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In a nutshell...
Heavy drinking will cause dementia (although may be one factor of others ie mixed type dementia).
She lives alone. OK. She will continue to do so - until she can't.
Regardless of type of dementia, if the sister has no intention or ability to live differenently, it may take a crises to effect real change. Regardless of whether she is aware of her deficits, or is not, you cannot change her.
You can only change your response. *This is crucial to understand* & takes time. (Took me AGES).
* The sooner your wife stops enabling her to live alone, the faster her situation will change *
Are you & your wife ready to do that? Ready to accept your limitations? Let the world in to help her?
Show your wife this thread if you can.
PS I edited my reply. The steps on how to step back can wait (until you are ready).
Please consider Al-Anon. You will get very good advice from others who are living this.
Every single person that has a concern should contact APS and file a vulnerable person complaint and keep making them until they intervene.
Your wife should do some research on dementia, because she is trying to be reasonable with a broken brain and that just doesn't work.
As difficult as it is, sometimes we can only step back and let the person fail. That is usually how change happens in these situations. She is lucky that she lives in OR, they have great social services. So encourage everyone to start making those calls and step back and let the system work.
May God bless this situation with a caring, knowledgeable social worker that can see through the showtiming.