"This is devastating...he believes that Rachel was helping him. She created a dream state and kept him there." - Brett Hall, attorney for Ralph Raines Jr. quoted in Willamette Week (Portland, Ore.)
By Julia Anderson
Willamette Week in Portland, Oregon, does a darn good job of supplying its readers with edgy news. The recent article, “A Fortune Felled,” is no exception. Writer Kate Willson tells the story of Ralph Raines Jr. who lost his timber-family fortune to a pack of scammers through what investigators call “sweetheart fraud.”
The fraudsters, a mother and daughter plus other co-conspirators, took between $12 million and $20 million from Raines (and his 80-something father) over several years after “befriending” them. Arrests came thanks to an anonymous tip. But by then most of the money had gone into new cars including a $200,000 Ferrari, lavish trips to Las Vegas, rental property purchases and, as they say, thin air.
The story is all too familiar and raises these questions: What happens to our brains when we get old and why do we lose reasoning capacity that protects us from scammers when we’re younger?
Financial predators show up in many forms. They can be aggressive investment brokers who make a commission every time they sell an annuity or churn an account or caretakers who begin by paying your bills but are soon tapping checking accounts and selling your house.
Having watched my mother age over the past 20 years before her death earlier this year, I’d say she began to lose it in her mid-80s when two separate brokers sold her annuities, one at $50,000, the other $40,000. In both cases, when questioned later, she did not understand how they worked or why either annuity would benefit her or her heirs. It turns out they didn’t. Meanwhile, both financial advisers earned hefty up-front commissions on the sales. A couple of years later, a family member coerced my mother into writing a $10,000 check to finance a poorly thought-out wrongful firing lawsuit.
Of course, the case went no where. My mother was not senile in any obvious way. She sincerely believed that she could still manage, and with most things such as re-upping a CD investment, she did. Only when pressured did things slip.
In her 90s, she finally sought the help of a bank trust to manage all her assets -- a producing farm and her investments. That allowed her to live her last years in relative peace at the care center in financial security.
Research shows that older women such as my mother are nearly twice a likely to become victims of financial abuse as men, frankly because men die earlier and women are left to fend for themselves. Family members, friends or neighbors are often the financial abusers.
My mother’s slip-ups were small compared to the Raines’ story. But every day, every where, the elderly are putting their trust in people who may see them (the elderly person) only as a meal ticket, if not a free trip to Vegas.
Aging brains lead us to people "who make us feel good"
So what happens to our brains?
New neuroscientific and psychological research shows that as people age “they become more focused on maximizing positive emotions and social interactions,” reports Jason Zweig in a recent Wall Street Journal article on the topic. “Older people become more determined to block out negative experiences. This leads older people to pay more attention to those who make them feel content and comfortable.”
In the Raines case, when investigators confronted him with the harsh facts of his financial abuse, he denied at first that there was a problem and refused to believe he’d been duped.
But wanting to feel positive about those around us as we age is not the only challenge, researchers say.
Our cognitive abilities begin to slip as we move into our 70s and 80s. Older investors, for instance, tend to make simple errors that younger investors would avoid, wrote Zweig.
It may be particularly difficult for those who have made sensible financial decisions throughout their lives to in old age come to terms with a decline in their reasoning capacity. These people may continue to feel confident even as they begin to lose it, experts say.
Robert Willis, an economist and professor at the University of Michigan, has made a study of financial decision-making among the elderly. (click here for his research on the impact of retirement)
In a workshop, Willis points out that we face a “growing complexity of decisions” related to old age. Everything from medicines people take to their health care insurance becomes more complex. Never mind investment decisions and asset management that the elderly must grapple with.
“While people accumulate financial knowledge and skills over their lifetime, at older ages they confront the serious risk of losing these capacities if they acquire Alzheimer’s disease or other type dementia that causes progressive declines in cognition and eventual complete loss of functional capacities,” Willis writes. “This may pose an enormous financial risk to all members of a household.”
Forgetting to pay bills is minor compared with being duped in fraudulent schemes or signing contracts that we don’t understand.
“Regardless of cognitive status, older American are more financially vulnerable than the general population,” Willis underscores in “The Implications of Alzheimer’s Risk for Household Financial Decision-making” co-written with Joanne Hsu of the Federal Reserve Board.
So as we age, how can we gracefully manage our decline into happy old age, free of financial abuse?
The trick is putting a plan in place before that time comes. Who or what organization will manage your assets when you get old? And how do you avoid being scammed?
