Transcript:

Ben Smith:

Welcome everyone to The Retirement Success in Maine Podcast. My name is Ben Smith, joining me and co-hosting today's episode, the main health to my Northern Light Health Curtis Worcester. How you doing today, Curtis?

Curtis Worcester:

I'm doing well, Ben. How are you?

Ben Smith:

I'm doing well. We're episode, I think 56 at this point.

Curtis Worcester:

Yeah.

Ben Smith:

So we're getting into our late 50s. We are showboat aging and aging with grace and we're doing that pretty well ourselves. So we're pretty proud of how things are going with our show. One topic we wanted to touch on that we've touched on here and there within our podcast has been the fear that we hear our clients have about cognitive decline. Again, I think we're all concerned about that. And especially, as we age and personally seeing my grandmother go through a rapid decline into dementia was extremely impactful on our family. And my grandfather lived another 10 plus years beyond my grandmother. Living every day, worrying that he was going to start to experience his own rapid decline towards dementia.

Ben Smith:

I think it's something almost everyone worries about as we age, but maybe not only for ourselves, but for our spouse or a partner, some other connection too. So recently our awesome connections at Vanguard. Kelly Orr, and Alexandra Kroot, shared with us a new Vanguard white paper that came out.

Curtis Worcester:

Yep.

Ben Smith:

It's titled, The Risk of Cognitive Decline: Investors' Perception and Preparation. It really addresses all lot of questions that we hear daily from our clients and now, through you guys, our listeners of the show. I think there's some things in there that, if my grandparents had thought about or known of, it really would've made some of this aging transition a lot easier. So we had to put in a request to the author of this paper and voila, we have a guest.

Curtis Worcester:

So today's guest is a senior investment strategist with the Vanguard Investment Strategy Group. The investment strategy group's core responsibility is to conduct empirical research and analysis delving beyond today's news to uncover and give context to macro and microeconomic trends in events that will shape the financial markets, the economy, and the industry at large. They share their perspective and insights in a variety of formats from in depth white papers, to topical commentary. Our guest current research interests include retirement income and the distribution phase of retirement, investment sentiment and behavior, financial advice, and global retirement systems.

Curtis Worcester:

Before her current role in the center, she spent 13 years in marketing research in the financial service's industry. She earned a bachelor's of arts in sociology from the University of the Philippines Los Banos. A master's of arts and PhD in sociology and demography from the Pennsylvania State University and was a post-doctoral fellow at the Carolina Population Center. So at this time, please welcome Anna Madamba to The Retirement Success in Maine Podcast. Anna, thank you so much for joining us today.

Anna Madamba:

Well, thanks for inviting me. I'm happy to be here.

Ben Smith:

Anna, we start our show and obviously, we talked about the topic today and cognitive decline as we age as something you want to dig in from your white paper. But we want to get to know you a little bit, just kind of warm up here. And one of the things we want to just hear about is a little bit of ... Obviously, we have your educational bio that we read, but can you just give us a little bit of the background of where you're from and your childhood experience?

Anna Madamba:

Sure. I mean, I grew up in the Philippines. It's a college town called Los Banos.

Ben Smith:

Mm-hmm (affirmative).

Anna Madamba:

My parents were both affiliated with the state university. Now, the town also hosts international research organizations. So we had quite decisivable ex-pat community as well.

Ben Smith:

Oh, very cool.

Anna Madamba:

You could literally stay in town and go from preschool to getting your PhD.

Ben Smith:

Wow.

Anna Madamba:

So growing up, I had classmates in college who were the same classmates I had in preschool, grade school and high school.

Curtis Worcester:

That's incredible.

Ben Smith:

That's amazing.

Curtis Worcester:

Yeah.

Anna Madamba:

I know. Now, I also come from a very large family. I'm one of five siblings, but also have close to a 100 first cousins.

Ben Smith:

Holy.

Anna Madamba:

We literally have different generations represented when you go from the oldest first cousin to the youngest. So growing, up family gatherings during the holidays was a logistical production and people have to take turns going around the dinner table whose sole purpose was to hold the food because nobody else had space to eat there. Now, I refer to this network of relatives because it's still very active today. We have a private Facebook group composed of all the cousins. And we also have annual cousin gatherings in the Philippines. I mean, and unfortunately we haven't had one in the past two years for obvious reasons.

Anna Madamba:

But anyway. I came to the US to attend graduate school at Penn State and part of its international demography training program. My graduate program colleagues come from all over the world, literally. I mean, Africa, Asia, North America, Latin America, Europe. We were like a microcosm of the United Nations. And coincidentally, I mean, some of them actually did work for the UN. I thought that the diversity in thought and cultures that I was exposed to in that program was a good supplement to my professional and intellectual growth. And I think that was by design, by the ones who designed the training program. So I received my PhD in sociology and demography, and I thought I was headed towards a job in policy but that phrase about what happens when you're making plans.

Ben Smith:

Right. That's right.

Anna Madamba:

I was recruited to join a financial services company as a researcher and this determined the career trajectory that I am currently in. I stayed in financial services and continued to do the research and obviously love it since I stayed this long.

Curtis Worcester:

So you just teed up my next question perfectly. So I want to ask, so what do you do currently in your professional life? If you could just dive into that a little bit, I know we kind of read a little bit off there and then tell us kind of, what do you love about your current role?

Anna Madamba:

So as you said, I am part of the investment strategy group at Vanguard, and we produce research that informs the company's offerings, strategies, methodologies. In a way we like to describe ourselves as an interdisciplinary think tank. So within this group are various research teams, some of them develop models that give recommendations for say, the optimal asset allocation in the portfolio or the best spending strategy in retirement. In other words, they establish how investors should be behaving in order to achieve their preferred outcomes.

Curtis Worcester:

Got you.

Anna Madamba:

Now, we know though, that when it comes to invest thing and finances, not all investors behave optimally. I lead the investor behavior group within ISG. We conduct research, which describes how investors are actually behaving and why. The goal is to bridge the behavioral gap between what is, and what should be in order to improve investor outcomes.

