Retirement-killing money mistakes
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. It's bad enough that seniors are vulnerable to the ravages of old age. The simple fact that they aren't quite as sharp as they once were plays a role in many losses. Sometimes it's the only cause. But there are also the larcenous vultures who pluck seniors clean. Retirees are often lonely and trusting, making them susceptible to scams and corporate strategies that feign concern and kindness to get at their money. Here are the seven most common, often heartbreaking, ways seniors are separated from the nest egg they've worked all their lives to build. Maybe you’ll recognize a family member among the victims.
Go to any casino and you’ll find a permanent corps of seniors, mainly women, endlessly poking coins into the slots. "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 shiny, pinging machines seem to block thoughts of sickness, loneliness or mortality, she says. And casinos make it easy. "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." Everyone is a potential gambling addict. Of the 1,000 people she’s treated since opening the addiction center in 2003, “easily” more than 60% were senior women. "I have had people in their 80s who have lost everything," Pike says.
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, N.C. And for whatever the reason, “it’s always a professional man; I’ve never seen a woman get involved,” she says. “It’s someone who should know better.” Typically, the wife or some other family member shows up desperate after the husband has blown through their savings. The fallacy is believing that you can be the next Warren Buffett just because you’ve had a successful career elsewhere.
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, director of communications 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 recent movie The Wolf of Wall Street. But the hook can be dangled by someone the retiree knows, such as an acquaintance from church. Look for more problems to come. An 80-year-old prohibition on advertising these kinds of investments is being dropped. Schemes to push these "deals" on T-shirts worn by window washers are already in the works.
Crooks have a variety of schemes to separate seniors from their money. 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 an elderly person may get news of “winning” a lottery or sweepstakes worth a fortune, if they’ll just forward a small bonding fee to cover taxes and administration. Each of 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 that 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. Check out fraud.org for a good rundown of scams to avoid, put together by the National Consumers League.
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 even if the woman herself 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 cash buried in a backyard coffee can to antiques and valuable art because "Grandmother happened to be in Paris 70 years ago." 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.
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 demanding 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 A. Hudson of Woodward Financial Advisors in Chapel Hill, N.C. One of her clients, for example, insisted on paying their grandchildren’s college tuition and even bought one a car, although the couple's savings will be gone in the foreseeable future.
Needless penny-pinching can lead to just as miserable a retirement as being broke. “One of the biggest mistakes I often see is when a retired person or couple thinks they will outlive their money and conserve what they have by denying any pleasure that one should expect in retirement." says Russell D. Francis of Portland Fixed Income Specialists in Beaverton, Ore. "They have plenty of money to live the reminder of their lives, but are unwilling to take a nice vacation or otherwise spend it on themselves." Fear is clearly at work here. Frugal habits forged during decades of hard work and saving can also be hard to change. Anthony Webb of the Center for Retirement Research at Boston College says this most often manifests itself as a “natural aversion to drawing down capital” taken too far. “Nobody wants to be 90 years old and broke, but it really is OK to dip into your capital as you age at a prudent rate," Webb says.
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