Here are some tips from the U.S. Department of Labor:
-- Don't let fear, desperation, or the need to catch up financially push you (or family members) into any hasty investment decisions. In all legitimate investments, higher returns are accompanied by higher risks - risks you may well not want to take as you near retirement. Be wary of anyone who claims they can sell you a product that offers great reward without great risk - a sure sign of a scam.
- Recognize that anyone can claim to be a "financial consultant” or "investment counselor.” That person may not have the special training, expertise, or credentials necessary to back up the claim. Ask about licensing and professional designations and check them out with securities regulators and any trade groups in which they claim membership.
- Understand your investments and never be afraid to ask questions. Good financial professionals are never pushy, and they never dismiss your concerns.
- Don't let embarrassment or fear keep you from reporting suspected investment fraud or abuse.
- Never judge a person's integrity by how they sound or how they appear. The most successful con artists sound extremely professional and have the ability to make even the flimsiest investment seem as safe as putting money in the bank.
- Monitor your investments. Ask tough questions and insist on speedy and satisfactory answers. Make sure you get regular written and oral reports
Here’s where my advice comes in. Turn to a bank trust department to manage your assets, pay your bills and take care of your finances. Banks are bound by law to take a conservative and professional approach to their customer’s money. They must send you a monthly financial report showing income and outgo. For a small fee (1-2 percent of total assets) a bank trust manager is there to be a gatekeeper, to make sure you can live comfortably and happily in your old age. The challenge is figuring out when you should no longer be in charge. While bank trust may be an answer, it requires the same homework that you would do when investing with a broker. Ask a lot of questions, get references and check out the bank's fees and track record. This is your money, this is your life.
If you are the child or other family member of an aging relative, check in on them regularly. Ask them if there’s anyone new in their life and how they go about paying bills. Meanwhile, we baby boomers should set up a simple plan and stick with it, as recommended by Laura Carstensen, director of the Stanford Center on Longevity. Click here for her profile and for her TED Talk on aging,
It seems that Ralph Raines Jr. did not have a plan or have anyone close to provide honest financial advice. Instead he turned to scammers who made him happy and comfortable as they stole his fortune.
To report financial abuse contact
National Council on Aging, 22 tips for avoiding scams & Swindles, click here.
National Center on Elder Abuse, click here.
Elder Abuse: Financial Scams Against Seniors, click here. Nolo Law for All
National Institute of Justice, Financial Exploitation of the Elderly. click here.
Would Your Adult Children Rip You Off? click here. Bankrate.com
"Why Everything you Think about Aging May be Wrong," WSJ, click here.
"Some will win. Some will lose.
Some were born to sing the blues.
Oh, the movie never ends It goes on and on and on and on."
- Journey, "Don't Stop Believin"
By JULIA ANDERSON
If I had to do it over again, I would do a few things differently as I transitioned from full-time work into semi-retirement and part-time work. Turns out that many people like me have regrets. Some steps are difficult to undo.
Two areas of confusion:
How and when to take Social Security benefits as part of your long-term retirement plan? And how to protect as much of your retirement income from hefty federal income taxes over the first 20 years of retirement?
Like most people, I didn't really think much about retirement other than to know that I needed to save a bunch of money in my 401(k). I also built up savings in a separate traditional Individual Retirement Account. But every time I thought about converting that IRA to a tax-free Roth IRA, I hesitated. Converting it meant paying taxes as part of the conversion. I didn't want to do that. So the conversion never happened.
Now (Mistake No. 1), I wish I had a Roth IRA. Any money coming out of my 401(k), which is now a Rollover IRA as regular income. I did not realize that when I reach age 70 and a half, the IRS tells me how much must be withdrawn from this nest egg account. The rate of withdrawal is about 4 percent. That's more than I want to withdraw but I have no choice. I'm freaking out about making my money last until I die. Money withdrawn from Roth IRA is tax-free since you've already paid taxes on the money inside the Roth. (Roth IRA vs. traditional IRA, click here.)
Mistake No. 2 I claimed Social Security benefits at age 64 on my own account. If I'd been smart, I would have filed on my ex-husband's account, not my own. While I would have received a smaller amount in monthly benefits this strategy would have allowed my own Social Security account to keep growing (8 percent a year in increased benefits until age 70). (For more, click here.)
Or instead of taking Social Security at all, I should have considered withdrawals from my Rollover IRA. I did not do the math on the trade offs. If I had done the math, I'd might have made a different decision. I would have had less money in my Rollover IRA but I would have made up for that in bigger Social Security benefits later. At the time I signed up for Social Security, you could still pay your account back and restart benefits at a higher level. Social Security changed that rule just as I was making the decision.
