Preparing for retirement should include preparing for the risk of diminished mental capacity, according to noted financial writer Jane Bryant Quinn (“Losing Your Grip?”). It is an unpleasant fact of life that, as we age, we become less competent to make financial decisions. A 2009 study on financial decision-making found that this ability peaks at age 53 and declines thereafter, according to Ms. Quinn’s article. Another study at Texas Tech University revealed that what we lose 2% of what we used to know about financial matters each year after age 60, but, paradoxically, we gain confidence as we lose this knowledge. All of this makes us vulnerable to serious financial errors and even fraud, according to Ms. Quinn.
Regulators are also concerned about financial fraud being committed against seniors. Investors, especially seniors, should be on their guard against “new friends” who pitch investments.
Ms. Quinn’s article sets out four steps to take at age 60 to protect yourself. First, make sure you have a will, advance directives, a health care power of attorney, and a financial power of attorney. Needless to say, granting such powers to another is something that should not be done lightly, as it presents an opportunity for fraud. The purpose of the financial power of attorney is to enable a trusted person to make financial decisions for you if you cannot.
Ms. Quinn advises to think about someone you trust to whom you can turn for advice or a second opinion. A outside professional, lawyer or accountant may be the most appropriate person. However, as always, you have to be careful about who you pick to fill this role. Ms. Quinn related a story about an elderly woman whose children were trying to get her to deed them her home so that she could be poor enough to qualify for Medicaid. After getting professional advice, she decided to update her power of attorney to prevent the kids from deeding her home to themselves.
Variable annuities are almost certainly unsuitable for most seniors because of the monetary penalties imposed on certain withdrawals, but one trick sellers use to try to make them seem suitable is to sell one that offers penalty-free withdrawals if you need the money to pay for a nursing home. But be careful, Ms. Quinn warns. The promise turned out to be bogus in one instance where the insurance company imposed the penalty anyway because the senior went to an “assisted living center” rather than a “nursing home.”
Finally, if you have a trusted financial advisor, Ms. Quinn advises you to authorize them to notify a third party (a trusted family member or another trusted outsider) if it appears to your advisors that you have suffered a significant mental decline or start spending money uncharacteristically.
In our opinion, at least one of your trusted advisors should be a reputable professional who has a fiduciary duty to you as a matter of law (such as an attorney or CPA), and is not engaged in the business of, or otherwise receives any compensation for, selling financial products.
Page Perry is an Atlanta-based law firm with over 150 years collective experience protecting investor rights and fighting Wall Street greed.