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Strategies to protect aging parents
With fifteen percent of the United States population now over the age of 65, many Americans are left wondering how they can financially protect their aging parents. Between cognitive decline, scam artists who prey on the vulnerable, and the expense that comes with increased life expectancy, careful planning is a MUST. In this article, we will not advise how you or your parents should invest their assets, but we will unpack the practical strategies to help keep your parent’s financial assets safe.
Create a financial plan – for yourself AND your parent
Much like a flight attendant would remind you in case of emergency to first affix your own oxygen mask before helping another, you MUST protect your own financial security before trying to assist your parent. Frequently an adult child will start caring for their parent without full awareness of the seriously financial difficulties they may face. “Women who become caregivers for an elderly parent or friend are more than twice as likely to end up living in poverty than if they aren’t caregivers,” says Cindy Hounsell, president of the Women’s Institute for a Secure Retirement (WISER). If they take time off work, not only do they lose pay, but those lost wages can affect their Social Security, pension payouts, and other savings — threatening their future finances.” (Be sure to check back in to this blog, as we will soon be giving you strategies so that your kids won’t have to financially care for you in your advanced years.)
Perhaps your parent is fastidious about their record-keeping, or perhaps they have more hope than strategy – either way, it is essential that you begin the conversation of how they want their finances handled in case of an unexpected illness or sudden mental impairment. This can be a delicate subject, of course, but if a plan is not put into place while your parent is still ably minded, then obtaining guardianship becomes a complex process.
The most essential information and the best place to start is to have your parent complete these three documents:
1. Durable power of attorney – Your parent will need to select someone whom they trust to take care of their finances should they no longer become competent to do so themselves.
2. A health care proxy – This legal document ascribes a trusted individual, or individuals, with the power to make life-and-death decisions if your parent is unable to do so.
3. Finally, a will – This allows your parent to determine how their assets will be divided once they pass.
Obviously, obtaining these documents can take an emotional toll. However, if your parent’s health deteriorates quickly and they become incapacitated, you will need to have everything legally documented. If your parents are not yet willing to share their financial information, request that they at least tell you where you can find the necessary information in case of an emergency. During a stressful, highly-emotional event, the last thing you want to do is play financial detective. Be sure to create a list of all expenses, bills and assets.
If your parents are more agreeable to your help, you may want to consider having copies of their financial statements sent to you, or obtaining online access to their accounts so you can monitor their financial activity and potentially spot any irregularity early on.
Educate and protect your parent from scams
Unfortunately, seniors are most at risk of fraudulent schemes, with nearly 1 in 20 elderly respondents reporting being financially exploited in a large study of New York residents in 2014. Research shows that seniors are more likely to engage in risky financial behavior, and they are also less likely to report the fraud out of embarrassment or fear that their children will take control of their finances. In fact, adults over the age of 65 are more likely to have lost money in a financial scam than adults in their 40s, according to the Stanford Center on Longevity and the Financial Industry Regulatory Authority’s Investor Education Foundation.
In order to protect your parents from such scams, first make sure they’re informed about the most common scams in 2015.
Currently those are:
1. The sweetheart scam – For those single seniors who find love on the internet, be wary of any new lovers who ask for your help. For example, scammers will often establish a bond, proclaiming their love, only to ask for money to help them out of a predicament (i.e., lost passport while overseas, briefcase or wallet stolen on business trip).
2. Similar, the grandparent scam – A scam artist will call or email, claiming to be a beloved grandchild, asking for a money wire to get them out of jail, get them home from a foreign country, etc., and requesting that they not tell their parents. These fraudsters depend on secrecy, so remain safe and instead verify with the parents.
3. Finally, the imposter scam – In this case someone will call or email, claiming to be from a government agency like the IRS, insisting that that you owe back taxes. These scammers will then provide an address for the target to send money to, or request personal information. Remember that government agencies will already have personal information on file and will never ask for such information over the phone.
Finally, if your parent falls victim to the ploy of a fraud scheme, don’t shame them. They are already embarrassed and scared. “When protectors take over finances or lecture parents about their mistake, it plays right into the scammers’ hands by threatening the target’s independence,” says Anthony Pratkanis, a social psychologist at the University of California, Santa Cruz, and coauthor of Weapons of Fraud with AARP’s Douglas Shadel. Take precautions to minimize your parent’s exposure to such scam artists and remind them to be on their guard against strangers who seek their money and personal information.
Protecting parents from themselves when memory fades
Studies show that one in nine Americans over the age of 65 (11%) has Alzheimer’s disease, and 32% of Americans over the age of 85 suffers from the disease. Tragically, these numbers do not even include those who have alternate forms of dementia or even mild cognitive impairment. These sobering statistics drive home the essential nature of a financial plan. The key to protecting your parents from financial elder abuse is to have the necessary conversations early, make it legal, and recognize early when memory loss starts to become a problem. If possible, monitor your parent’s accounts for unexpectedly large or frequent withdrawals. But even if your parent has not allowed you that access, watch for erratic behavior regarding money, mail from financial institutions claiming late payments, or irregular difficulty calculating change or a tip.
More practical strategies
1. Limit your parent’s exposure to fraudsters. Put your parent’s phone number on the “Do Not Call” registry, and their address on the opt-out lists with the Direct Marketing Association. Then your parents will not receive junk mail or cold calls from legitimate vendors. If they receive unsolicited mail or phone calls once registered, it is likely from scammers and should be disregarded.
2. Advise your parents against keeping their power of attorney or living trust originals in their safe-deposit box. If you are not listed on your parent’s safe-deposit box account, then you’ll need those forms to access their box, leaving you in a catch-22 scenario. It’s better to keep these documents at home in a fireproof box.
3. If you pay your parent’s bills, keep copies of every check, every bank statement, and every receipt. You will want to be able to prove to any concerned sibling or other family member that you are handling their finances responsibility.
4. Your parent could potentially live several years with cognitive impairment, and over the course of that time, their financial needs and objective may change. You may want to consider consulting a registered investment advisor to assess your parent’s investments. Be sure to keep detailed notes of their advise.
5. If your parent has not yet started collecting their Social Security payments, you may want to seek professional advice on the timing of withdrawal. Waiting two to five years to start withdrawing payments may increase the size of those payments.