Ben Smith:

I love that Anna. Again, the research that you're doing and kind of what you're seeing, from research perspective and where Curtis and I on a practice perspective, we're seeing it on a very micro basis. It's really interesting to kind of go, "Here's somebody that came in with a certain issue or here's what they've been doing." And then reading about, here's how their peers are behaving as well and decisions that they have made. So it gives us context, which I've loved about again, your group and the research that's being produced there. It ties the two things together and we go, "Okay." There's a whole range of, "Normal," that can happen, but to know, here's our very common decisions and here's maybe the things that are little more extraordinary, exceptional. And then as you're saying, "Well, here's how ... " Your other group is kind of going, "Well, here's where it should be. And here's kind of where we think it needs to go."

Ben Smith:

And then us, I think as the advisor out there, kind of working is kind of bridging those two things. Is helping people kind of put those things. So again, I want to put from a listener perspective, where do we all fit in here together in terms of roles? And so that's why we're really excited to talk to you today Anna, because I think that's going to be a really fascinating conversation from the research perspective, to here's the anecdotal ... What you've read in some of the survey results, then what we were seeing on a daily basis as well. But I do have to ask one bio question and this is something where I'm looking for a straw and a needle in haystack here and probably isn't there, but do you have any connections to Maine?

Anna Madamba:

Unfortunately, I don't.

Ben Smith:

Okay.

Anna Madamba:

My brother used to live in Boston and we would go to Maine, for the day. But I don't think that counts.

Ben Smith:

I think that counts.

Curtis Worcester:

You've been here.

Ben Smith:

You've been here.

Anna Madamba:

I don't know. Yeah, I have been there. Yeah. But I've been meaning to invest some time to actually come visit and explore Maine and I intend to do so in the near future, it's part of my bucket list.

Ben Smith:

We'll give you the punch list of the things you have to do. The places you have to go and the insider perspective on where to try things. We can absolutely help you out with that.

Anna Madamba:

I would appreciate that.

Ben Smith:

But yes, you have a connection to Maine and also, well you have a connection to Curtis and I.

Curtis Worcester:

That's the best part is, even if you didn't, now you have one.

Anna Madamba:

There you go. Yeah, yeah.

Curtis Worcester:

So Anna, I want to kind of rotate here and really get into the topic today of cognitive decline. So earlier in our podcast history on episode eight, we talked about facing and fighting mental illness in retirement with Dr. Cliff Singer of Northern Light Acadia Hospital. So specifically in that show, we discussed kind of what's normal decline versus severe forms of decline, like dementia. So your study estimates that two of three adults will experience cognitive decline. So I guess I'll start with kind of a foundational question. So how is cognitive decline defined and then kind of the follow-up is what are typical experiences of kind of mild impairment versus more severe impairment like dementia?

Anna Madamba:

Well, thanks. I listened to that episode with Dr. Singer and I actually really enjoyed it.

Ben Smith:

Thank you.

Anna Madamba:

Now, who knew that statement about the amyloid plaque and how it's swept away when you sleep?

Ben Smith:

Yeah.

Anna Madamba:

That was amazing, but it's also a good reminder because I'm a night owl and I need my sleep, but to your question on the definition of cognitive decline. I may need to get technical on you a bit.

Ben Smith:

That's okay.

Curtis Worcester:

Yeah.

Anna Madamba:

In the research that I cited, the cognitive decline was defined based on answers to a cognitive ability test and that some of the test items included exercises on immediate recall. I would give you a list of maybe five items. Can you name it back in the same order or having them count backwards, those kinds of things. So in the test that they had, you could get a maximum of 27 points. So you have a possible score of 0 to 27. And within that range, they have thresholds wherein they define the lower end of the scores to be indicative of dementia. Somewhere in the middle would be cognitive impairment without dementia. And then at the top range of the range would be no cognitive impairment.

Anna Madamba:

So that would be how they would have defined cognitive decline. Meaning, the two bottom categories in that study that I cited. Now in general, mild cognitive impairment reflects some change in this cognitive ability, but for the most part, individuals are still able to do what we call your ADLs or activities of daily living. They say, like a shortcut, they say that the early manifestations are in the realms of money, medicine, driving and technology, not managing finances well, forgetting to take your medications, getting into traffic accidents. It's also harder to learn new things such as new technology. And of course, they may be susceptible to fraud at this stage as well.

Curtis Worcester:

Sure.

Anna Madamba:

Now we know that the risk of dementia is actually declining, but it is still prevalent because there are more people living into older ages.

Curtis Worcester:

Sure. Yeah. Okay.

Anna Madamba:

Now in our research we surveyed investors and provided a definition of cognitive decline, borrowed from the health and retirement survey, which is a national survey. And that definition included a lot of the symptoms that I had just enumerated or mentioned and having provided them with that definition. We asked them, what do they think is their chance that they're going to have cognitive decline based on that definition? And we call this their perceived risk of cognitive decline. So they give us a percentage chance or the probability that they think they're going to experience those kinds of symptoms.

Ben Smith:

So your paper was kind of around again, the research on kind of defining it and then kind of serving investors out there about again, their perceived risk and their behaviors towards that perceived risk.

Anna Madamba:

That's correct. That's correct.

Ben Smith:

And I want to ask a question. So you've kind of brought up this kind of measurement tool and again, experientially, cognitive decline is a tricky thing because either from people we know or clients is sometimes there's the test and they know there's the test coming up. So they can sometimes rise to the occasion. Sometimes their mental faculties are assessed and all of a sudden it's like ... Again, certain times days are better than others. Sometimes they know that, but also maybe decline might not be a straight line either, as it might plateau. I guess my question is, so in terms of the test, is it generally where you're seeing somebody with no cognitive decline that you're generally moving down that ladder over time? That there's this test and there's ... Again, it doesn't mean that you go all the way to like dementia impairment. Can you just describe, I guess from a testing perspective, how people move down that ladder or that testing result?

Anna Madamba:

No, I think you touched on it and that paper that I had cited, that's essentially what they were doing. They were checking transitions from one state to the other. And I would rate the state. It's a state where there's no decline, a state where there's mild decline and then a more serious state of dementia. And when they were looking at that transition, to your point. Some of them go from none, all the way to dementia. I mean, others go from none to mild or from mild to dementia, but it not doesn't necessarily always happen that they have to go all the way. And for a proportion of that population, there are those who stay in NCI or no cognitive impairment.

