Consider the numbers: 10,000 people who worked and saved for 40 years are turning 65 every day. It’s a perfect storm: a combination of large sums of money plus aging seniors.
Seniors who are suddenly faced with managing a lifetime of savings on their own after retirement, make for a good-sized target. Is the root of elder abuse, asks this article from Wealth Advisor, “Elder Financial Abuse Will Get Worse As Americans Age,” our retirement system?
For 40 years, the system has required people to save and handle very large sums of money to last their lifetime. In 2017, $14.5 trillion (85% of GDP) is in self-directed retirement accounts, which are prime targets for financial predation. In sum, our 401(k) and IRA system invites financial abuse.
We can caution people but, giving financial protection advice to older Americans with lump sums is not an easy thing to do. Many of the elderly are physically and mental impaired, socially isolated and have plenty of money.
Requiring professionals who handle IRAs to be fiduciaries would have helped to prevent legal financial abuse. However, that regulation was recently overturned. As a result, professionals handling IRAs—the quickest-growing type of retirement account—are held to a lower professional standard. They cannot lie. However, they also can manage your account without putting your interests first, because they’re not required to be fiduciaries.
A study by the Justice Department found that one in 20 older adults said they were financially mistreated in the recent past. In one year, the prevalence for emotional abuse among elders was 4.6%; 1.6% for physical abuse, 0.6% for sexual abuse, 5.1% for potential neglect, and a 5.2% for current financial abuse. Experts say that this is an undercount, because it only considers abuse by family members.
The GAO also found elder abuse to be a widespread and growing problem. With a rule of thumb that we should accumulate 8-10 times our final salary in retirement individual-directed accounts (and no realistic option to acquire a fair and efficient lifetime annuity), elder financial abuse is far more prevalent in America than elsewhere.
The financial industry fears regulation and the imposition of the legal requirement and reporting duties that could come with a fiduciary law. Unfortunately, there is no lack of opportunities for financial abuse, including selling inappropriate financial products, to take place. A team of trusted advisors, who work together, including an estate planning attorney, CPA and financial advisor and involved family members, may be the best protection against financial elder abuse.
Reference: Wealth Advisor (September 11, 2018) “Elder Financial Abuse Will Get Worse As Americans Age”