With an estimated 5.8 million Americans living with Alzheimer’s, dementia or other memory disorders, a figure that is expected to double by 2040 with the aging population, new research from RBC Wealth Management – U.S. and Aon uncovers just how financially devastating cognitive decline can be on both individuals and families – even those with higher net worth.
The survey of 1,000 mass affluent and high-net-worth cognitive decline caregivers in the United States revealed that the overall lifetime cost of care for dementia can be financially devastating, often exceeding $750,000 in direct and indirect expenses. The price tag on the disease is further escalated by the propensity of individuals with dementia to make poor financial decisions that can further impair their finances. In fact, 80% of survey respondents reported some level of financial mismanagement by the individual they care for. The study also found that most of the caregiving responsibility falls on female shoulders, and women tend to make financial sacrifices earlier than men, such as reducing work hours or leaving the workforce entirely, which can have a lasting impact on their own wealth.
“Mismanaging daily finances is often the first place you see signs of cognitive decline, which is just the beginning of the financial journey with this progressive disease,” said Angie O’Leary, Head of Wealth Planning for RBC Wealth Management. “One of the key reasons we commissioned this research was to identify additional ways financial advisors can support clients and caregivers who are confronting cognitive decline. We’re all good at planning for things like college and vacations, but most investors aren’t planning for something like a dementia diagnosis. Advisors and clients need to understand the total impact.”
Key findings from the research are outlined in a new RBC Wealth Insight report and in a new content series on cognitive decline, available here. Additional insights from the report include:
Expenses accumulate, and increase with time
Depending on when someone with cognitive decline is diagnosed, caring for that person can last from five to 15 years, on average, and can cumulatively cost families hundreds of thousands of dollars, according to the study.
There are also progressive expenses for caregivers. According to RBC and Aon’s research, caregivers make a financial contribution of nearly $750 per month, on average, to support daily expenses or other needs. By the time someone reaches a severe decline, monthly expenses are estimated at $1,200 per month.
“A dementia diagnosis can be financially devastating, as Medicare and traditional insurance do not cover daily care costs,” O’Leary said. “And most families don’t realize you need to completely drawdown your personal wealth before there is any government aid.”
Financial mismanagement a top risk
Another key risk and concern for a majority of caregiver respondents is financial mismanagement. According to the research, 80% of people affected by dementia have at some point experienced financial mismanagement. Unpaid bills, unusual spending, unopened statements, and repeat calls to advisors over the same concern can all be early warning signs and even signs of financial fraud or abuse.
“Advisors play an important role in helping to identify those early warning signs of dementia,” said Tara Ambrose, Manager of Senior & Vulnerable Client Initiatives at RBC Wealth Management. “They can work with families to take early steps to protect finances and help prevent fraud and financial abuse.”
Caregiving and financial burden primarily impacts women
The study also found that the responsibility of caregiving tends to fall on women, who are more likely to feel the impact of caregiving on their work at an earlier point than men. Female caregivers typically begin caregiving at an earlier stage in the diagnosis than men and spend more time on average caring for someone suffering cognitive decline.
The sacrifices female caregivers make to care for loved ones suffering cognitive decline often impact career trajectories more than their male counterparts, with 44% adjusting their work patterns, including withdrawing from the labor force or by taking early retirement. And for one in eight female caregivers, the time commitment is 160 hours a month or more, which is equivalent to a full-time job, unpaid. These reduced hours and job leaves are costing women caregivers approximately $35,000 in annual income.
“A big obstacle for women to continue in the workforce is this balance on the home front,” O’Leary added. “Often women are ‘sandwiched’ between child and elder care and have to take a gap in their career. Not only is there a financial loss, but the sacrifice is also keeping them from reaching parity in the workplace.”
That loss of income has a multiplier effect, O’Leary said. Reducing hours or leaving the workforce to care for a loved one doesn’t only impact a caregiver’s current income, but it can also reduce future Social Security benefits, 401(k) contributions and employer retirement fund matches.
Financial guidance biggest need for caregivers
With the rising costs, reduction in earnings, pressures of caregiving and risks for financial mismanagement, access to a financial advisor ranked as a top resource among those surveyed – especially for those in the “sandwich” generation.
“There are clear opportunities to better support these caregivers, not just through more comprehensive financial guidance but also by facilitating access to tools and resources that reduce the financial risks to family wealth,” O’Leary added. “This research will help fortify the importance of having planning conversations between our advisors and clients that will help families better navigate this terrible disease – one with incredible financial impact and risk.”
More information on the research and a full report is available here.
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