Anna Madamba:

So you're correct that it can plateau. People can beat the test, so to speak. Even if those things happen, I don't think it nullifies the need to plan and have conversations with your family. You don't need to go all the way to dementia for this to be necessary to happen. And I think that's the point that I was making in the paper was that, even with mild impairment, you see impact on finances. But the thing with cognitive decline, I wanted to emphasize though, is that there is a risk and like any other thing with uncertainty, you try to plan so that you can mitigate that risk.

Curtis Worcester:

I like that. So many of our financial planning conversations that Ben and I and our colleague Abby are having. We talk about the intersection of wealth and estate plans and many times, we discuss the risk of cognitive decline in the context of our client's current health status and family history. So I want to ask kind of, how do you see, or how are investors perceiving their risk of cognitive decline and kind of a follow-up there is, how can anyone listening to this or our clients improve their own assessment of cognitive decline risk? And I think you just kind of teed that one up for me. So that was good.

Anna Madamba:

Sure. So the perceived risk, the most investors that we surveyed, actually aligned more with the serious form of cognitive decline or dementia.

Curtis Worcester:

Mm-hmm (affirmative).

Anna Madamba:

It could be because this is the stage where the manifestation is more tangible or visual. That's what they connote when they think about cognitive decline. But that basically means that the milder forms of decline tend to go either unnoticed or dismissed. So research has shown that even mild cognitive decline, as I had mentioned, could have financial consequences. So for example, you repeatedly forget to pay your bills and this gets a hit to your credits and your credit score. Or you forget to take the required minimum distributions from your IRA and end up having to pay a penalty, another financial consequence. Now, we've heard about somebody writing a check for a 100,000 and having it bounce. And when asked about it, they thought they were really trying to cover a $2,000 expense.

Anna Madamba:

So these are ways that we don't even think about, but do happen. If you ignore or don't catch these kinds of symptoms, you may not make the direct connection that it is about cognitive decline, but it does happen and it does hit your finances.

Ben Smith:

And Anna, one thing that you kind of talked about several areas that you kind of see there, and again, where we talked about money, and then you talked about say, driving ability is a big one, because I think with driving ability, that's one that ... Obviously, that's hard to hide. It's also, you get into an accident and ... I think of family members and like almost weekly, they were running over a curb or they were ... Oops, I put it in reverse when I meant to put it in drive. There's all those kind of things happening. And then boom, there's the fender bender. Oh, that was an innocent mistake. So I think with the money part that just from what Curtis and I and our team are seeing is just because it's so private and there's one person that might be in control in a relationship of that. And they don't want to just come to the forefront and admit that they're losing some of that. It's just so pronounced from a hidden perspective of, you can see it in transportation, you can see it in technology. Oh, here's the new phone and just pop in the Uber app and you just create an account and you just do it.

Ben Smith:

That is a really hard transaction for people too. From a money perspective though, that's much more difficult to see. And also when you don't see it, you just assume everything is fine because there's nothing maybe popping up and they do a good job maybe covering tracks or repairing it or over repairing it, as you just said, kind of from that end. From the anecdotal part, I think that is really important. So I want to ask another question. Oh, go ahead Anna.

Anna Madamba:

No, think about it. I mean, even with the money part. There is that aspect of shame as well. I mean, they might recognize it, but they probably won't admit to it, if they don't have to. And that adds to kind of sweeping it under the rug and not bringing it up in the forefront. When it comes to decline, it really has a lot to do with emotional. Whether it's admitting to yourself or the shame of admitting it to other people and that plays into it. And that sort of shapes your response to it as well.

Ben Smith:

Well, and I think all those areas that you pointed out, anytime you start giving away some of your ability, it starts chipping away at the concept of your independence. Every time I give something away, I'm now more dependent on somebody else to live the life I want and to maintain a level of independence. And it feels like it's a slippery slope because as soon as I give a little bit away, then maybe I'm giving it all away eventually. I think that's the feeling and that's the fear that we're seeing a lot. And so that's why I want to get to here in terms of this question of ... Okay, so your paper here about cognitive decline, impact your finances. There's a conversation in there about, "Hey, when I am starting to lose my financial ability. I'm having struggle here. And so I need to then place that trust in somebody. So that I'm going to give them the ability over my money and my finances." And it might be a shared ability. It might be complete ability.

Ben Smith:

But the question we want to ask here is, because this comes up too is, if I'm going to give control to somebody who do I give control to? So I guess the question is, from your research and the survey results you did there, who you're seeing that is likely to be named as an agent in the event of a cognitive decline? Yeah, an event of cognitive decline or a cognitive decline, maybe moment.

Anna Madamba:

Well, what we find is, majority of the investors actually name a child or a child-in-law as the likely person to be their agent. Other relatives, such as a sibling are also popular, but to do a lesser degree. For the most part, I think it was over three quarters of the people we surveyed had named a child. But we have to remember that it is more than just naming an agent. I don't know how familiar this situation will sound to you, but when some people say that they've named an agent, they usually mean that they can think of somebody who can step into help if needed.

Ben Smith:

Mm-hmm (affirmative).

Anna Madamba:

But thinking alone does not cut it. You need to talk to the person that you are thinking to give this responsibility to. So think about answering the following questions. Are they aware that you plan to name them as an agent and are they willing to take on that role? Remember your favorite child? Do we have favorites? But your favorite child may not be the most financially savvy or comfortable presiding over your financial matters. Another question would be, do they know of your wishes and preferences? Do you update them on any changes to your situation. And Ben, I think you touched on this. Do you trust them to pursue your interests, instead of serving their own?

Ben Smith:

Yeah.

Anna Madamba:

One thing to consider is, are they the same generation as you. Meaning, could they potentially have a similar risk of cognitive decline? And if so, you might want consider having multi-generational agents, plural. An important item as well. And this I found from the comments in the survey was, do they live nearby? If not, who will attend to your immediate needs? And is this person in contact with your agent? So you talk about your client's not wanting to burden their loved ones. Sometimes it can be the other way around too. We, the loved ones do not want to entertain the thought of such a possibility, but really we should.

