Diminished Capacity and Retirement Planning

By Anna M. Rappaport

Retirement Section News, January 2021


The 2020 ERISA Advisory Council has a project on Considerations for Recognizing and Addressing Participants with Diminished Capacity.[1] The ERISA Advisory Council is a group within the Department of Labor (DOL) to represent the public and various segments of the retirement landscape. Each year the council studies topics of interest by collecting information from a range of stakeholders. They make recommendations to the DOL with the overall goal of improving the retirement system through DOL action. Andrea Sellars is the individual appointed to represent Actuarial Consulting on the council, and Julie Curtis is on the council representing the General Public. Both are participating in this project. Council members seek out organizations and individuals who can present testimony to help them understand the topic. The testimony is available on the council website, and their report on this topic will be available in 2021.

I was invited to participate and delivered testimony to the council on this topic in September 2020. This article is largely based on that testimony and other ideas presented to the council. It reflects my personal views and not those of any organization. I draw heavily on research published by the Society of Actuaries (SOA), observations from my involvement in that research as an author and reviewer, from personal experiences, and from my participation in the broader retirement community. I focused on what I think will be of interest to the DOL and the retirement plan sponsor. 

By diminished capacity, I am including cognitive decline, loss of hearing and sight, and loss of physical mobility including reduced ability to use limbs (arms, legs, hands, etc.). People often experience diminished capacity gradually and need different types of help along the way. Diminished capacity may make it very difficult or impossible for people to use technology, talk on the phone or drive a vehicle. Depending on the type of event leading to diminished capacity, it may severely limit the ability of the person to make and/or implement decisions that are important. Financial, family and other decisions are required at different points before and during retirement. Decisions made earlier in life and implemented effectively can set the stage for dealing with and potentially avoiding some of the difficulties of diminished capacity if it occurs.

This article summarizes some key points from the testimony and also offers ideas for how employers can help employees and retirees deal with these issues. There are two different audiences that employers deal with as a result of diminished capacity—the individuals whose capacity is diminished, and those who help them. The first set of individuals may be plan participants, either active employees, retirees or surviving spouses. The second set are their caregivers and those who provide support. Many employees are providing support to aging parents, spouses or other family members.

Employers may offer support through Employee Assistance Programs, financial wellness providers, prepaid legal programs and information about community resources to help employees and retirees navigate these issues.


The SOA has sponsored and published a considerable amount of work that provides insights related to retirement and diminished capacity, including some on the implications of COVID-19. In thinking about diminished capacity, I thought about its impact on planning, retirement management strategies, fraud, caregiving, and family issues. COVID-19 has increased caregiving complexity and created some new challenges for retirees and those who support them. For many people, it has not changed diminished capacity or the way individuals have planned for retirement. For others, it may have accelerated the path to diminished capacity due to deferral of health care or social isolation. For some, it may have increased their interest in planning and providing for the uncertain.

The Stanford Center on Longevity and University of Minnesota working with the SOA and the AARP have just completed research, “Thinking Ahead: Informing the Design of a Roadmap for Keeping Your Money Safe as You Age,” to support the development and distribution of a Conversation Guide[2] to help families have appropriate conversations about late-in-life financial management before issues of diminished capacity emerge. The SOA is a co-sponsor of the research, which included focus groups, in-depth interviews with experts, and other information gathering.

The SOA previously published research on people age 85 and over, and it sponsored various studies and solicited essays that included content on long-term care and caregiving. Many individuals over age 85 will experience some form of diminished capacity and the age 85 and over research indicated that many respondents already needed some form of help. The research on those age 85 and over is summarized in the report, “Retirement Experiences of People Age 85 and Over.”[3] One of the topics of the age 85 and over work is a special report on cognitive decline. Cognitive decline changes everything and creates major complexity for caregivers. The report, “A Conversation on Dementia and Cognitive Decline,”[4] offers insights about cognitive decline and dealing with it.

In 2014, the SOA issued a call for papers on long-term care and retirement security. The papers published that year include a paper[5] that focuses on gradual changes in capability and the decision-making process, “Improving Retirement by Integrating Family, Friends, Housing and Support: Lessons Learned From Personal Experience.”[6]

The SOA has published reports on both retirement risks and on decisions that people need to make in retirement. The risks interact with retirement decisions. The SOA research includes a biennial survey, the “Society of Actuaries Risks and Process of Retirement Survey (Risk Survey)” conducted 10 times since 2001 (from 2001 to 2019), and focus groups with retirees retired less than 10 years, focus groups with retirees retired 15 years or more, and then research on individuals age 85 and over. Some key findings related to diminished capacity from this research are shown below. Some of the survey and focus group research focused on decision making and that research continues. 

