There are good reasons why the silver generation is the main target of financial abuse, and you don’t have to stand still for them. Outright frauds and scams aren’t the only source of financial losses for seniors. Too often, they pay too much or accept bad deals.
Fortunately, after you understand why seniors are susceptible to financial abuse, there are steps you can take to minimize your probability of becoming prey. For these steps to be successful, you need to take them before there is a potential problem.
A major reason seniors are scammed or simply pay more than they should is they aren’t good negotiators. One study found that in general middle-aged people pay lower fees and interest rates on loans than those in either their 20s or over 64, reported David Laibson of Harvard University at a recent Morningstar conference. FICO scores also were not a factor in the differences. The conclusion is that middle-aged people negotiate better than younger or older people.
Other studies demonstrate that older and younger people often don’t read the fine print of offers and end up paying more than they should or enter unsuitable financial transactions. We’ve also learned older people tend to be more optimistic and positive than the middle-aged, so they aren’t skeptical of offers and assume things will work out.
Perhaps most important, studies demonstrate that on average, problem-solving skills peak around age 20. Through the middle years people substitute other assets, such as knowledge and experience, for the diminished problem-solving and analytical skills. Laibson says decision making effectiveness tends to peak in late middle age, on average, around age 53.
Whatever the reason, you need to be aware that on average financial decision making skills deteriorate as one ages. It’s not the same for every person, but in the population as a whole it clearly happens.
There are steps you can take to plan for this change, and they won’t require you to give up much control or independence.
? Your estate plan should include those essential documents we’ve long stressed: a financial power of attorney, perhaps a revocable living trust, a living will, a health care proxy or medical care power of attorney, and a will. Everyone should have these documents as a matter of course, but especially those age 60 and older need them.
? Consider immediate annuities as part of your portfolio. An annuity means you’ll always have a lifetime stream of income that you can’t outlive. It also is money that can’t be scammed or stolen from you in a lump sum.
? Have a regular review of your financial situation. This annual review should include your estate planning documents plus the status of all your financial accounts, including beneficiary designations. It can be done with an estate planner, financial planner, accountant, or even a trusted friend, family member, or advisor.
? Establish a second opinion person or board. This can be an adult child, friend, or professional advisor. Decide that you won’t make a significant or new financial move without discussing it with this person or persons. That doesn’t mean you’re giving them power or control. It means you’re conferring with them to see if you missed anything. Having this feedback system in place also is a good way to identify bad deals. Most scam artists and people peddling unsuitable deals discourage people from seeking second opinions, even to the point of making people think there’s something wrong with them for seeking someone else’s opinion.
? Have duplicate financial statements sent. Part of a good review process is to give someone else regular access to statements from your bank accounts, investment accounts, and other financial accounts. They’ll be able to identify unusual transactions and potential problems.
RW September 2011.
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