Anna Madamba:

I once heard Jason Karlawish, I don't know if you're familiar. I mean, he's an authority on this topic. He's a doctor and research at the University of Pennsylvania and he described the role of an agent as being a cognitive proxy. Think about that. I think that's when the enormity of the agents role really hit me, a cognitive proxy. As an agent, you've got to know what the person with cognitive decline wants and how they would act when faced with a certain situation. So it's more than just being a stand in. Meaning, like a physical representative.

Curtis Worcester:

Yeah.

Anna Madamba:

More importantly, you got to consider that you may not have the liberty to ask them what they think or what they want, if they are already in the advanced stages of dementia.

Ben Smith:

And Anna-

Anna Madamba:

No, go ahead.

Ben Smith:

Yeah. So I want to jump in because a couple things here is, I think you mentioned this in your paper, it's one thing where again, from our client perspective. Generally, at retirement, they come to us and you say, "All right, do you have an estate plan? No. Do you have financial power attorney? No. Do I have a medical directive. No. Or I do, it's like 30 years ago and it was, please let Johnny and Jenny and my two kids let them go to their aunt and uncle in case something happens to me." That's generally the level of estate plan that they went through. They had the kids and that's what they see. One point there is, even going to the attorney and saying, "Hey. Johnny, my son here is the financial power of attorney for me." And I draft a legal document and they put it in the safe, or they put it in the safe deposit box. They just store away and they're done. They're done. Check, did it, accomplished it.

Ben Smith:

What you were saying and your research says, you got to extend that even more. As you said, is kind of assessing it in, and who makes the most sense? But can you talk about that maybe the next level on top of ... Again, what are people doing versus where should they be? And it sounded like, the where they should be, that might be where the gap is there. Right?

Anna Madamba:

True. True. So you mentioned the, the people who thought they were done. I mean, anecdotally with the survey, when we started thinking about doing it. We were concerned that it might be too sensitive a topic to, to handle, but felt strongly that this was an area that investors needed to be aware of. And so, after the survey, what was a pleasant surprise was the amount of people who had reached out and provided feedback, thanking us for the survey. Now, when does that happen? Essentially, what they were saying was recognizing that we identified areas, especially for those who thought they were done, check the boxes. But we identified areas that they either were not aware of or that they were aware of but were putting it on the back burner, not wanting to deal with it. And so the survey was the nudge that they needed to actually, bring it up in the surface and actually think about it.

Ben Smith:

Awesome. Again, you talked about who, and generally that's going to the kids is kind of the one that's the agent. We've actually gone to this topic a couple times and it was led by Dr. Sara Zeff Geber in one of our episodes, was this concept of solo aging. I don't have kids, so that's probably not on the table for me to go and reach out to that next generation to say, "Hey, take care of me while I'm aging, because I don't have that there." I guess what of bring up was what Sarah Zeff Geber brought up was this whole concept that you said is this multi-generational investment in your network. It's friends, but not friends that are older than you and not friends that are the same age as you, because more likely you're both going to be ... Or those peers are going to be going through cognitive decline maybe earlier or later than you, or maybe you transition to them and then they go through it.

Ben Smith:

So you got to have gaps. In terms of your network. So investing in that, so I want to bring that up there. If I'm going through this myself, say for any of the listeners out there, kind of thinking about this. And I'm thinking about, again, maybe the kids. Maybe I'm thinking about the neighbor, maybe I'm thinking about my best friend who was a sorority sister or fraternity brother from college, whoever. How do you think we can kind of assess quality and availability to make the right choice?

Anna Madamba:

Well, like you had said. A lot of solo agers, which by the way, was a term I wasn't familiar with and, I totally love it. But a lot of the solo agers that we had in the survey, essentially were pointing towards family as possible agents. But to your point, they were mostly siblings of the same generations. Some had nieces, nephews, what have you. How do they identify? I think I had a quote in the paper, which I loved, but broke my heart essentially. What did she say? I don't even know whom to name and how do I even start figuring out who to trust? Because I don't know who would give the time necessary to address the concerns that I would have. We had five percent or so of those who did not have children who were in this category and you could interpret five percent as minimal, but these are people who actually have no recourse to go and what do they do?

Anna Madamba:

We see a lot of reliance on institutions and trustees as well, financial institutions, financial advisors as well. But the important thing to do, which makes it more imperative for solo agers was that, you know this is a situation you'll be in. It'll be harder to find people who will step in, ad hoc when you do need it. Hence, it's more essential for you to start planning about addressing it. This reminded me of the example of the couple in Dr. Geber's episode, who got lucky that their next door neighbors agreed to access their agent.

Ben Smith:

That's right.

Anna Madamba:

I have another example that was recent with my family. I have a 92 year old aunt who lived alone, very sharp, but had to be hospitalized. This is not a decline related hospitalization. Yet, the issues are the same. So there was discussion amongst the cousins about how to handle the situation. And by default, those who lived within close proximity of her home were relied upon to provide the support.

Curtis Worcester:

Sure. Yeah.

Anna Madamba:

So upon leaving the hospital, one cousin took my aunt into her home while she recuperated. Another, who was a physical therapist attended to her treatment. The rest of us cheered her on as we watched her progress in her physical therapy on video across the globe. And when she was well enough to go home, a third cousin was checking in on her on a regular basis. But a point I wanted to make was that in both cases, there were people who stepped up to provide the support. It is hard for solo agers to leave this up to chance or to luck. So the point really, and the point of the paper is, it's really best to plan.

Curtis Worcester:

I like that a lot. So that was a really good conversation about the who. In terms of, who's going to step in? So I want to rotate to a when scenario. So in our opinion, the when to transfer control over of our affairs is very difficult. So when do you think someone should transfer control over their affairs? And what kind of did your research find was the impact of a mistimed transfer? What goes wrong, if you mistime it there?

