Many people spend their lives preparing for old age, but as individuals grow older, they may face unexpected challenges. Although it’s not pleasant to think about, it’s crucial to consider the risks associated with aging and their potential financial impact. Here are four common financial management pitfalls that come with aging, and how experts suggest you can avoid them.
1. Vulnerability to Financial Mistakes and Scams
To protect elderly individuals at risk, Goland recommends seeking help. Some families hire a trustee or a bill-paying service, while others rely on a relative or friend for support. This assistance can start gradually, with increasing support over time. Freezing the senior’s credit with the three major reporting agencies can also prevent identity theft.
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The Consumer Financial Protection Bureau advises taking the following steps to prepare for declining financial management abilities:
– Organize important financial documents and inform loved ones where to find them.
– Provide financial advisors with a trusted contact person.
– Appoint a representative payee through the Social Security Advance Designation program.
– Consider appointing a durable financial power of attorney.
2. Sudden Death or Disability of the Family’s Financial Manager
When one person manages a household’s finances, their sudden disability or death can lead to chaos. Goland emphasizes the importance of having a contingency plan. Families should discuss financial wishes, document storage, password storage, and the members of their financial, legal, and tax teams. Regular check-ins with the family’s financial manager and another family member can also ensure someone else is aware of bills, insurance policies, investment accounts, and more.
3. Unexpected Long-Term Care Expenses
Andrew Latham, a certified financial planner and managing editor at SuperMoney, highlights the importance of planning for long-term nursing care costs. Failing to do so can have severe consequences. Semi-private rooms in care facilities can cost over $100,000 per year in many American cities, potentially leading to insolvency and wiping out expected inheritances.
While Medicaid can help cover nursing home costs, it has strict asset eligibility requirements. Individuals who do not meet these limits may have to pay out of pocket until their assets are depleted, which can leave a healthy spouse vulnerable. Latham suggests using legitimate spend-down tactics, such as setting up irrevocable trusts, employing spousal asset protection methods, paying off debts, buying medical equipment, and investing in home modifications.
Goland recommends that younger Americans purchase long-term care insurance, and older Americans should consider alternatives to full-time residential care. He shares an example of a client who saved thousands of dollars by converting part of their home into an Accessory Dwelling Unit and hiring an in-home caregiver.
4. Running Out of Money
Another potential disaster is running out of money in retirement. Satayan Mahajan, CEO of Datalign Advisory, notes that nearly two-thirds of Americans approaching retirement age feel unprepared to meet their financial needs. A lack of emergency savings is particularly concerning, with more than half of Americans unable to cover an unexpected expense of $1,000 or more.
To prepare, Mahajan emphasizes the importance of financial planning. Developing a financial plan can help alleviate stress, provide financial freedom in retirement, and proactively address potential issues. Financial advisors can assist with a range of financial situations, and no one should feel intimidated to seek help.
