The good news is there’s no obvious age at which a normally healthy person loses cognitive ability. People who are experiencing normal cognitive aging can often manage their financial affairs competently well into their 70s and 80s.

For those who have cognitive impairments, however, the stakes can be high. A serious financial misstep during retirement can cause a loss of income or assets that is hard to make up for. Worse, there are those who will take advantage of an older person and commit financial abuse. Unfortunately, cognitive impairment occurs gradually and it can be difficult to know when someone’s degree of impairment has reached a point where managing money is no longer wise.

If you’re already sure that you or a loved one should give up managing their finances, there are options. You can grant authority to a trusted financial adviser or family member through a durable power of attorney. Or, a court can rule that someone is incapacitated and appoint a conservator. The conservator is a fiduciary, meaning they are required by law to act in the ward’s best interest, and he or she can take over all financial tasks for the ward.

Many people are not sure when they or their loved ones have become unable to handle their financial matters competently. That’s natural; according to researchers at the Center for Retirement Research at Boston College, the ability to process new information begins to decline around age 30. What can you do to be sure?

Consider taking a financial capacity test

Luckily, there’s a relatively straightforward way to find out if you or a loved one still has what it takes to manage money. A financial capacity test is usually performed in person and takes 30-60 minutes. Typical things that are tested include:

  • Basic money skills, such as understanding coins and bills, knowing how to write a check
  • Ability to perform a cash transaction and understand a receipt
  • Ability to read, pay and dispute bills
  • Ability to understand a bank statement management, including recognizing deposits, withdrawals and balances
  • Ability to understand basic financial concepts such as debt, investments and insurance
  • Understanding your current assets and income
  • Your financial judgment about the value of assets, investment risks, budgeting and the ability to detect fraud

A financial capacity test will also usually involve a clinical assessment in which a clinician will interview you and assess your ability to make sound decisions.

For more information, as well as tips for protecting yourself financially as you age, we recommend reading this helpful article.