. DW has no real interest in taking care of the investments (she is capable, and we handle day to day finances together, so she will likely muddle through OK if I am gone).

DS just knows we are "well off". I guess it might be time to open the kimono, but he really is not into investments either. But, there is also no one else in the family I would trust could handle it if we could not. There are some friends I would trust, but they are our age or older.

I have only seen a few people that "lost it", and they were not close enough to ask any questions of the family.

Fortunately, both sets of our parents were pretty savvy till the end. DMIL, the only one left, is still pretty with it at 93. She still handles all of her own finances, though a couple of us look over her shoulder once in a while.

Following for info.
I remember when @Nords was posting about his father's dementia, financial stuff, conservatorship process. One of the things he spotted, after the fact, was that his dad had bought several bad annuities. The salesperson knew his dad was in decline, and preyed on him.

My husband was his mother's conservator/guardian - but she refused to admit she had dementia, and it went to court, unfortunately. She would get mad that her 'tv didn't work'... because she'd cancelled her cable years before. She was upset that trash wasn't being picked up - but she'd stopped paying her trash hauler. Little stuff that made her life more frustrating as she was no longer able to manage the little stuff.

I tried to access the link, but it didn't work for me.
We were fortunate with DW's dad. In hindsight, he became aware of his decline and engaged a trust company to handle his and his spouse's (MIL) portfolios. He never said anything to anyone--not even his wife, but as he entered his late 80s, he was no longer volunteering to do taxes for other seniors, and had no involvement in their investments. (And, the Trust company was in a position to watch all of their cashflows.)

Bottom line, when his kids determined that they had to step in, it was quite manageable.

DW and I are already starting to pay close attention to these issues, even though we are neither 65 yet ...
My dad passed last year at 92 y.o. However we were discussing finances back to 2015. He started declining a bit in 2017 and I took over his and mom's finances with total agreement. My dad was super easy going with minimal ego, so his personality made the transition easy. Had to fix a few things with certain investments tied up in a checking account as one example. Took over some IRA accounts from Stifel, although they were not churning anything.
I continue to handle and have simplified my mom's investments and actually enjoy it.
I suspect I will be aware - and will also be a nasty, obnoxious, uncooperative, overbearing nasty piece of work as my baser self hates being told what to do.

Sigh . . .
"It points to the advantage of having a simple portfolio that is easy to manage." Bingo and I don't think this can be emphasized enough.
What would you consider to be easy to manage, yet not so singular/simplistic that it's not still sufficiently balanced/diversified? The Boglehead 3-fund? A single balanced fund? Something else?
I have had frank discussions with spouse and a couple of my friends who know me well in order to encourage them not to stand by if they believe I am in some kind of decline mentally OR if they think I should no longer be driving for any reason.
Are they aware? Idk, but several studies point to problems starting about 5 years before their doctors even diagnose an issue.

Alzheimer’s Takes a Financial Toll Long Before Diagnosis, Study Finds

“What they found was striking: Credit scores among people who later develop dementia begin falling sharply long before their disease is formally identified. A year before diagnosis, these people were 17.2 percent more likely to be delinquent on their mortgage payments than before the onset of the disease, and 34.3 percent more likely to be delinquent on their credit card bills. The issues start even earlier: The study finds evidence of people falling behind on their debts five years before diagnosis.”
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This is a huge concern as we age. I am 76 and still doing it all myself but I have my family on guard to clue me in to decline. Four years ago, I was diagnosed with Parkinson's Disease. Cognitive issues, including dementia, depression, anxiety, and others are very common in PD. When I learned of that I immediately called a family meeting and went over how they could seize control of our financial accounts and lock my ass out if I suddenly go south. :) Four years in, it is clear that such demise is not immanent and may not be in the picture at all. But I still stay alert to my own situation (I keep a daily log of symptoms, treatment effects, etc.) and I have occasional discussions with my wife and kids to make sure we stay on the same page. The biggest worry remains a sudden change that leaves me paranoid but not self-aware.

