Retirement-ruining money mistakes

Broken golden egg in palms of hands

Most families have a tragic story about elderly relatives who lost their savings. Maybe it's Aunt Mary falling into the hands of unscrupulous swindlers. Or Cousin Bill foolishly giving his last dime to a ne're-do-well son.

Sometimes the story is so painful, nobody will even tell you exactly what went wrong.

The circumstances of retirement and old age, which unfortunately can include loneliness and boredom, can lead to money mistakes with terrible and embarrassing consequences.

But the unfortunate truth is that seniors are also a special target of questionable sales pitches and outright scams intended to take advantage of vulnerable seniors.

Here are the seven most common money mistakes, often heartbreaking ways retirees are separated from the nest egg they've worked all their lives to build. Maybe you'll recognize a family member among the victims.


1. Playing the slots

Go to any casino, and you'll find a permanent corps of seniors, mainly women, endlessly poking coins into the slots.

The shiny pinging machines seem to block thoughts of loneliness or mortality.

"A large portion of these people are depressed, and the machine is a way to self-medicate," says Suzanne Graupner Pike, founder of the San Diego Center for Pathological Gambling.

The casinos make it easy to make money mistakes.

"They have buses that go to the senior houses and pick up the seniors and for free transport them to the casinos," she says. "In fact, some of the casinos will even replace oxygen bottles for them."

Of the more than 1,000 people she's treated since opening the addiction center in 2003, the majority have been senior women.

"I have had people in their 80s who have lost everything," Pike says.

Instead of playing the slots, put the money into savings. Use our savings calculator to see the magic of compound interest at work.


2. Playing the market

Older women may be susceptible to the siren song of slots, but men, particularly retired white-collar professionals such as doctors and lawyers, tend to be the ones lured into foolish stock market trading.

This isn't a matter of simply not getting the best return on their investments or having a wrong mix of stocks and bonds in a portfolio. Rather, they believe they've found the Next Big Thing about ready to explode.

"I've seen losses of $100,000 or more," says Deborah Frazier of Frazier Financial Consultants in Chapel Hill, North Carolina. For whatever the reason, she adds, "It's always a professional man ... It's someone who should know better."

The fallacy is believing you can be the next Warren Buffett just because you've had a successful career elsewhere.


3. Boiler room fraud

Foolish investments are bad enough. Outright crooked ones are worse.

Unscrupulous salespeople pitching worthless penny stocks, oil wells or promissory notes not listed on reputable exchanges often target retirees.

Gullible buyers are reeled in with promises of "guaranteed" returns that reputable stocks and bonds can't match.

Bob Webster, a spokesman for the North American Securities Administrators Association, says this type of fraud accounts for more than half of the cases that state law enforcement officials investigate involving seniors.

They're typically approached by phone from high-pressure sales offices or "boiler rooms" like those depicted in the movie The Wolf of Wall Street.

But the hook can be dangled by someone the retiree knows, such as an acquaintance from church.

No matter who's making the pitch, it should be greeted skeptically. When something looks too good to be true, it almost always is.


4. The suckers list

Crooks have a variety of schemes intended to prey on the vulnerabilities of seniors.

A person may call an elderly woman claiming to be a grandchild who just needs a little financial help "and please don't tell mom."

Or perhaps she's won a lottery or sweepstakes worth a fortune if she'll just forward a small bonding fee to cover taxes and administration.

These schemes might initially cost the victim only a few hundred or thousand dollars, but it almost never stops there.

If victims get on a "suckers list" — a compendium of gullible people crooks keep — they'll be exploited again and again.

"They try to get the person to send them more and more money until they've just absolutely drained them dry," says Susan Grant, director of consumer protection for the Consumer Federation of America.

The fastest-growing scam in 2013 and 2014, according to the National Consumers League, was "phantom debt," in which the caller claimed to be collecting an old, neglected debt that needed to be paid immediately.

Never let yourself be pressured into a quick decision about money. For more information about phantom debt and other scams, check out fraud.org, run by the Consumers League.


5. The prodigal son (or daughter)

Broke relatives are the most dangerous and emotionally charged drain on senior savings. Refusing a child or grandchild, brother or sister who's desperate for money can be traumatic.

Yet that's exactly what most retirees must do. It doesn't matter whether they're the blameless victims of illness or divorce, or lifelong deadbeats, the answer must be no.

Statistics are hard to come by, but a 2012 survey found 23% of Americans over 50 with credit card debt had used their cards to bail out family members.

"Convincing someone to turn away their financially strapped children is difficult, but many seniors already living on the financial edge need to look out for themselves first or risk outliving their money," says Kendra Hudson of Woodward Financial Advisors in Chapel Hill, North Carolina.


6. Compulsive shopping

Bored, restless, craving something new? Today's world of 24-hour shopping channels and online marketplaces like Amazon.com means satisfaction is only a quick call or click away.

Compulsive shopping is one way people of all ages squander their money, but the elderly can be particularly susceptible, says Terence Shulman, founder of The Shulman Center for Compulsive Theft, Spending and Hoarding in Franklin, Michigan.

While about 10% of Americans have a compulsive shopping problem, Shulman says, "probably more than half my clients are 50 or above. The majority are older."

They arrive with different concerns about their spending habits, he says, but "one thing I hear fairly frequently is that they're blowing through their Social Security, pension or retirement money at a frightening rate."

Loneliness, grief or an urge to keep up with current styles and trends can all lead retirees to spend more than they can afford, he says.

Some feel they deserve to splurge.

"Maybe they've been frugal their whole lives," he adds, "and it's, 'Now I'm retired, and I want to buy what I want.'"

Addressing compulsive shopping starts by admitting the problem to a friend, family member, counselor or in groups such as Debtors Anonymous, Shulman says.


7. Lost treasures

An elderly woman who collected valuable coins wanted to foil robbers, so she decided to hide about $100,000 worth of them around her house.

Unfortunately, her heirs don't know where she hid the money, or if the woman even remembers, says Jude Boudreaux of Upperline Financial Planning in New Orleans. "For now, they're planning on taking a metal detector through the house after she passes."

Boudreaux says he's seen all kinds of valuable possessions locked away or forgotten, from piles of casino chips to antiques and valuable art.

Other financial advisers say it's not uncommon for family members to discover safe deposit boxes full of unredeemed savings bonds, sometimes long after the bonds had matured and stopped paying interest.

But the most common lost treasure is probably good old-fashioned cash. A survey by American Express found that 23% of Americans are keeping some of their savings in bills and coins.

More than half of those admitted to hiding it in a secret location.

But stashing your savings in the freezer or underneath the mattress is much riskier than sticking it in a federally insured bank. The chance it will be forgotten grows as memory inevitably falters with age.

It also can be lost due to fire or theft (experienced robbers know where to look) or even thrown out accidentally.

In 2009, an Israeli woman tossed her mother's old mattress with $1 million — the mother's life savings — hidden inside. Talk about money mistakes.

Planning for retirement? Use our retirement planning calculator to estimate how much you need to save per month.