There is a potential problem looming in your retirement portfolio. Unfortunately, there is little you can do about its cause because it resides in the deep recesses of your brain.
As we age, the likelihood that many of us will be afflicted with Alzheimer's or other dementia increases. By some estimates, 14 million people in the United States will suffer from some form of dementia by 2050. The problem is exacerbated by the relative wealth of senior citizens. Older adults make up only 13 percent of the population, but they hold 34 percent of the nation's wealth.
In testimony before the U.S. House of Representatives' Committee on Energy and Commerce, Vermont Attorney General William Sorrell discussed the various kinds of fraud perpetrated on seniors including:
The grandparent scam: An imposter poses as the grandchild of a senior citizen and indicates an urgent need for funds.
Lottery scams: A senior citizen receives an email indicating he or she has won the lottery but requests fees to cover "transaction costs."
Nigerian scams: This is similar to the lottery scam, but the consumer is told a wealthy person has died and someone in the U.S. is needed to "protect" the funds. In exchange for paying fees, the person is promised a portion of the proceeds.
Romance scams: Someone pretends to be romantically interested in the senior citizen and engages in a pen-pal relationship. Once trust is established, there is a "heartfelt" request for money.
Other scams involve counterfeit checks and home improvement projects.
These scams are not always perpetrated by strangers. In one particularly sad case, a broker took advantage of his grandmother's dementia, causing her to lose $510,000 in an unsuitable investment.
This case poses a dilemma for senior citizens who seek to protect themselves from being scammed when they no longer have the cognitive ability to make decisions about their investments. If you can't trust members of your family, what should you do? And when should you do it since you won't know when you are too impaired to act responsibly? Here are some suggestions for confronting this issue:
Plan early: The time to discuss this subject is before there is any evidence of cognitive impairment. Talk to family members whom you trust. Be sure they are familiar with all aspects of your finances, including the location of all financial records, and the names and contact information of your investment advisers, lawyers and custodians.
Consult with your estates lawyer: A competent estate planning lawyer will make sure your will is current and that you have an appropriate power of attorney and health care proxy in place. Ask your estates lawyer whether provisions can be inserted in your trust documents that will set forth a process for making a diagnosis of cognitive impairment. If you have significant assets, consider appointing a corporate trustee to manage your investments after you are impaired and upon your death. If you decide to go this route, consider the benefit of appointing a directed trustee. I discuss the merits of directed trustees in this blog post.
Talk to your investment adviser: Discuss this issue candidly with your investment adviser. Authorize your adviser to alert family members if you make a request for unusual or significant disbursements from your accounts.
Ignoring this difficult subject makes dealing with dementia even more difficult. You owe it to yourself and your loved ones to plan for it and confront it candidly.
Dan Solin is the director of investor advocacy for the BAM ALLIANCE and a wealth advisor with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His latest book, The Smartest Sales Book You'll Ever Read, has just been published.
The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.
Fraudsters feigned interest in lonely online romance seekers to rob victims of about $50 million last year.
Phony debt collection agencies have pressured victims into giving up millions of dollars. The Federal Trade Commission recently closed down two California-based companies with call centers in India after they defrauded Americans out of $5 million over the past two years.
Craigslist and eBay are a playground for scammers. Consumers have sent payments to places like Nigeria for items advertised online only to discover they have been scammed. Last year, Romanians pretending to be U.S. citizens put fake ads for pricey items on eBay and Craigslist, defrauding Americans out of more than $100 million.
Canadian police arrested a man who tried to take a $70,000 processing fee from an elderly Californian woman who believed she was going to win a $7.5 million lottery prize in April. More recently, eight Jamaican swindlers accused of duping Americans in lottery scams were also arrested.
Fake charity organizations come out of the woodwork to exploit the generosity of others, especially during times of disaster. Most recently, an organization that claims to help disabled veterans called Disabled Veterans National Foundation (DVNF) took millions of dollars from donors without spending the money on veterans.
Scammers targeting struggling homeowners have offered false services to help with mortgage settlements. Mortgage foreclosure scams have shot up 60 percent in 2012 as new federal programs for mortgages have provided avenues for fraudsters to exploit.
Scam complaints related to travelling surged right before spring break last year. Crooks defrauded grandparents out of money when their grandchildren were travelling abroad. The scammers, who find out about the travel plans from places like social media sites, pretend to be the grandchild asking for wire transfers on the phone. The scams have involved scammers pretending in an email to be a victim's travelling relative who has recently been mugged or has lost their passport.
Although there isn't much data on how often it occurs, food scams can pose a tremendous health risk. The chances of dilution and counterfeiting increase when food is imported from other countries, and some foods like fish and olive oil are particularly prone to adulteration.
Scammers have sold drugs to online consumers and then posed as government agents asking the buyers to pay money to avoid jail time. A Texas woman killed herself after being caught up in one of these drug schemes.
Credit card breaches allow fraudsters to make charges on other peoples' cards after getting a hold of numbers. Global Payments Inc., a third party payment processing service for MasterCard and Visa, made headlines in April for reporting that over a million card numbers had been compromised from their system, according to CNET.
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