If I had to do this all again, I would have sought the advice of a tax-savvy Certified Public Accountant or seasoned investment counselor who could have provided more tax-related and income options. This would have been a fee-only hour of expert advice. I did not want to get a sales pitch about buying an annuity. I did not want someone to say they would put together a plan and manage all my money. I felt confident enough to do that myself, thank you very much. But some expert information would have helped.
An ongoing process
Independent adviser, Rob Pool, sees retirement as an ongoing process that evolves as markets go up and down, personal circumstances change and “things happen.”
“The key to getting off to a good start in retirement is building in flexibility,” he said. “If you set up a (household) budget and you’ve had a good year in the market, then take that trip to Europe. If it’s a bad year, defer the trip.”
I remember that it wasn't always that way. In the old days... say 20 years ago... brokerage firms put together multi-page leather-bound plans with lots of charts and graphs. The binders then were handed across a desk to the clients with the message, “Go and be retired.”
Most advisers now counsel against locking in fixed (possibly unrealistic) automatic withdrawals from retirement nest eggs. Most say managing your expenses, your money and nest egg investments is part of the job of being retired. The good news is that there is plenty of expert advice on how to avoid mistakes.
Steps to Social Security
Linda Haines, a broker (now retired) with Morgan Stanley, said a good first step is deciding how and when to take those Social Security benefits that I was talking about. Often people sign-up as early as possible at age 62. But there's more to it than that.
“Couples need to decide whether one or both of them will take Social Security payments at full retirement or file and suspend one or something else,” Haines said. “This decision can make a big difference in your retirement funds.”
Social Security can be so complicated that some may need professional help to determine what’s best. The optimum strategy is hardly as simple as just waiting another year, or waiting until 70, particularly when it comes to couples, writes Janet Novack for Forbes magazine.
Factors such as differing ages, earnings and health; spousal and survivor benefits; the concept of joint life expectancy; and Social Security rules that allow a couple to maximize their combined take with various “file and suspend” strategies, all may play a role in the decision, Novack writes.
But even before deciding the Social Security issue, Haines says couples should talk candidly about their retirement expectations. If you're on your own...talk it out with a trusted friend or adviser.
“Make sure you talk to your spouse about what your ultimate dream of retirement is,” she said. “You may be surprised with the answers. You may assume your spouse wants to do exactly what you do and it ends up they have something completely different in mind. In this time of life, communication is key,” she said. To start, the basics must be in place, she said.
“People need to make sure they have defined their goals, evaluated their current financial situation to make sure they have enough to achieve those goals, and have created a financial plan. They then need to implement that plan and review it regularly,” she said.
Health care costs, down the road
Both Haines and Pool encourage those moving into retirement to take into account future health care costs including long-term care not covered by Medicare.
“Healthcare costs are one of the most important costs that people tend to under-plan for,” Haines said. “That can be devastating to a portfolio, if not protected adequately.”
For her, it’s all about creating a plan that lasts as long as you do by not underestimating how long you might live.
A worst case scenario might be a husband stricken with Alzheimer’s disease who requires nursing care that may cost $10,000 a month. By the time he dies, the nest egg is gone and the wife is left on her own in poverty.
Research shows that eight out of 10 couples will have one of them requiring long-term care. Long-term care insurance may be the answer, but it’s expensive and requires careful planning. Again deciding whether to invest in insurance requires doing your homework, comparing plans and reading the fine print, not just taking what someone tells you for granted.
Strategies for second marriages
Advisers are seeing more baby boomers in second and third marriages. Each may have grown children, some who may need money. Advisers caution against co-signing on loans for children or co-signing on student loans for grandchildren. It’s important for these couples to plan for who gets what when one of them dies.
Obviously, there can be conflict between providing for a surviving spouse and providing for children from the first marriage. Again, it’s all about taking time to do the planning.
Pool recommends that his clients create a “legacy” drawer” where family or a surviving spouse can easily find wills, trust account information, insurance records, investment accounts and passwords. “It makes the transition easier in times of stress,” he said.
A friend of mine just tipped me this week to a smart phone app called My Health Care Wishes that allows you to store your own advance directive or family members' on your phone.
According to a New York Times article by Paula Span. "If and when you need them, the app lets you present such documents as well as other health information and contacts."
According to the report, May Health Care Wishes comes in two versions..free or $3.99, if you want unlimited storage for any number of people. The reality is that few of us have bothered to actually create these documents in the first place. Yes, I've got one but it's in a folder at my desk.
And while most people understand the basics of retirement planning, they may not be aware of retirement tax strategies that can make a big difference in their long-term financial well being.
