Many media reports list market volatility and rising costs as risks to retirement savings, but a new study by LIMRA finds that age-related cognitive decline can also jeopardize retirement security.
LIMRA’s report, “Decision Risk and the Desirability of Protected Income,” shows how cognitive decline can lead to decisionmaking risk, where retirees make choices that can threaten savings, including missing payments and accidental fraud.
According to the findings, close to 30% of adults over age 65 have experienced a drop in cognitive capacity, with financial management among the first skills to diminish. An estimated 15% of adults over age 65 live with Alzheimer’s disease or with related conditions such as vascular or frontotemporal dementia, while another 15% live with mild cognitive impairment (MCI), a condition that shows decline in cognitive capacity but does not meet the clinical threshold for dementia.
The report notes that while savings can recover from market downturns, losses due to cognitive decline are often permanent. LIMRA’s report shows that this drop in cognitive ability has irreparable impacts, such as an average household wealth loss of nearly $124,000.
“Retirement planning has traditionally focused on the risks associated with financial markets and products,” said Chris Heye, Ph.D., a fellow at the LIMRA Retirement Income Institute and author of the paper. “But as people live longer, success in retirement depends just as much on sound decision‑making over time. Cognitive decline introduces a form of ‘decision risk’ that can undermine even the most well‑constructed financial plan.”
LIMRA notes how cognitive decline can often go unnoticed for years, leaving households vulnerable to financial risk earlier on. As individuals live longer and as modern medical practices continue to advance, understanding the signs of cognitive decline can be crucial to protecting savings.
Streamlining financial accounts and putting household financial decisions on a “safe autopilot” where bills are automatically paid, can also protect retirement security, LIMRA suggests.
The report also highlights the usage of annuities, which it says could prevent risk by reducing the need for ongoing investment, portfolio management, and withdrawal decisions throughout retirement.
“In effect, protected income products substitute a stable contractual income stream for a sequence of potentially risky financial decisions,” LIMRA writes in its findings. “This can help shield retirees and their families from the financial consequences of declining cognitive capacity while simultaneously addressing other major retirement risks, including longevity, market volatility, and unexpected health-related expenses.”