You stated "mental issues" but did not specify what. I understand why so I will punt several ways.
Above all if there is the remote possibly that there could be violence or danger to anyone, himself included you owe it to all to address it immediately.
1 If it is a matter of dementia (and no violence) then it is a matter of economics. Can you afford to keep him on with a lesser role. Build up other employees around him incrementally to lessen his load. Less load will help prolong what unfortunately be the inevitable. Be cognitive of your other employees needs. You don't want to end up alienating other employees to the point of losing them. Where my wife works, they kept an older guy too long. My suspicion was early onset dementia. He became unproductive, unorganized and forgetfull. Blamed others for stealing his things. Missing things were just misplaced by him. Several other productive employees got tired of covering for him and left which seriously hurt them for awhile.
2 if it is of an issue of substance abuse then it should be covered with kid gloves. But still addressed. Does he have immediate family? Are they an option to help him get help. Performance reviews are a simple pathway to discussions. If missing a lot of work time. Then written warnings about that. With follow up questions of asking if there is anything you can do to help. That way they know you know something is up. If they open up dialogue at all then there is your opening to provide help and or direction. If he shuts you out then your sole option is to look out for yourself, employees and business.
Whether it is suspension or firing. Layoff for (insert reason here) can soften the blow by allowing unemployment insurance to be received. Many other partial offers of insurance being carried for a duration to rehab payments etc...
Also an offering that he could return to his position when he cleans up. Motivation because it provides a direct goal to work towards.
3) If the issue is of the schizophrenic nature then then there must be an immediate decision. This does not ever get cured. Only marginally controlled when the proper medication and dosages are eventually identified. My father who recently passed away was this...
Life long battle. Work environment not really possible due to the life long ups and downs.
Best wishes on your decision and his future.
Above all be true to yourself about what is the best decision for all. One you can go to sleep at night with.
Mike.