PS: You can join my team. If I start posting weird rants, PM me.
"It points to the advantage of having a simple portfolio that is easy to manage." Bingo and I don't think this can be emphasized enough.
+1 We've been simplifying accounts and closing the stragglers in the past few years. Along the way, we just reacted & opened new ones for various reasons. We've become more intentional (and anal) about cleaning the mess.

Just listening to an estate planning podcast (Earn & Invest #531) and made me happy with our progress recently with our planning. If we go downhill, at least we have a plan for DD.
After a rapid cognitive decline, Mom was diagnosed with Lewy Bodies Dementia. It’s like Alzheimer’s on crack cocaine. It sucked the life out of her in less than 2 years. Robin Williams had it, and took the easy way out. He must have been aware, and avoided the natural outcome.
What would you consider to be easy to manage, yet not so singular/simplistic that it's not still sufficiently balanced/diversified? The Boglehead 3-fund? A single balanced fund? Something else?
Everyone has their own preferences for managing investments, but here’s what works for me. In my T-IRA investment portfolio, I use two mutual funds: Fidelity Total Stock Market (TSM) and a NASDAQ index fund, which together make up 60-65% of my portfolio. The rest is invested in CD ladders paying 5%, with a small amount kept in a sweep/settlement account. I review my strategy annually with my son. This way, if I am no longer able to manage my investments due to physical or mental decline, he can take over easily.

Additionally, it's crucial to ensure that your beneficiaries, POD recipients, and will/trusts are current and up to date before any potential mental decline. This is just as important, if not more so, than your investment strategy.
I have had two friends (now dead) with significant decline. One was 64 with early and rapid dementia. He didn't make it to 65. His wife was hands off on finances and he managed to hose them up and lose a ton of money.

Another was early 80s. Noticed it coming -- although in retrospect, we all may have missed some subtle early signs. Once it was clear, he was privately expressed concern that it was Alzheimer's since both his parents had it. Turned out to be a massive brain tumor.
I would like to simplify our portfolio, but the tax impact stops me from doing so. OTOH, all our assets are in 8 mutual funds, treasuries and cash, so it won't be rocket surgery for our heirs?

My Dad invested very conservatively with some mutual funds, then had everything in treasuries he rolled over for many years, and finally had all his 7-figure assets in savings accounts by the time he passed away. He shouldn't have been that conservative, but it was his money and he never needed any of it - lived well below his military pension income for decades (e.g. over 100% SIRE).

My Mom had some dementia near the end but she passed away at 93 less than a year after onset, and my Dad never showed signs of dementia and passed away at 96 yo. I hope DW and I are as fortunate re: dementia and I don't hope to live as long.
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For my mom at 92, I still have ~11% in an annuity investing in stocks (dad's investment pre tax), but has a floor. So the true "at risk" exposure is 4%.
We have all our investments with 4 companies. As long as I keep my SVF for my 401k, I can't see it being reduced anymore.
The fiance is aware of all the accounts and we review them monthly.
I worry a lot about this subject. Both parents had Alz. disease. Symptoms started at about my current age.:( I hope I see it coming - or rather, I hope it never comes. Mom knew she was slipping, but then resisted intervention. Dad was passive unless he became frightened - then he could be a handful.

Still just hoping not to wake up some sunny morning.
History of dementia on my side, Grandmother and great grandfather.
DH family history mostly + for cancers, not dementia.
Both my parents did not show any mental decline that we were aware of. Hoping the same for me.
We plan to involve our kids more as we head into our 70's, 80's.
We do have a FA also, at this time.
My mum was diagnosed with AD a couple of years after she began exhibiting symptoms, but at the time we attributed them to other things. So easy to explain away.

I did her taxes and noticed a real deterioration way she filed financial documents, an unusual change in her spending, and a big change in her meal prep. Some local charities also noticed, and began collecting donations in person, and the local office of a national Financial Advisor business also was making house calls, which continued even after I confronted them. They were real predators and only stopped after I sent written notice.

At the time she had no idea or awareness her cognitive skills were deteriorating. It’s pretty clear her social skills were still much stronger and her financial skills failing rapidly.
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