Anna Madamba:

Yeah. I mean, I agree that it's a very difficult question to answer. It's difficult because it's really a very subjective decision. I mean, I have a friend whose father managed the household investments and finances and he was really very meticulous about it and very proud of it too, of the work that he's done. He's in his 80s, he's amassed significant wealth for both him and his wife, but has remained very frugal. I would think you see examples like this in your practice as well. I mean frugal to the extent that their children keep trying to convince them to spend more on themselves, but really to no avail.

Ben Smith:

Mm-hmm (affirmative).

Anna Madamba:

My friend prepares their taxes every year. So she's aware of their financial position. Now, a few years ago, he missed taking the RMDs from his IRA and the penalty was hefty. So this was the impetus that convinced him to enroll in an advisory service and start ceding control. Now, my friend together with the advisor is now involved in the oversight of their finances. But to answer the question, it's difficult, it's case by case basis. I mean, something will spark that realization that you need to cede control. Now transferring control of your finances is difficult obviously. We need to realize that to give up control of your finances means that you are exposing yourself to vulnerability and it requires your capacity to trust somebody else with it.

Anna Madamba:

Now, in our survey, we left that ideal timing to the investors to identify. Now, most of them preferred to wait to transfer their financial control until after the onset of decline, but before experiencing full incapacity. However, timing the onset of full incapacity is really difficult.

Ben Smith:

Right. Yes.

Curtis Worcester:

Yeah. Yeah.

Anna Madamba:

Where do you have that crystal ball that tells you when it's going to happen?

Ben Smith:

Exactly. Let's go six months prior to that. And that's when we'll start. Yeah.

Anna Madamba:

Yeah. So planning can really help address that. We try to attach a value to the ability to control the transfer of these assets at your preferred timing. And we did this in the survey through a series of exercises. Now, what we found was that on average, investors were willing to give up about 14% of their net worth, if they would be able to time this transfer properly. I mean, obviously it's hypothetical but, if you had the power to control when you would transfer that control at a time that was perfect, if you could tell when that full incapacity is going to happen. People are willing to give up, in our estimates about 300,000 based on the responses from the survey.

Ben Smith:

Okay.

Anna Madamba:

That's the value of, I guess the wellbeing or peace of mind they would get, if they had the ability to predict when the best timing was and do the transfer at that time.

Curtis Worcester:

Interesting.

Ben Smith:

Again, from kind of this hypothetical perspective, I know some of your research there Anna, was talking about this concept of mistiming a transfer. What if we're too late? Again, there's early and? I think to your point, is early is probably any time prior to full incapacitation in the survey or investor's mind then. So late then, is post incapacitation. That's where all my money's kind of not transitioned. There's going to be a timing there for somebody to then get educated on what I have, where it is. Making sure the financial institutions are properly giving the ability and authority to make decisions on your behalf. All that takes time. What were you finding was the kind of the ... I don't want to use the word penalty of mistiming, but there's a cost to mistiming that transfer too. What did you find there?

Anna Madamba:

Just a bit of correction to what you were saying. Early and late, it's really dependent on what the investor identified as their ideal time is.

Ben Smith:

Got you, which is an individual thing.

Anna Madamba:

Yeah. So early could be before the onset of decline. I mean, my mother pretty much when she retired. My sister lives with her, but essentially said, "Why should I bother about going to the bank and whatever." She has obviously still control, but a lot of the transactional aspects of it, she was happy to pass it on to my sister. With early transfer, that essentially means that you either trust your agent and you don't really mind having somebody else do that work for you. Now with late, that becomes an issue because again, you cannot really predict when full incapacity happens. And so when we talk about the value of that mistimed transfer, we estimated that based on that hypothetical situation.

Anna Madamba:

So if you had say, $500,000 in wealth, would you essentially choose to have that transfer at the time that you prefer, or at the time later than you had preferred? And if they say, at the time that they prefer, we ask them how much more do you need to be compensated in order to accept a late transfer and that delta ant the value between what they were given and what they need to be compensated with, essentially is the value that they attached to the ability to control when that transfer happens.

Ben Smith:

Got you. Okay, okay. I want to ask another question here for you Anna is, on our show we've had several estate planning attorneys walk us through the importance of the state plan. Wills, power of attorney, medical directives. And again, we work with, again some really great attorneys that do just wonderful work with the clients that we share in common. And I know we talked about this a little bit, that research shows ... All right, the documents are generally in place, that people generally have done that in retirement. They've really gone through that, and there is a need for it. And they have kind of approached and created those pieces. But as you said, kind of putting them away into research shows that task specific duties such as who is checking the mail, who's paying the bills. Who's prearranging my care? And then the guidelines, again specific guidelines for transferring control of finances. These are the timing things, or this is what I want to transfer at these certain times.

Ben Smith:

Those things are really less common, that people have that far. So we want to ask about the pre-assigning of these task duties because you kind of use that example of your aunt. She's kind of rehabbing, that somebody's doing PT. Somebody's taking care of the checkbook, somebody's kind of helping out and then you get the support team around. If maybe I'm your aunt at that point, maybe before, kind of people had stepped up. How would I go about pre-assigning these tasks and how should I structure this? I have the documents, I have the ability to transition things legally, but again, assigning it is different because there's also training involved with that too. Maybe I don't know how to log into your bank account, or I'm an investor, a DIYer, and this person is into options trading.

Ben Smith:

We've had a client, DIYer that was into options trading. And by the way, there's a cognitive test for options trading as well that can happen. And so now, you're going to give this. Like, here's my investment account and I'm options trading. And I got things going on all over the place. It's not just, I can say, "Hey, Johnny. My kid. Go ahead and just start playing and learning options on the fly with my retirement account." How do you think folks should structure this over time?

Anna Madamba:

I was just going to add to what you were saying. The other thing you hear is that, why would I even have to do this task specific things at this time when you don't know that it's going to happen anyway? So what we find is that for these things, checking them, and assigning somebody to check the mail and pay the bills or prearranging care. A lot of the people in the survey were actually reactionary when this happened. And it usually happens towards the latter part of the age range, in their 80s or so. But if we could step back and think about it, cognitive decline leads to loss of autonomy. So planning early is important, so that you have that sense of control. So why wait to be reactionary, if there are steps that you could do in order who have a say in all of this task considerations?

