Part 1: Financial Abuse Steals Billions from Seniors Each Year
Here’s how to protect yourself as you approach retirement age
Aging baby boomers represent a growing market for financial fraud. The official figure for elder financial fraud used by a Congressional committee is around $3 billion a year, but that’s based solely on reported cases of fraud; other estimates are 10 times that much.
The federal Consumer Financial Protection Bureau published a report last year that highlighted the growth in banks and brokerages reporting “suspicious” activity on accounts of elderly clients. Between 2013 through 2017, the monthly filing of suspicious activity reports tied to elder financial exploitation increased fourfold from an average of 1,300 to 5,300. When the victim knew the other person (an acquaintance or, sadly, a family member), the average loss was $50,000. When the victim didn’t have a personal relationship with the fraudster, the average loss was $17,000.
There are many ways to build a line of defense that will make it less likely you, or an elderly parent or loved one, will fall prey to scams. In this installment, I’ll cover advice for people in their 50s and 60s on how to start building protections into their financial life. In a second article, I’ll cover tips for how to approach an elderly family member to help them stay safe.
Steps to take today to protect an older you from elder financial abuse
Don’t delay. You likely are on top of everything right now. And hopefully will remain so for decades. But building in protection from elder financial abuse is akin to why you have insurance: You put it in place, just in case. And besides, if you keep putting off decisions that can make you less vulnerable to elder financial fraud, you will miss opportunities to make smart choices today that essentially will buy you protection in retirement. And let’s face it, if dementia or other cognitive issues arise, you’re likely not going to notice a year in advance and take steps then to protect yourself. Do it now.
Create a durable power of attorney. This is someone you appoint who can step in and handle your financial affairs easily if the need arises. Given the depressing earlier mention that the elderly lost more to fraud when they knew the person, this obviously needs to be someone you can trust. An estate planning lawyer can help you with a power of attorney (POA), or if you prefer, a web search of “durable power of attorney” will land you at sites that offer free forms. Just follow the instructions carefully; the finished POA must be notarized. A POA is just one of the essential documents you should have in place to protect yourself and your family.
Embrace the “guaranteed income” approach to retirement planning. As you near retirement, you’ll need to tackle the job of figuring out how to generate a reliable stream of income to support you into your 90s. (Yep, your 90s; A 65-year-old today has pretty strong odds of living that long.)
A strategy recommended by many retirement planning pros is to make sure your essential living costs are covered by “guaranteed” income, not investments whose value can rise and fall.
Social Security is one of the most valuable sources of guaranteed income. If you have a pension, that can be a source of guaranteed income, but only if you don’t do a lump-sum rollover with the intention of investing the money yourself. That lump sum makes you vulnerable to fraudsters. Just something to keep in mind.
Another source of guaranteed income is an income annuity: You hand a chunk of money to an insurance company, and they agree to give you a fixed monthly payout for the rest of your life, or a set period — it’s your choice. Not only is that guaranteed income, but it’s also a chunk of money that is no longer available for future fraudsters to set their sights on.
Income annuities are straightforward and recommended by retirement researchers. They are not to be confused with all the other types of annuities (index annuities, variable, etc.) that can be way too expensive and embedded with fine print risks.
Consider rollovers of old 401(k) accounts. If you have more than one or two workplace retirement plans, consolidating them via 401(k) rollovers will make it easier for you (and anyone who might step in to help at some juncture) to manage your investments and your required minimum distributions that begin at age 72. That said, there can also be good reasons to leave the money right where it is. Learn more here: https://www.rate.com/research/news/401k-rollover-cost