5 Financial Landmines Facing RetireesTrevor Gerszt
Even though retirement planning is the most prominent financial issue facing seniors, it isn’t the only one. There are all sorts of pitfalls seniors may face that they need to be aware of as they get older. Not being aware of potential risks can mean the difference between living a comfortable retirement or spending your golden years in poverty.
Special: IRA, 401(k) & TSP Scam
Many seniors are still struggling to pay off debt they have taken on over the years. That could be a mortgage on a house, student debt from college or graduate school, or medical bills from a surprise hospitalization. Many seniors will also try to help out children or grandchildren, feeling obligated to give them support to see them succeed in life.
Seniors are taking on more debt than ever before. According to the most recent Survey of Consumer Finances, over 60% of households headed by people 60 or older had debt, up from 44% of households in 1998. Most alarming is the average amount of debt held by those households, which doubled from $19,000 to over $40,000 from 1998 to 2013.
Seniors are also taking on more credit card debt than ever before. Middle-income households headed by people over 50 now carry more credit card debt than households headed by someone under 50. With the cost of living constantly increasing, it can be tempting to put medical bills, car repairs, and other expenses on a credit card. But if you can’t pay that balance off quickly, the interest expenses can start to spiral out of control.
Taking on more debt at the same time as they’re retiring and moving onto a smaller or fixed income can put seniors into a real financial bind. That’s why it’s so important to minimize debt before you retire and resist the urge to take on new debt during retirement.
Reverse mortgages have become a popular way for seniors to tap into the equity of their homes to receive additional income in retirement. Reverse mortgages are only available to those who are 62 or older. Unlike a conventional mortgage, the sum of a reverse mortgage increases every year as the homeowner receives payments drawing on the home’s equity. The loan isn’t repaid until the homeowner dies, sells the house, or moves out, which can benefit seniors who expect to live the rest of their lives in the same house.
Reverse mortgages are a relatively recent phenomenon. From 157 reverse mortgages taken out in 1990, the number peaked at over 114,000 in 2009, and there are over one million reverse mortgages outstanding today. But reverse mortgages are a complex financial product and not always easy to understand. While many older people may view reverse mortgages as an easy way to gain an extra income stream in retirement, many also forget that they are still responsible for paying property taxes, utilities, and insurance on their house. Those expenses will diminish the payments from the reverse mortgage, and falling behind on those bills may put the homeowner at risk of foreclosure.
Financial Scams and Identity Theft
Many thieves and scammers see older people as walking ATMs and will actively look for older people to victimize. With seniors losing more then $36 billion a year to scams and financial abuse, seniors are a lucrative target for criminals. While it’s often seniors living alone and those without close kin who are most at risk for being taken advantage of, couples aren’t immune from fraud and scams either. There are a number of common scams that try to take advantage of older individuals, so it’s important to be aware of them and not fall for high-pressure tactics or offers that seem too good to be true.
Identity theft is a growing problem too. Because many seniors aren’t technologically savvy and don’t have much of an online footprint, it can be easy for thieves to pose as a senior, racking up debts in their name, stealing Social Security payments and tax refunds, and destroying their credit history. Once identity theft happens, seniors often don’t know what to do or who to contact, putting them at risk of continuing victimization.
Fees for Banking and Financial Products
As financial markets have become more complex, so have financial products. Reading the fine print when signing a contract is something that a lot of people don’t do, but it can be particularly damaging to seniors. Unscrupulous bankers or financial advisers may sign up a senior for additional services when they open an account, exposing them to extra fees that they may not even be aware of. That’s why it’s important to always read the fine print, and go over credit card and other financial statements with a fine-tooth comb to make sure there aren’t any unusual charges.
Death or Incapacitation of a Spouse
As couples age, it’s not uncommon for one spouse to begin suffering from dementia or Alzheimer’s. And if that spouse was the one who handled all the couple’s finances, the other spouse finds him- or herself suddenly thrust into a position of great responsibility. After decades of not having to worry about finances because your spouse took care of things, imagine suddenly having to figure out where all the savings accounts were, what kind of retirement assets you have, and which bills need to be paid when. It can be easy to fall behind on payments, make bad financial or investment decisions, and dig yourself into a deep hole.
The problem becomes worse with the death of a spouse. Suddenly you’re having to deal with medical bills, funeral costs, and other issues, and you may not have anyone around to help you. Not only is all the paperwork a huge burden, but that is also a time when criminals may try to target you, taking advantage of your grief to extort money.
Sound financial planning is the bedrock of anyone’s retirement. It takes vision, dedication, and perseverance over a long period of time to make your retirement dreams come true. Keeping your retirement assets safe through sound investments such as a Gold IRA will go a long way towards ensuring a firm financial footing in the future. Gold maintains its value over time as no other asset does, which is why it should form a key component in any retirement portfolio.
But just because you have a solid retirement plan doesn’t mean that you can’t fall victim to some of the many other financial problems that can affect seniors. Retirement isn’t all about resting on your laurels, you will still need to remain vigilant in protecting your wealth and making sure that it supports your life and isn’t siphoned off by fraudsters. Staying aware of the dangers that face retirees and taking steps to avoid those dangers can help ensure that your decades of saving, investing, and planning weren’t for naught.