Preventing financial fraud critical to protecting retirement security
June 17, 2013 by Catherine Weatherford
Americans spend decades and decades working and saving for their retirement years, and then, in an instant, a lifetime of savings — gone. That’s the reality for some victims of financial fraud.
As we near World Elder Abuse Awareness Day (WEAAD) on June 15, it’s important that we as an industry help clients avoid financial exploitation by promoting awareness and disseminating educational resources. Like so many other ills, information can be the best medicine.
While the age of financial abuse victims can vary, those near or in retirement often are targets, as potential fraud perpetrators are enticed by others’ lifelong savings. The Administration on Aging reports that every year, an estimated 2.1 million older Americans are victims of elder abuse, neglect, or exploitation. A study by MetLife, an Insured Retirement Institute (IRI) member company, found that the annual financial loss by victims of elder financial abuse is estimated to be at least $2.9 billion dollars.
Financial fraud or abuse can come in many forms, using various tactics. Breaking the common misconception of fraud, MetLife found that 55 percent of financial abuse in the United States is committed by family members, caregivers and friends. Family perpetrators may, among other examples of financial abuse, misuse their powers of attorney to steal money from bank accounts, make unauthorized credit card purchases, and embezzle large sums of money by refinancing the elder’s home.
Being a savvy investor is not enough to protect consumers from perpetrators. Many consumers believe their higher financial IQ will prevent them from falling victim to fraud, but targeted individuals actually tend to be more financially knowledgeable, with fraud victims scoring higher on financial literacy tests than non-victims. Targeted consumers also tend to be college educated, have above-average income, and are self-reliant when it comes to making financial decisions. These findings underscore the need for additional education on identifying and avoiding fraud to help Americans stay on their planned retirement course.
While all Americans are susceptible to fraud, the likelihood of becoming a victim increases as consumers age and may have to grapple with cognitive impairment. The statistics around diminished capacity are sobering. Between the ages of 71 and 79, one-fifth of individuals have some kind of cognitive impairment. That number jumps to 50 percent between the ages of 80 and 89. Financial capacity, the ability to manage money and other financial assets, may be one of the first abilities to decline as impairment begins. These impairments are subtle, but may worsen over time, making older Americans more susceptible to financial exploitation. Developing a sound financial plan for retirement well in advance of possible incapacity — including setting up powers of attorney and trusts — is an important step toward safeguarding assets from financial fraud perpetrators. Also, family members in a caregiving role need to be aware of situations that place their elders at risk for financial fraud.
To help Americans avoid becoming the victims of financial exploitation and chart their course toward a financially secure retirement, IRI and the National Retirement Planning Coalition (NRPC) have developed a new FINRA-reviewed tip sheet on fraud prevention. Released in conjunction with WEAAD, the tip sheet is also a part of the coalition’s ongoing six-month retirement planning campaign, which will focus on fraud prevention throughout June. We invite financial professionals to use Tips for Consumers: Fraud Prevention with their clients to build trusting relationships and help Americans reach their retirement goals.
This year, as we recognize WEAAD, help promote awareness of financial elder abuse by disseminating educational resources. The NRPC’s new tip sheet is available, along with the latest retirement planning and fraud prevention resources, at RetireOnYourTerms.org” target=”_New”>RetireOnYourTerms.org.
Knowledge is the first step toward preventing fraud and exploitation. With your help, we can help clients protect their lifelong savings and stay on track toward a secure retirement.
