Getting Ahead of Cognitive Decline: Financial Steps

September 25, 2025

Cognitive decline has become a devastating reality for millions of Americans. This progressive condition, which largely impacts those over the age of 65, not only diminishes memory but can also create complex legal and financial challenges. Without preparation, these pressures can be overwhelming for individuals and their families alike.

While legal planning helps establish authority and document your wishes, financial planning is also important. Taking proactive steps today to prepare financially can help protect your assets, provide clarity for loved ones, and reduce stress during an already difficult time.

Create Your Financial Planning Team

Whether planning for legal or financial matters, the first step in preparing for cognitive decline is assembling a trusted team of professionals who can help you get organized and focused on key priorities. A comprehensive financial planner, particularly one who specializes in retirement planning and long-term care, can serve as the central coordinator. They can help align your financial goals with the realities of potential cognitive decline and build out a complete team of professionals to address other related concerns.

An estate planning attorney complements this work by confirming your financial strategies are backed by important legal protections. They can help you create or update key legal documents, such as wills/trusts, powers of attorney, and healthcare directives, which play a crucial role in protecting your assets and fulfilling your transfer wishes. An accountant adds another layer of support, offering tax guidance and helping you navigate complex tax implications related to medical expenses and retirement accounts.

Adjust Portfolio Positioning

Cognitive decline often spans many years, making it important for your investment portfolio to be adaptable and balance your need for short-term liquidity with long-term growth. For short-term needs, consider maintaining sufficient liquidity with assets such as cash or short-term bonds that can cover immediate expenses like medical bills or caregiving costs without being forced to sell long-term investments during market downturns. For long-term needs, consider maintaining a diversified portfolio with a focus on growth-oriented assets like stocks, real estate, and hard assets to keep pace with the ever-rising costs of extended care.

It is key to regularly review and rebalance your portfolio with your financial planner to help ensure it aligns with your evolving needs.

Plan Ahead for Cash Flow

Cognitive decline also presents significant cash flow considerations, particularly related to taxes and healthcare costs. Take time to review your retirement accounts, such as IRAs and 401(k)s, because withdrawals are taxable and could impact your income tax bracket. After-tax brokerage accounts can offer more flexibility, as capital gains taxes may be lower than ordinary income taxes.

It is also important to be mindful of Medicare Part B and D surcharges, which increase with higher income levels, potentially raising healthcare costs. On the other hand, medical expenses, including memory care, may qualify as tax deductions if they exceed 7.5% of your adjusted gross income (AGI). Consider consulting an accountant to help maximize deductions and optimize cash flow.

Start Preparing Today

By proactively assembling a trusted team, adjusting your investment portfolio, and planning for potential changes in cash flow, you can take meaningful steps to prepare for the financial impact of cognitive decline. Thoughtful preparation may provide clarity, reduce uncertainty, and help ease the burden on loved ones. Starting early is especially important; acting now gives you the opportunity to make well-informed decisions while you have the time and clarity to do so.

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