Anna Madamba:

Now, I have this story of a daughter. I think I read it somewhere. Who was an only child, and I think this brings it to light. She was an only child and related that her mother had a terminal illness and had been sick for a really long time. Her father attended to her mother and was the primary caregiver. He was the planner and had her mother involved in evaluating the various care options for when the time comes that he cannot handle caring for her at home. So they ended up agreeing on a care option. And when the time came, the transfer to the nursing home facility was actually seamless. Now at the nursing home, her father continued to dedicate his time to the care of her mother until she passed, but it didn't take long for her father to start showing signs of cognitive decline after her mother passed. And once it started, to the example you cited earlier, I think it was of your grandmother. I mean, it progressed quite quickly.

Ben Smith:

Mm-hmm (affirmative).

Anna Madamba:

Now, unlike her mother, she did not get the chance to discuss the wishes of her father. And so she was describing the difficulty of having to make decisions without being prepared for it. And she also agonized about not being able to honor his wishes and what her father was able to do for her mother. And so that struck me. I mean, it is reactionary. Yes. But just having these conversations can help people move forward, helping them face up to the need to confront issue rather than, put their heads in the sand. We look at planning as the opportunity not only to express your preferences, but the opportunity to revisit, to discuss and to revise plans based on updated wishes and change in circumstances.

Anna Madamba:

That is the essence of planning. It might not happen, but it doesn't hurt to have that discussion and have your preferences and your wishes known to help the agent. Like that daughter would feel helpless, not knowing what you would've wanted.

Ben Smith:

And a that's a really powerful story. Again, we've from our clients we hear that story as well. And again, they're the sandwich generation. As they're taking care of a parent, as they're sometimes taking care of a grandchild. That's sometimes happening and you're bringing up a really big point because here's a population of people, they're trying to learn on the fly and educate themselves on what needs to happen to take care of somebody. What decisions do I need to be making? What are all the inputs? And to your point, probably the hardest level of thing to do here and maybe the highest level of stress that they're kind of agonizing about is, if I knew what you wanted, that would probably make my decision making ability so much easier. If I knew that you really didn't want to be in a double room in assist a living facility, and that was the thing that you absolutely didn't want to have. You really wanted privacy and more autonomy there.

Ben Smith:

You're not able to express to me, where you are and what you're thinking and what you'd like and don't like. Now I go, "Well, I think based on knowing you what you would like and not like, but I'm also trying to figure out the money part. I'm trying to figure out what we can afford. And then, if I do something that I think is against your wishes, now I'm agonizing about that afterwards." So you feel like you're in a no win situation at times, because of that. I think you touched on a very power powerful heart string there about, something that this group, really the agents really worry about and struggle with. And it's the whole, I wish I knew. I wish I knew what you would want in this situation. You could actually tell me, because that would make my decision. I could rest easier knowing that. At the end of the day, they just want the best for the person they're taking care of.

Ben Smith:

They love them. They want to do right by them, as they did right by you. So I think that's a really important point that you had told there. And I thank you for bringing up that story.

Anna Madamba:

Yeah. It's this concept of the cognitive proxy. And if you're going to be a cognitive proxy, but not have access to how you think the person wishes or the preferences for maybe areas of care, it's hard to ... It's essentially putting yourself in their place, but really not knowing how they would be addressing these kinds of issues, if they could.

Ben Smith:

Mm-hmm (affirmative).

Anna Madamba:

It's a heavy weight to be giving to agents. I mean, back to my point about, naming agents would be good. Getting them involved would be better, talking about your preferences would be better still.

Ben Smith:

But that is so uncomfortable, Anna. Is to go, "Hey, when I'm approaching a nursing home, this is the type of stuff that I want to see or how I envision this going. And this is why maybe I've established the certain money, or I have certain policies or whatever." I have family members right now, they really just have some pretty big hang-ups even of death. And even to just do a will is tough. I want to acknowledge, that it is really tough to have that conversation and say, "Hey, let's go to Applebee's for dinner, as we talk about how I'm going to assign you as my agent. And I'd like you to do these things for me. As we're sharing a Bloomin' Onion or something." I know I'm mixing up restaurants there.

Ben Smith:

Those are hard conversations just to raise, have in a place and in a point that it feels very natural. It isn't a natural thing to be talking about. Again, I think it's important to kind of push through that, lean into the kind of the awkwardness of it because I think it will help everybody long-term.

Anna Madamba:

And I think it's a two way process too. I mean, the initiation can come from the family members to initiate the discussion, or it could come from the investor or the client to initiate those kinds of discussion. I remember early on, when my mother started talking about that. We'd put out the air violin and start playing. It's a way to kind of make light of it and not really want to discuss it. As she gets older, it happens more and more. You really need to sit down and have that kind of conversation. And we have, we do. But it's the recognition that the investor could initiate it, being proactive and want to have that discussion with the family. The family needs to step up and welcome that discussion. Excuse me, if the client doesn't want to recognize symptoms of the client, then the family needs to step in and initiate that discussion. So it really is a two way.

Curtis Worcester:

Anna, I want to kind of keep going here. So in a previous episode of our show, we had a conversation with Mike DiJoseph from Vanguard regarding his co-authored paper, Advisor's Alpha. Where we basically talked about the value of a financial advisor. So we think your research on cognitive decline intersects really well here. Obviously, as we've been talking about. So there's enough occasions, where someone's talking to our team and they recognize how important the work we're doing is, and they recognize how valuable the role is, but they're adamant on being a DIY investor. And this kind of ties into your story earlier about the individual who was missing or missed his RMD for the year.

Curtis Worcester:

So I want kind of another element here. If that individual had a spouse, or it was a couple relationship. So obviously, when a person makes a decision to be a DIY investor, they're assuming that they're going to be fully capable to do that for the entirety of their life. Obviously, for reasons we've discussed, where cognitive decline comes in, that may not be the case. But kind of furthermore, if it's in a couple relationship that duty may be left to a spouse or a partner that has never had to handle these finances. So I guess kind of the long-winded question I want to ask you is, how do you think DIYers should structure the management of their financial assets in the event that they do experience a decline or maybe a rapid decline at that point?