“It’s important to plan for a less expensive tax situation,” Pool said. “Money coming out of a 401(k) or traditional Rollover IRA is taxed as ordinary income,” he noted. “Alternatives are to either put money in a Roth IRA or convert retirement savings into a Roth IRA, if the stars are aligned,” Withdrawals from a Roth IRA are tax-free.
Even if you're "retired" you may still be able to start a Roth IRA. That's if you are still working part-time. Only "earned" income can be considered for a Roth.
Taking draw downs
For many experts, the easiest avoidable retirement mistake is failing to “rebalance” your investment portfolio with the ups and downs of markets or to adjust your withdrawal rate to accommodate changes in markets and the economy.
Charles Sizemore writing for Forbes magazine says, “An absolute nightmare scenario for any retiree is to build a retirement plan based on the assumption of say 4 percent annual draw downs, then have a major bear market put your entire standard of living at risk.”
Draw downs of 4 percent, he said, "are no problem at all in a bull market that sees the market rise 10 percent to 20 percent per year. But if you go through a prolonged bear market, taking regular draw downs can dig deeply into the capital that you need to last for the next 20 years.”
An old rule of thumb has been to put 30 percent of your nest egg in stocks and 70 percent in bonds. But with today’s near non-existent bond interest rates that ratio no longer makes sense.
“Just because you’re retired doesn’t mean you have to have everything in bonds and cash,” Pool said. “With our long life expectancy, you’ve got to have a fair amount in equities…that will grow over time.” But they've got to be managed by you or someone else. (Warning: Avoid exceptionally high yields. It's a red flag).
Pool counsels a withdrawal rate based on a percentage of the portfolio value each year rather than locking in a fixed withdrawal rate no matter the value of the nest egg.
“Using the percentage of the total lowers the risk of running out of money,” he said.
Talking about retirement
For Haines, the technical questions surrounding a transition to retirement can be managed but communication about expectations in retirement may turn out to be a bigger challenge.
“You may assume your spouse wants to do exactly what you do and it ends up they have something completely different in mind in retirement,” Haines said. "Either or both spouses may have worked and were apart most of the day or one spouse works and one at home during the day. Both of you suddenly always at home or together can be a little overwhelming,” she said.
She said retirees tell her that it's good for each of you to have time to do something on your own, go to lunch with a friend, take an exercise class or go golfing with your friends.
“It makes the time when you get together more interesting and fun,” she said.
Both Haines and Pool agree that retirement planning is not a one-time slam dunk.
“Retirement is a living breathing process that evolves as markets change, personal circumstances change,” Pool said. For Haines, it's about making the adjustment, staying busy and having a plan.
“Some people do fine, others need to work a little harder at finding what is interesting to them to keep them busy,” she said. “Some end up going back to work on a consulting or part-time basis to bridge into full retirement. The journey and who you include in this new part of your life are what is important.”
Am I losing sleep over my retirement mistakes? No. --- Julia
Editor's note: Before taking any steps to retirement, consult with a good tax attorney or CPA. Their expert advice may put you exactly on track.
Over the next 20 years, 10,000 baby boomers will turn 65 every day.
Today, only 23 percent of Americans plan to retire before age 65.
Forty percent of Americans plan to work until “they drop.”
Though they may be “retired,” 74 percent of Americans expect to be working.
TIPS FOR NEW RETIREES:
- Don’t start Social Security benefits too soon. Seek advice.
- Discuss your dreams for retirement with your spouse. You may be surprised.
- Don’t under plan for health care costs.
- Put together a “legacy” drawer of your accounts and passwords.
- If you’re in a second or third marriage, plan for who gets what, when one of you dies.
- Set up a flexible budget and withdrawal plan to adjust to market changes.
- Take advantage of tax strategies. Seek advice.
- Don’t give money to your kids that you will need or co-sign on their loans.
"A good marriage is a contest of generosity," - Diane Sawyer, American television news anchor and host, (1945 - ) (She was married to director, Mike Nichols from 1988 until his death in 2014. He was 14 years her senior.)
BY JULIE ANDERSON
By now you've been together for seven years, maybe longer.
He's 70 and retired, you're 50 and still working full-time.
Or maybe you're working part-time at 40 but he's 60 and talking more and more about the golf courses in Palm Desert.
Maybe you married. Maybe you don't see the point of that.
He's taking Social Security benefits. You've got 12 years to go until at age 62 you first can even consider taking benefits.
Of course there are his grown children, almost as old as you are, and your grown kids. And there's the child from your second marriage, who is still at home and going to junior high.
So where is this all going? On the personal front, it's great. You're comfortable, happy.
