Our financial decision-making abilities peak in our 50s and can decline pretty rapidly after age 70, researchers tell us. That's how otherwise smart older people fall for sweepstakes frauds, Nigerian investment schemes and the grandparent scam, where con artists pretend to be grandchildren in a financial jam.
But few people want to hear that they're not as sharp as they used to be. Many won't recognize the rising risk of losing hard-earned life savings as they age, says financial literacy expert Lewis Mandell, author of "What to Do When I Get Stupid: A Radically Safe Approach to a Difficult Financial Era."
"As our ability to make sound financial decisions decreases with age, our self-confidence in this area actually increases," Mandell says.
Adult children who want to protect their parents from fraud and bad financial decisions have to tread carefully, says Jessie Doll, wealth management adviser with TIAA in Fairfax, Virginia. Money may be a difficult subject, and parents may resent the interference or fear losing their independence.
It may help to frame the issue as one all of us will face if we live long enough. Talking about your own efforts to "future-proof" your finances can start the discussion of how they can defend their money against bad decisions and bad guys.
Together, parents and children can:
—Draft powers of attorney. Two documents everyone needs, regardless of age: a power of attorney for health care decisions and a power of attorney for financial decisions. This paperwork names the people we want to speak for us in case we become incapacitated. We should be having discussions with whoever we name about our wishes and our financial situation, Doll says.
"Talking about it is opening the door to making this less of a taboo discussion," Doll says.
—Consolidate and simplify. One bank. One brokerage firm. Two credit cards, one for daily purchases and one for automatic bill payment. That's the prescription for simplified, consolidated finances that will be easier to track as we age, says financial planner Carolyn McClanahan, a physician and director of financial planning at Life Planning Partners in Jacksonville, Florida. McClanahan also recommends replacing individual stocks and bonds, which require constant monitoring, with a small number of mutual funds or exchange-traded funds.
Having fewer accounts helps the fraud-sniffing software that banks and brokerages use to detect suspicious transactions, Doll says.
"If the assets are all over the place, it's hard to establish a baseline so they can notice if something's amiss," she says.
Adult children can:
—Stay in touch. Isolation is the fraudster's best friend. Scam artists don't want their victims to have a close circle of family and friends looking for signs of exploitation, says Sally Hurme, an elder-law attorney with AARP in Washington, D.C. Weekly calls to catch up and regular visits can help loved ones spot red flags, like a pile of sweepstakes offers or the investment salesman who's getting too friendly.
—Keep up to date on the latest scams. Criminals are endlessly creative. Some places to learn about their ever-evolving schemes include StopFraud.gov , AARP's Fraud Watch Network and the IRS, which offers consumers alerts and an annual list of the "Dirty Dozen" top tax-related scams. Discussing news reports about frauds, such as telephone imposters pretending to be IRS agents or Microsoft tech support, can help you keep relatives informed.
Lastly, parents can:
—Get more eyes on your money. Financial institutions likely offer text or email alerts to notify you of unusual activity, and so do sites that provide regular looks at free credit reports. Once you're over 65, consider setting these up so that your "wingman" — the person you want to make financial decisions for you — gets them as well. It may also be smart to run any investment you're considering past your appointed person, says elder-law attorney Carolyn Rosenblatt, author of "The Family Guide to Aging Parents: Answers to Your Legal, Financial, and Healthcare Questions."
—Give your doctors and any financial professionals, such as your adviser or accountant, permission to contact your wingman if they suspect you're suffering serious cognitive decline.
—Finally, plan with your family about what to do if you show signs of diminished capacity but you don't know you are impaired, Rosenblatt says.
"Set the 'trigger points' for having your successor take over your finances and what they can do if you resist because you think you're fine, but no one else does," Rosenblatt says. "People who don't know they are impaired resist giving up financial control, and this is very dangerous."
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