Anna Madamba:

And in that RMD example that I gave, the wife was able to step up and assume those responsibilities together with her daughter and the advisor. That sort of helped deal with that. But preparation for DIY investors is really not going to be too different from what we had just discussed.

Curtis Worcester:

Sure.

Anna Madamba:

However, as a DIY investor, you need to drive the planning instead of having an advisor initiating or guiding you through it and to do so, you need to be aware of these issues. Think about those who are thanking us for the survey. You also need to recognize and acknowledge decline the symptoms start to happen. And there's research that shows that investors who have cognitive decline and who have been active in the stock market, tend to suffer more wealth losses because they do not recognize the symptoms of decline.

Curtis Worcester:

Sure.

Anna Madamba:

On the other hand, those who acknowledge their decline or have children or family who pointed out to them, do not suffer similar hits to their wealth. So awareness and recognition is key. And you bring up this important point about leaving a partner in a vulnerable position, if they have not been involved with the finances before.

Curtis Worcester:

Mm-hmm (affirmative).

Anna Madamba:

I remember a study that we did a few years ago that identified the five profiles of advised investors. These are investors who have financial advisors, and one of those profiles were DIY type investors, who are very knowledgeable about investing and really considered their advisor as sort of like investing partners. They vet sort of the investments rather than have the advisor drive or direct those investments. But the one distinguishing characteristic of this profile of advice investors is that, they hired a financial advisor, a support for their spouse or their family, in case they [inaudible 00:54:26] them. And that would be one way of having to deal with this.

Anna Madamba:

In the RMD example, that was the way that they dealt with it as well, but that was after the fact. This profile of investors I was talking about in that study, they were doing it preemptively and engaging with an advisor because they wanted to make sure that, if anything happened to them, that their family was going to be all right.

Curtis Worcester:

That's great.

Anna Madamba:

So it doesn't differ much in terms of, do you have the documents in place? If you need long term care, do have long-term care, do you have insurance in place? Have you done these task related things around identifying who will check your mail, who will pay your bills? Have you prearranged care, et cetera, et cetera? Transfer of control. But the key there would be, acknowledging that decline could happen and recognizing it, if it does happen and having a plan for, if it does happen. How to address it, how to manage it. So that was important for them.

Ben Smith:

Yeah. I want to ask a follow-up question, Anna there is, you made the statement that an investor that's suffering from cognitive decline can suffer steeper losses than someone that is not. So obviously, you got research here and I guess the question is, how did you kind of spot that and what would be the causes for that? So again, just cognitive decline in general. I guess, I want to hear just kind of what part of cognitive decline was causing those steeper losses?

Anna Madamba:

No, I need to go back to the paper. And in that paper, essentially what happened was, they had a sample of people I believe who were identified as having cognitive decline, but they identified the people who ... And they were looking at wealth as the outcome. Right?

Ben Smith:

Yep.

Anna Madamba:

And they identified, the people who had less wealth were those who were actively managing their finances and either ignoring the decline or did not recognize the decline. They interpreted it as, "Over confidence."

Ben Smith:

Got you.

Anna Madamba:

I've always been in control. I mean, they are active, they are engaged. I've always been in control. I don't want to recognize this emerging theme of lacking control. And so they keep on investing and obviously those decisions start becoming less optimal, as you go through decline. And that was the reason for the loss in the wealth. It's essentially, because the decision making was getting poorer.

Ben Smith:

Got you.

Anna Madamba:

That's why their investments were not giving back as much and their wealth was being hit, but they did find that among those who were identified as suffering decline, those who recognized it, or those whose family were around to point it out for them. The wealth outcome was actually not hit by that decline. So the conclusion was, this importance of what they call agency. And so we're back to identifying an agent. If you had somebody who could point this out for you and you acknowledge it and make the necessary plan around it, then the hits to your finances would not be as much.

Ben Smith:

Yeah. I want to tell a quick story about that, Anna because I think you brought up a really kind of key point. During the financial crisis. So 2007, 2009, I inherited a client at that point. Someone had come from another advisor and come over. And the gentleman that was in charge of the wealth of the portfolio there. So he and his spouse together, had their wealth and he was making the shots. Again, to your point about cognitive decline, he kept on making more and more concentrated bets into what he knew and what he knew in Maine. So the publicly traded stocks in Maine generally were financial services company. They were banks. So that's what he knew. And he continued to take more and more concentrated bets over the 2000s into that. So when, it came to the blow of the financial crisis. Of course, ground zero of a lot of the issues in equities were right in banks and financial services companies.

Ben Smith:

So he had experienced, like 60 or 70% decline over that 18 months, just because of over concentrations in certain securities that went from $40 a share to two dollars a share. So the decision making ability. And I know that's just one example, and I'm not trying to paint everybody with that brush, but just seeing that and seeing that he was continuing to buy more and more things. And he wasn't really worried about concentrating his risk. Hey, that bank has always been there and they've been in business for hundreds of years and it's not a big deal. And I've always made money in banks and I like dividends. And all those things were part of his process. But I think his process got less and less thought through and he was less maybe in tune to what was happening in those organizations, as he was declining himself. And maybe has less ability to really research what he was doing, why he was doing it and how he was invested.

Ben Smith:

So I think that was a really kind of important point there. Some of those kind of lead into that maybe your capability continue to decline and that can lead to some really big, costly errors. I think that's a really key point.

Anna Madamba:

Sure, yeah.

Curtis Worcester:

So Anna, we have kind of reached the end of our conversation here.

Anna Madamba:

Already.

Ben Smith:

Already.

Curtis Worcester:

We do have one last question for you. That's not directly related to cognitive decline. So obviously, the name of our show is The Retirement Success in Maine Podcast. So we love to ask all of our guests, what is your personal definition of retirement success, or how do you think you will achieve a successful retirement?

Anna Madamba:

I think for me, a successful retirement would be one where I'm in relatively good health. I'm socially engaged and actively engaged in things that bring me joy or a sense of purpose. So I envision this will involve enjoying time with my family and with my friends. And I expect that at any time during this phase, there will be traveling, there will be learning and there will be serving. Essentially, that would be what would give meaning to living this phase of my life. And that would be success for me.

