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How to avoid becoming a victim in your retirement years

Wednesday December 12, 2012

You no doubt are aware of the rule that your RRSPs must be collapsed or rolled over into other vehicles at the end of the year in which you turn 71. But planning for a successful and stress-free retirement involves more than deciding what you do with your RRSPs. Lots more, including making sure you don’t become a victim of the ever-growing number of financial frauds, scams, and schemes that prey on the growing pool of vulnerable elderly retirees. And now, that risk affects more and more people every day – eventually, the entire baby-boom generation.

We have all heard about the huge wave of baby boomers set to retire. I read recently that 10,000 people a day were turning 65 in that North America. This great wave of elderly has many implications: less consumption; more travel and golf; demand on vacation properties; redeeming investments rather than adding to portfolios; and so on. But there’s a darker side to this demographic wave. And it involves financial advice. In the past couple of years we’ve already seen several giant ponzi schemes and confidence swindles come apart, including the infamous Bernie Madoff scheme, destroying the life-savings and retirement plans of thousands of people – most of whom were at or near retirement. The question is, “How can we avoid this happening to us or our loved ones?”

As people age, there’s always the danger of being preyed upon by unscrupulous financial advisors (or family members) looking to make a fast buck from someone whose mental capacities are diminishing due to Alzheimer’s disease, or other forms of dementia, and other ailments that can leave the elderly fragile and vulnerable to swindles. And, unfortunately, this phenomenon will grow as the Baby Boom generation ages.

Here are a few tips I’ve compile to help those who ready to retire or who are already retired – and their families – deal safely and securely with this new phase of their lives.

Stick with a known quantity. If you have worked with a good financial advisor whom you trust in your pre-retirement phase, don’t make a change in retirement unless it’s for a very good reason. Don’t assume that the next one will be as trustworthy. A history and long association is important in matters of trust – much more important than searching for a better return.

Simplify. As you age, simplify your portfolio over time so you always understand what it consists of. Move slowly from stocks to low-fee mutual funds. Brokerages that make too many trade will cost you money. The brokerage firm usually earns a commission on every trade, and if your statements aren’t showing growth, who is benefitting from all the trading?

Beware account churning. Have your adult children or your accountant look at your statements to ensure all is above-board. Frequent trading, churning of mutual funds, and borrowing to invest are probably the most common offences. Watch for large and frequent redemptions. Find out why there are frequent redemptions.

Don’t make drastic changes in retirement. As you move into your 50s, 60s and 70s, your portfolio should slowly move in a safer direction. Sell some equities when markets are good and increase fixed-income exposure. But don’t make these changes while markets correct, or you could wipe out years of growth and jeopardize your retirement income in the process.

Power of Attorney. Talk to your children about establishing powers of attorney, and consult a lawyer to set this up before it’s too late. There are various types of powers of attorney, so legal advice is essential.

Resist sales pressure. Watch for smooth fast talkers that pressure you to make a quick decision. Your nest-egg has taken over 30 years to grow, but it can be lost very quickly with one hasty decision.

Watch for expensive insurance purchases in retirement unless they are needed for estate-planning purposes. Is your estate large enough that this type of estate planning is necessary? Get a second opinion if uncertain. Are any internal bells ringing?

Don’t sign anything if it makes you uncomfortable. Ask for a copy to think it over, and go over it with your children or accountant. Watch for forged signatures. Is there a large transaction you don’t remember signing off on? Go to the branch manager of your advisory firm first.

End discretionary accounts. If you have agreement with your financial advisor or broker where they can make trades without your signature, end this with a signed letter as you enter retirement. This protects you if you become mentally diminished in any way. In addition, you may take trips out of the country and don’t want to return and find 40 trades were made in your absence.

Be wary if your financial advisor asks you to redeem everything and move into something that seems risky. Major financial mistakes made late in life will never be made right. You no longer have the luxury of time or youth to recoup your losses and still achieve growth.

Set credit lower limits. Get your elderly parents on the federal telemarketing “Do Not Call” list, and ensure their credit limits are reduced. Limit the number of credit cards to help simplify things.

Consolidate accounts. If you (or your elderly parents) have RRSPs, investments, and TFSAs at a myriad of financial institutions, try to consolidate these accounts with the organization or the financial advisor you trust the most. As people age, simple is better for all concerned (both the elders and those aiding them).

The real trick to this is making these changes while your mind is still functioning at a high level. It’s better to be too early than too late. Don’t let your ego get in the way and procrastinate until your faculties are diminished. At that time, the change will be much harder and relatives will likely have to step in to provide assistance.



Generic Mutual Fund Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated.

Personal Opinions & Recommendations Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call the author to discuss your particular circumstances.