Elder abuse will get worse as 10,000 people turn 65 every day for the next ten years. A growing pool of fragile people – retirees, older workers and survivors – are susceptible to financial exploitation. Sure, thieves and legal exploiters are the perpetrators, but the root of elder financial abuse is 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 predators.
Bottom line: our 401(k) and IRA system invites financial abuse. We can warn people, but offering financial protection advice to older Americans with lump sums is as effective as saying “be careful” before sending a group of mentally and physically impaired and socially isolated people out on a bus 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. They can 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, legally bound to act in their clients' best interest, would have helped prevent legal financial abuse. Sadly, 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 can manage your account without putting your interests first because they are not required to be fiduciaries.
Just how widespread is financial abuse among the elderly? 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 of 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. Even this number doesn't tell the whole story as it only considers abuse by family members. The Government Accountability Office also found elder abuse to be a growing epidemic. 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 of the time 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 who was defrauded of $127,000 by a younger friend. The abuse came in the form of mild and gentle persuasion of the older woman to loan money.
Another chilling story came in an advice column to The Moneyist from “Concerned for 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.
This concerned retiree, who like many Americans has saved throughout her life in an effort to live comfortably in her "golden years," reminds us that our retirement system and lack of financial safeguards leave older Americans on their own and in the dark, grasping blindly to hold on to their savings. We should be adding financial protections, but instead the Consumer Financial Protection Board and the federal government under the current Congress and Administration are backing away from much-needed regulation that would protect everyday Americans and worry the financial advisement industry.
It's true that a large share of financial abuse comes in the form of theft and illegal behavior outside the money management industry. But abusive financial practices that are completely legal, like selling inappropriate products when the advisor is not a fiduciary, can be just as harmful, and this exploitation will be on the rise as more and more elderly people have cash nest eggs.