Curtis Worcester:

That's awesome.

Ben Smith:

Well Anna, thank you so much for coming on our show. It's such a privilege to have you and to talk about your research. Again, we're going to share that paper with our listeners out there. We'll put it in the show notes. Again, it's very worthwhile for everybody. I think everybody should just take a few minutes and read that. We'll be handing that out to our client base too, because I think this is an important thing to just start the conversation. And what I love about the effort that you have done here Anna, you kind of brought the academic side to it. Yes, the anecdotal is important. Yes, what it should be is important, but to know where we are today is probably the most critical thing.

Ben Smith:

So I think your surveys have been really important here and to kind of bridge those three things together. So we really thank you for all the work you're doing at Vanguard. It's really instrumental to the work that we do here at Guidance Point and appreciate you coming on our show today.

Anna Madamba:

Well, thanks for having me. It was fun. Thanks a lot.

Ben Smith:

Take care. Okay. Episode 56, cognitive decline and impact on your finances with Anna Madamba. So really good to have Anna on. Again, we are big Vanguard fans. And again, big shout to Kelly Orr and Alex Kroot, for kind of making us aware of this new white paper that had come out about cognitive decline. Again, from a fear perspective we see from our client base a lot. There's always this, where am I? And in the realm of brain health. So mental health is kind of a big, big, big thing with a retiree and aging population. So always wanted to kind of take a little bit of like something that we really enjoyed of today's show. So Curtis, once you lead us off with something that you took away from our conversation with Anna today.

Curtis Worcester:

Yeah. A piece that really stuck out to me was actually towards to the end of the conversation. I think it came up when we were talking about the DIY investors, but it kind of tied into the whole conversation in the sense that it ... The result was how important it is to recognize the risk and have a plan. But the specific piece that caught me was, she talked about investors and the impact on their overall wealth. And for those that recognize cognitive decline or accept that they may be experiencing it or that there's a risk and they have a plan in place. Their overall wealth doesn't take too much of a hit from that. Whereas, the people who ... I think she phrased it as overconfidence or the people who just don't see it, whether it's innocent or they don't want to admit it and they try to kind of keep going.

Curtis Worcester:

I think, she laid out some examples where they can suffer some steep losses in their overall wealth. So again, I know that was kind of the finance piece. But overall, it applied everywhere in this conversation. Just how important it is to have these plans in place and to kind of revisit them and make sure there still going to work. And it's still what you want. And it still works for the agent. So just overall, I think it was a great conversation. Again, highlighted how important it is to be aware of the risks here.

Ben Smith:

Yeah. And I think the risk is that ... What you're saying is, there's a risk that could happen. It doesn't mean that it will happen and doesn't mean that ... You could actually make a mistake and end up the opposite too. You accidentally got concentrated in a certain position and it actually worked out by accident. It could be both ways. I think the point here is, knowing some of the downside issues that could happen. Now, I think the larger point of that is, a financial advisor might be only for somebody that's just saying, "Hey, I really want to just delegate a lot of this. And I just want to do this at retirement or sometime in my life, or my career." It could be that, you've really not needed a financial advisor. You've been able to do this yourself for your whole life. It might be, you really just need to outsource this because your agents that you're selecting, your kids or friends or family members or neighbors, whoever. Are not comfortable doing that for you. They don't have the expertise and it would make more sense to go hire someone to do that at that point. It might be a two year transaction. It might be a three year. It might be 10 years, but maybe you didn't need it for 80 years. Maybe you didn't need it for 30 years.

Ben Smith:

I think that's just a point to make there is that, that service is available when you want to kind of transition that over. So again, it doesn't have to be with us. We just want to make the point about kind of that being an important thing to consider, where maybe you've not considered that previously.

Curtis Worcester:

Sure.

Ben Smith:

I'll also add, one thing that I really liked in our conversation today was the talk about when.

Curtis Worcester:

Yep.

Ben Smith:

When should I transition somebody's affairs? And again, not only just the power of attorney and that people are listed, but also the tasks. There's more of these things that maybe aren't in the legal document. I kind of almost think about the John Diehl, where am I going to eat my ice cream cone? And who's going to change my light bulb? And kind of those questions, are very similar to what I think Anna was bringing up about when. And this whole kind of, "Hey, for my mail, I just need help there." Maybe I have mobility issues. And then as we're approaching here end of December and we're in Maine and what's going to happen is we're going to have ice all through our driveways and snow in the middle of January and it's negative 10 out and we have a frozen driveway.

Curtis Worcester:

Yep.

Ben Smith:

And I'm 88 years old. And I decide, I got to go get that mail, as soon as that mail truck comes to my mailbox. That might not the best decision for your long-term independence and longevity. So again, things like that I think are important to kind of think about, and maybe you're just slowly transitioning certain tasks over time and it might not be related to cognitive decline. Maybe it's just making sure that your support team is in place. And you're just investing in that as you age as well. So again, really important point there. We want to thank you for listening in. As we said, you can find actually Anna's white paper, we're going to put on our blog.

Curtis Worcester:

Yep.

Ben Smith:

So you can go to blog.guidancepointllc.com/56, for episode 56. You can go there and you'll have the link to Anna's white paper. Again, we recommend everyone to give that a read. It's a really awesome resource for you. And again, good academic background. So you'll find that there. Thank you again to Anna for coming on. We are very excited about our next episode too, episode 57.

Curtis Worcester:

Yep.

Ben Smith:

We're going to have a talk in mental health here with Coach P, Joanne Palombo McCallie. Who was the head coach of women's basketball at University of Maine who went on to be the same position at Michigan State and Duke. So she's going to talk about mental health, specifically and how she was diagnosed with bipolar disorder, while a head coach at UMaine, and how she's lived with that and built her own team. We're going to learn some lessons about that. So stay tuned for that. That's going to be our kickoff to 2022.

Curtis Worcester:

Yep.

Ben Smith:

Really appreciate you tuning in and we'll catch you next time.