The SOA has also issued a series of decision briefs to help people nearing retirement or in retirement think about important decisions. Some of those decisions are challenging even in the absence of diminished capacity. One of the briefs is about what one needs to consider when choosing whether to take a lump sum distribution. This is an extremely important decision that may be at a point where people are vulnerable to persuasion, leading to poor decisions and to fraud. Focusing on how to help people with diminished capacity handle this decision is an important issue for employers.

The SOA issued a call for essays on “Retirement and COVID-19” and has published several essays. Some of them are related to these topics. The essays most closely linked to these topics are:

“Will Retirement Change Due to COVID-19?”[7] and “Are CCRCs and Senior Housing Communities a Good Choice? COVID-19 and Risk in Arrangements for Senior Housing and Support”.[8]

The SOA also published a series of reports on COVID-19 and retirement issues. Two of the reports, “Impact of COVID-19 on Senior Housing and Support Choices” and “Impact of COVID-19 on Family Dynamics in Retirement” are somewhat related to this topic. The SOA COVID-19 reports can be found at https://www.soa.org/resources/research-reports/2020/impact-coronavirus/.

The SOA has additional related projects in process:

  • The SOA is partnering with Financial Finesse on a resource guide about late-in-life decisions. These are decisions for people who are well into retirement, but who must decide how they will get needed support, what help they need, how they will perform daily money management, and manage their medical care. This brief should be helpful to seniors and the people helping them and is expected to be available in 2021.
  • The SOA is partnering with LIMRA on a literature search on fraud, financial exploitation and how it relates to retirement plans.


The Risk Survey has respondents from ages 45 to 80 and is split between retirees and pre-retirees. The survey samples include a wide range of income levels and are selected to be representative of the U.S. population from an income and asset perspective. The survey includes some repeated questions and questions around several topics of emphasis in each iteration. Some questions throughout the series speak to planning for diminished capacity. Here are some key findings:

  • Some people do not plan at all.
  • For many others, their planning is relatively short-term and focused primarily on cash flows.

It seems very clear that many people are not considering and focusing on diminished capacity in their retirement planning.

The 2007 Risk Survey focused on change during retirement. It documented that some people anticipate diminished capacity. This survey focused on three phases: “go-go,” “slow-go,” and “no-go.” The beginning of Phase Two is marked by a decline in either physical or mental capacity, or both. About 70 percent of the retirees and 85 percent of the pre-retirees in the 2007 survey expected to experience Phase Two at some time during retirement. About two-thirds of pre-retirees and retirees in the 2007 survey expected to experience Phase Three during retirement. Planning may not take into account these potential changes during retirement, so when the changes occur, people are often poorly prepared for dealing with them.

People with greatly diminished capacity may need long-term care. The 2017 Risk Survey focused on what people knew about long-term care and whether they had planned for it and also focused on caregiver issues. The SOA has also published research on the family and its role in retirement planning. The survey data related to planning for caregiving and long-term care were considered together with the results from the age 85 and over research.

The 2017 Risk Survey provides insights on how people have financially prepared for long-term care.[9] Among pre-retirees, “save on your own” got the most responses with 45 percent of pre-retirees saying they had done this and 38 percent saying they are planning to do so. Of the pre-retirees, 11 percent said they had discussed how they will pay for long-term care with their family and 42 percent planned to do so. Fewer had or planned to discuss it with a financial professional. Ten percent of pre-retirees said they purchased long-term care insurance and 36 percent plan to do so. Among retirees, 12 percent had purchased long-term care insurance and 17 percent plan to do so. The majority of the respondents said they were now financially well prepared for long-term care. The age 85 and over research indicates a higher percentage of respondents had purchased long-term care insurance but it also indicates over-optimism and major gaps in planning.

The combination of the 2017 Risk Survey and the age 85 and over research made it clear that while family is an important source of help, there is relatively little planning that involves the family caregivers interacting with the people they may care for. The Conversation Guide currently under development with the Stanford Center on Longevity and University of Minnesota is designed to help improve that situation, specifically with regard to planning for financial management. It should provide resources that employers can share with employees.

The 2017 Risk Survey also asked about strategies to pay for long-term care and it was clear that the respondents overestimated what Medicare and health insurance would pay for such care. (Two of the existing decision briefs[10] published by the SOA focus on long-term care financing and health insurance during retirement. Both of these briefs have been updated recently and are suitable for sharing with employees. They identify options and questions to help people think through decisions.)

The 2019 Risk Survey[11] includes a section on family support and aging alone. That survey also has questions that offer insights about diminished capacity and planning. Some of the findings include:

  • Individuals over age 65 (both pre-retirees and retirees) were asked about their legal documents and designation of health proxy, power of attorney, and people who would care for them. Of the retirees over age 65, 68 percent said they had organized their legal documents, but only 46 percent said that they had talked to the person who they think will care for them.

