Elder abuse will get worse as 10,000 people turn 65 every day for the next ten years.
A growing pool of retirees, older workers and survivors, fragile older people are susceptible to financial exploitation.
Sure, thieves and legal exploiters are the perpetrators, but the root of elder financial abuse is in our retirement system that for 40 years has required individuals to accumulate and handle very large pots of money to last their lifetime. In 2017, $14.5 trillion (85% of GDP) is in self-directed retirement accounts, which are targets for financial predation.
Bottom line: our 401(k) and IRA system invites financial abuse.
We can warn people; but, giving financial protection advice to older Americans with lump sums is as effective as telling people to be careful when we send them out on a bus – many who are physically and mental impaired and socially isolated – with thousand dollar bills pinned to their shirts.
Helpful experts provide tips (I will in my next blog) about how to help yourself or loved ones. But providing “tips” inadvertently blames the victim.
Tips about how to avoid financial elder abuse will barely have an effect because the U.S. do-it-yourself retirement system practically begs financial predation to occur.
Requiring professionals who handle Individual Retirement Accounts to be fiduciaries would have helped prevent legal financial abuse.
But, that regulation was overturned by the Trump Administration and Republicans in Congress. The headline in Bloomberg news told the story – “The ‘Fiduciary Rule May Sound Boring, But Its Collapse Threatens Your Retirement.” Now professionals handling IRAs, the fastest growing type of retirement account, are held to a lower, professional, standard. They can't lie; but they also can manage your account without putting your interests first because they are not required to be fiduciaries.
One in 20 older adults said they were financially mistreated in the recent past, according to a study financed by the Justice Department.
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 whopping 5.2% for current financial abuse.
This is an undercount because it just considers abuse by family members.
The Government Accountability Office also found elder abuse to be a widespread and growing problem. And because our unique American system advises workers to acquire 8 – 10 times their final salary in retirement individual-directed accounts -- with no realistic option to acquire a fair and efficient lifetime annuity -- elder financial abuse is far more prevalent in the U.S. than in other nations.
A survey of four nations found financial abuse to occur less than one percent in these nations and five times more in the U.S.—a finding consistent with the Department of Justice survey. Stories of abuse confirm the survey’s findings. The New York Times, in a story aptly called “Declaring War against Financial Abuse Among the Elderly,” described a 87-year-old women sheepishly admitted to being defrauded of $127,000 by a younger friend. The abuse came in the form of mild and gentle persuasion to have the older woman loan money.
Another chilling story came in an advice column to The Moneyist from “Concern in my Golden Years.”
"I have a situation that keeps me awake at night. I have no family left. I’m 65 and concerned about being victimized as I get older. I have some reason to believe … I have cognitive decline. How do I protect myself from being taken advantage of as I get older? I am already wrestling with a bank investment adviser putting me in an investment with ridiculous fees. Currently I am able to undo the damage but what if I wasn’t able to do that?
As my mother got older (she died at 92), I felt people had the attitude that they could “fleece” her anyway they wanted to and it was appropriate.
With her I went through crooked lawyers, accountants, church members, the investment “people who lunch,” charities, and on and on. .. Who will help me? My net worth is about $1.3 million, but money goes fast as my health needs increase.”
Financial advisers will certainly become a source of financial abuse -- something that greatly bothers the industry (they fear regulation) -- as the Consumer Financial Protection Board and the federal government under the current Congress and Administration are backing away from regulating the industry. There was a lot of attention in a 2012 comprehensive report that financial abuse was mostly in the form of theft and clearly illegal behavior by people not associated with the money management industry.
But many legal practices – selling inappropriate products are abuse – when the adviser is not a fiduciary.
Exploitation by a financial institution employee will be on the rise as more and more elderly have cash nest eggs.