You found in him something that younger men didn't offer...security, maturity and a calm appreciation for who you are. He enjoys your beauty, your youth and wit and the love you have for him as the anchor of your life.
Likely you met at work where he was a manager, a boss, a team leader who admired your talent, who appreciated your enthusiasm, smarts and flashy good looks. You couldn't help yourselves.
Certainly he was unhappy in his marriage and ready to move on. There were painful conversations that led to a scramble to be together. The divorces were messy. Now things are settled and you're into a new life together.
You love him and care for him. He for you.
But do you ever talk about money?
Do you ever talk about what it will be like when you're 60 and he's 80, which happens to be the average life expectancy for American men, if they don't smoke or drink too much? Have you talked about what happens when he dies? About who gets what and when? Have you talked about his kids, you and your kids, if something happens.
What happens to his pension? Too late for that one since he's already taking the full amount.
Do you realize that the federal government requires that he start withdrawing from his retirement savings at age 70 and one-half. Will that money be gone by the time you might need what's left?
What happens if he doesn't die but needs long-term care at home? Where will the money come from for that?
How much debt do you have on board...a new mortgage? What about the inheritance from his parents? Of course, his kids get that. Let's say he dies at 85, which makes you 65. You could live another 30 years on your own. What financial resources do you have through your employment savings plans? Is his putting money away for you?
Did you know that if you are made the beneficiary of his nest egg and you are 10 years or more younger, he doesn't have to make as large a required minimum withdrawal at age 70 and one-half? That leaves more money for you, later.
Hazards of not planning
I'm not the first to raise these questions when it comes to May-December relationships. Candace Bahr and Grinita Wall, founders of wife.org, and others write about how a couples with a 20- or 30-year age difference face unique challenges when it comes to financial and retirement planning simply because the clock keeps ticking.
"Marriage between contemporaries is tough, but a 20-to-30-year age difference can make it a whole new ballgame," they say in their piece called Financial Planning for May-December Relationships.
The same goes for Joe Mont. "The hazards of a May/December romance go far beyond raised eyebrows or having to endure a waitress greeting you as the daughter. There is also a whole set of financial issues," he said at The Street.com. Mont points out that the older partner may retire or leave the work force, which means there's only one "working" income."The older partner may be winding down their spending at a far greater pace than the younger one," he said.
"Having a much younger spouse can mean a whole new round of planning for young children. Meanwhile, one spouse is usually bringing the majority of the assets to the table, which may mean there's a lot of discussion about whether those assets are passed to their lineal decedents rather than those of their spouses."
Robert Laura writing for Forbes about "sugar daddies and cougars," said that "While the typical age gap between married couples is slightly less than four years, couples with age difference of 10 years or more have a few planning opportunities particular to their situation that they need to understand and employ."
My read on all this is that women are more often the younger person in a May-December arrangement and have a lot to lose if they don't talk about the future, about money and estate-planning.
Here's what the experts recommend:
- Marry the guy but get a prenup in place and a will that outlines the assets you are entitled to at his death. A prenup forces both of you to disclose all assets and liabilities. If you just live together until he dies, it's a lot more difficult to sort out benefits, pension money and assets. If you are married for 10 years or more, you can claim spousal benefits from Social Security for instance.
The prenup planning process forces you to think about what could happen if one of you becomes sick or permanently disabled, say Wall and Bahr at wife.org.
- Buy a term life insurance policy covering him naming you as the beneficiary. This protects you if all his assets go to his kids, not you. That way you're not hanging out there with nothing.
- Buy long-term care insurance on the older spouse as a way to keep care costs from eating up your combined nest egg. Very little of in-home care is covered by Medicare. This is the most under-planned part of peoples' estate planning, my financial adviser friends tell me. Will you be caring for him and working at the same time? Probably not.
- Take charge of your own money. Women tend to not invest as aggressively as men. As a result their retirement investments lag in growth value. right now, your household is supported by two incomes his and yours. Put more of yours into retirement savings while you can.
- Make a list of tangible assets designating who gets what when. Does his furniture go to his kids, if he dies? What about the cars, the camping equipment? Make sure you know what happens, if something happens.
- Get your wills and health directives up to date. If he has a stroke, what measures does he want taken or not taken in terms of keeping him alive?
- Don't just sit there in a relationship where you can already see how it's going to end.
As they put it at wife.org, "One of the greatest gifts you can give to each other is settling these issues before something really bad happens." Thank god for Viagra! At least that's not a problem.
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do!
Editor's note: All information provided at sixtyandsingle.com is for informational purposes only. Sixtyandsingle.com makes no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions in this information or any damages arising from its display or use.