The research report for the Conversation Guide referenced above provides more insight into how people are planning for diminished capacity from a financial point of view. The report explores key barriers to advance planning for financial management when a change is needed, message positioning that would encourage advance planning, and outlines the sections in a roadmap for planning. When the planning materials become available, they will be suitable for distribution to employees. 


Retirees, their caregivers and those who help them are concerned about managing their finances, avoiding fraud, managing their lives, paying for care and support when it is needed, and finding suitable care when it is needed. Employers can focus on program structure and administration so employees and care givers are able to prepare for and accommodate the challenges created by diminishing capability of beneficiaries. 

Possible actions for employers include:

  • Offer a menu of retirement income options in defined contribution plans and encourage thinking through the development of an income plan, so that retirees will have an organized approach to income in retirement, which can continue during periods of diminished capacity.
  • Modify administrative systems including related technology to recognize people with diminished capacity and support them. Provide options that do not require everyone to use technology.
  • Include long-term care related options in planning systems and software.
  • Remind people to consider these matters when planning for retirement.
  • Help employees and/or retirees identify and implement strategies for dealing with diminished capability using an employee assistance program and/or pre-paid legal services.
  • Offer access to insurance products through a group purchasing arrangement to help finance long-term care.

Employer actions can occur at various times: early in life when people are first planning, in mid-life when they get closer to facing diminished capacity, during the transition and during periods of diminished capability.

Some of the topics that might be considered for a financial wellness offering include helping employees understand:

  • How to recognize and deal with diminished capacity and cognitive decline.
  • How the potential need for long-term care affects retirement planning.
  • How a potential caregiver should consider diminished capacity in retirement planning.
  • The options for financing of long-term care.
  • Where to find information about local support groups, community and public sector activities and support services.
  • Legal issues, resources to understand them and what types of documents are needed.


The same initiatives may also provide help to the employee/caregivers. Caregivers are faced with stress and employers may be faced with declines in productivity when the caregivers are stressed out. They may need to deal with emergencies and have major challenges when there is a need for a shift in location for care. Employers can also play a role in helping these employees by:

  • Offering flexible work schedules and time off that works for the caregivers.
  • Assisting caregivers with stress through the company’s benefit programs.
  • Using employee assistance programs to assist the caregiver in locating and evaluating suitable support.
  • Helping employees understand the role of professional care managers and helping employees locate them.


All of the SOA research and materials mentioned in this article are available to employers and the public. They can be downloaded from the Aging and Retirement section of the SOA website.


Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Anna Rappaport, FSA, serves as chairperson of the Committee on Post-Retirement Needs and Risks. She can be reached at anna.rappaport@gmail.com.


[1] https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/diminished-capacity-issue-scope-final-09012020.pdf

[2] The Conversation Guide project will include a website and a variety of materials. Note that the researchers working on this project also testified at the ERISA Advisory Council and their testimony is available on the Council website.

[3] https://www.soa.org/globalassets/assets/files/resources/research-report/2019/retirement-experiences-people-over-85.pdf

[4] https://www.soa.org/resources/research-reports/2018/cognitive-conversation/

[5] Rappaport, Anna M. 2014. Improving Retirement by Integrating Family, Friends, Housing and Support: Lessons Learned From Personal Experience—paper which provides information about a variety of options for housing combined with care and how decisions were made in selecting care options. https://www.soa.org/essays-monographs/managing-impact-ltc/mono-2014-ltc-manage-rappaport.pdf.

[6] https://www.soa.org/globalassets/assets/files/resources/essays-monographs/managing-impact-ltc/mono-2014-ltc-manage-rappaport.pdf

[7] https://www.soa.org/globalassets/assets/files/resources/research-report/2020/covid-19-aging-essay-koco.pdf

[8] https://www.soa.org/globalassets/assets/files/resources/research-report/2020/covid-19-aging-essay-rappaport.pdf

[9] There is a special report on this topic “Planning for Personal Long-term Care Risk,” https://www.soa.org/globalassets/assets/files/resources/research-report/2019/planning-personal-ltc-risk.pdf. This report covers findings from the 2017 Risk Survey and the Age 85 and over research. 

[10] https://www.soa.org/resources/research-reports/2012/research-managing-retirement-decisions/. This is a series of decision briefs. This is a one-page handout that lists all of the briefs.  https://www.soa.org/globalassets/assets/files/research/projects/research-2012-retire-briefs-flyer.pdf

[11] https://www.soa.org/globalassets/assets/files/resources/research-report/2020/2019-risks-process-retirement-survey.pdf