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Dementia can cause havoc with your finances during retirement

If you think you could be susceptible to dementia, it is recommended to plan your financial affairs in advance.

Most people are looking forward to retirement as a time of rest while enjoying life after a lifetime of hard work. Unfortunately, for many, this is a dream that quickly evaporates, with the current average replacement ratio of a pension a mere 20% (according to research done by Alexander Forbes), while health issues pose serious and added financial risks in old age.

Apart from the current Covid-19 pandemic that presents a particular threat to the elderly, dementia is one of the biggest concerns. It attracts various problems including the cost of treatment, scams aimed at the elderly, as well as general rip-offs where people take advantage of the aged.

The treatment of serious illnesses like dementia often cost a lot of money where frail care can cost up to R40 000 per month, excluding the cost of medicine, medical aid contributions, and essential needs. In most cases, your pension and medical aid options do not include a blanket cover.

People will also, almost without fail, talk down to the elderly trying to pass off a higher-priced item to them. Unfortunately, some medical aid schemes are culprits for trying to reject claims made by this group. Pensioners are also subject to more scams than any other group.

To be able to protect yourself from scams, it is important to understand what makes them so effective. With pensioners desperate for better returns, they often fall for empty promises of lucrative and quick pay-outs. The sad reality is that these scammers come from all walks of life, with the main offenders being product providers including Ponzi schemes, financial advisors selling, for example, on maximum commissions, lawyers and accountants exploiting their clients, relatives, and caregivers trying to alter wills.

Dementia and financial risks

When it comes to financial well-being, one must be able to make decisions, enter into contracts and litigate while depending on others for assistance. Without this ability, which dementia is often a central cause of, you become a danger to yourself. Once you are no longer able to understand what you are doing contractual decisions can be declared invalid, by law. To prove whether one was of unsound mind when one entered into a legal transaction can be difficult, especially with dementia being a gradual process taking place over years, making it difficult to take timely action.

But how do you protect your finances when facing diminishing capabilities? Many people think one solution is signing a power of attorney, which gives a nominated person the right to handle your affairs and control your finances. However, it is important to note that you and your family cannot simply decide that you will sign a power of attorney at a particular age or stage in your decline of dementia.

There are two courses of action one can take to limit the risks. You can initiate legal procedures, but keep in mind it has notable limitations. Applying to the High Court for a curator bonis (a court-appointed legal representative) can protect your financial and property interests, but the curator cannot sign a will or become involved in a divorce action. Applying to the Master of the High Court, in terms of the Mental Health Act, is limited to people whose assets are worth less than R200 000 or with an income under R24 000 a year.

The second action is to establish a trust where the trustees will administer the assets in your trust. Trusts, however, can be expensive and complicated, especially from a tax perspective. It must be structured in such a way that you will receive an income or have the right to an asset, such as your house until you die. At the same time, it is advised to be very careful in selecting your trustees.

Many families devise their own informal arrangement, but again it is advised to always involve a financial planner with experience in such matters. If you think you could be susceptible to dementia, it is recommended to plan your financial affairs in advance. A guaranteed or hybrid annuity from a life assurance company is an easy and cost-effective way to protect your capital. With this safe option, you can also provide for a spouse’s income for the rest of their life.

Finally, a living will is not only something to consider but an essential legal document to convey your wishes to your family and the people providing you with various ways of assistance. This is particularly important if you are unable to speak for yourself.

This article is based on a section in the top-selling book, The Ultimate Guide to Retirement in South Africa, written by Wouter Fourie and Bruce Cameron. For more information, visit

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Wouter Fourie

Ascor® Independent Wealth Managers


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I have been told that I cannot use a portion of an existing living annuity to purchase a life annuity. Is this true?

@TTR. Not sure if I understand your question correctly, but it may relate to this:

If you are already invested into an (Equity linked) Living Annuity you can (usually at policy anniversary) opt to CONVERT your capital into a (traditional) Guaranteed or Life Annuity (the latter which is based on long-term rates), and can be chosen with a fixed annual inflation increase. Joint life can also be chosen (albeit at sacrificing some income now)

(…depending on current rates offered, you may/could start with a lower annuity income, but then guaranteed to increase at fixed % until death). Upon death, the annuity continues onto the spouse, until the 2nd death. Nothing is inherited by the children.

(Once converted into a Life/Guaranteed Annuity, you CANNOT CONVERT BACK to an equity-linked Living Annuity at a later stage)

So if you have a Market-linked Living Annuity, you kids will inherit the remaining capital, but the flipside of the coin, if annuity capital depletes, your kids will inherit you as an parent expense…(this the advisors don’t tell prospective clients going into ELLA’s)

So it’s important to get annual quotes for Life/Guaranteed Annuity, to try an determine if long-term rates are now in your favor, or not (yet).

To wrap, if you have adequate capital for an Equity-linked Living Annuity, and you living within the means of your capital growth, your kids will inherit.
But……if the ELLA turns into a “krimpfonds” and you deplete your capital, your kids will hate you, as you’ll have to live with them.

With a Guaranteed/Life Annuity that risk (that you may end up as an expense for your kids) is lessened, despite that they may not inherit. But there could be nothing to inherit…..

A very real concern (thought provoking article from Wouter).

Some of us may’ve heard the joke:

“What does the elderly do with most of their ample free time?”
Answer: “Half the time, they’re looking for their misplaced stuff”

In fact, a sad reality, and not so funny. Never mind looking for your misplaced car or house keys, wait until the day you forget to find where your online passwords are stored 🙁 or how to use your smartphone or PC.

Best to keep one’s brain busy for as long possible…postpone retirement & try to keep active.

Dementia/Alzheimers is perhaps an (unintended) curse of modern medicine, the latter being able to keep humans living for longer, so now we have to deal with elderly parents suffering with dementia, Alzheimers, etc….whereas two generations ago, people died between ages 40-60 from natural causes/disease, while their minds were still fresh. Modern medicine can lengthen lives, through the transplant of many organs, replacement of heart valves, back ops, hip- & knee replacements can keep us going….but the brain, the body’s most complex part, cannot be replaced / and is the less understood. Thus our bodies may last longer than anticipated….our brains may not.

End of comments.



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