As consumers go through life, they face different financial scenarios.  First there are college loans, then marriage expenses.  Children come along, houses are purchased, and cars are financed.  Every milestone seems to be accompanied by a major financial decision.

Becoming a senior citizen brings a new set of financial choices.  Now every penny counts because your money has to last to the end of life.  What is the best way to guard your finances?

FDIC Consumer News(1) offers these tips for protecting your finances in your senior years:

1. Prepare for the possibility that you may be unable to handle your finances.  Write down a list of your financial institutions and account numbers and keep it in a safe place where your family can access it in an emergency. Work with an attorney to decide if you need a durable power of attorney, which will allow one or more persons to make decisions for you if necessary.

2. Review your credit reports even if you aren’t planning to apply for a loan.  Mistakes or errors on your credit reports could make it more costly for you to buy insurance or get a loan.  Monitoring your credit reports also allows you to detect identity theft.  Order your free credit report once a year from each of the three main credit bureaus by calling 1-877-322-8225.

3. Use credit cards with care.  It’s easy to rack up debt using credit cards; many seniors carry considerable credit card debt.  If you can’t pay the debt off at the end of the month, finance charges may begin to multiply, increasing your debt.  Pay cash when you can and use the credit card sparingly.

4. Reverse mortgages must be paid back with interest.  Reverse mortgages have become a popular way for seniors to borrow against the equity in their homes without having to make monthly payments as long as they meet the terms of their loan agreement. The money borrowed must be repaid, usually by the heirs when the house is sold.

5. Find a way to turn a hobby into a part-time job.  Even though you may be earning Social Security, supplementing your income is an important part of staying financially secure. Americans are living longer and want to maintain their lifestyles.  In many cases, the only way to do this is to continue working.

6. Make it easy to manage your money and your bills.  Consider consolidating accounts so there are fewer bank statements requiring attention.  Move your investments to one institution, if possible.  Close accounts you no longer use.  Look into direct deposit for payments you receive from pensions and tax funds.  You can also authorize automatic withdrawals from your bank account to be deposited into a savings instrument.

7. Look for additional ways to save time and money.  You may find it easier to authorize automatic bill pay for regular expenditures such as utilities or insurance payments. This can help you avoid late fees or service interruptions.

8. Organize and protect your important documents.  You may know where every important document is, but if you become incapacitated, will your family be able to find them?  Find a secure place for birth certificates, passports, bank statements, brokerage accounts, will, power of attorney, Social Security and pension records and other papers your family might need on short notice.  Secure documents from water damage.

Social Security — What it is and isn’t.

Are you counting on Social Security as a financial backup plan?  Think again.

Social Security was never conceived as a retirement plan.  It was created as a supplement to the financial resources a person arranged for himself over a lifetime. According to the Social Security Administration, the average benefit for a retired worker is about $1,230, while a study by Genworth Financial found that the median cost of a one-bedroom apartment at an assisted-living community was about $3,300. (2)

One of the biggest mistakes people make is collecting their checks too early.  Michelle Wood of Edward Jones explains that, depending upon your situation, you could gain thousands of dollars in your Social Security account just by waiting until age 70 to collect.

“You can actually claim Social Security benefits at age 62, but this is several years before the deadline for receiving full benefits at your full retirement age (FRA),” she says.  “Many people collect early because they don’t understand how to make the most of their benefits.  There are calculators available to help seniors determine the right time to begin withdrawing benefits, depending upon their financial situation, and people should take advantage of these tools.”

Senior scam alert

“The biggest issue for seniors right now is the investment scam,” Wood continues.  “We see so many people being taken advantage of by scam artists, and women are twice as likely as men to be victims of senior fraud.”

If you are receiving invitations to expensive dinners or free lunch investment events, beware.  FINRA.org, the financial industry regulatory authority, recently issued an alert on the free lunch seminar:

“According to a 2013 survey by the FINRA Investor Education Foundation, 64 percent of respondents age 40 and older had been invited to a meeting that offered a free meal and ‘educational’ information for some sort of investment,” the alert says. “Not all of these invitations are being tossed out; nearly one-third of respondents said that they attended a ‘free lunch’ seminar. On the other hand, the good news is that only 4 percent of respondents actually lost any money at one of these seminars.

“In a 2007 report, securities regulators, including FINRA, the U.S. Securities and Exchange Commission, and state regulators, conducted more than 100 examinations involving free-meal seminars. In half the cases, the sales materials—including the invitations and advertisements for the events—contained claims that appeared to be exaggerated, misleading or otherwise unwarranted. And 13 percent of the seminars appeared to involve fraud, ranging from unfounded projections of returns to sales of fictitious products,” the alert reports.

Seniors should be aware that if they attend a free lunch seminar, a hard sell awaits them. As FINRA’s alert says, “Savvy investors refuse to be rushed. Rarely—if ever—do you have to invest your money on the spot. A good investment will be available tomorrow or next week or next month, when you are ready and understand where your money is going. While a free meal or prize might be enticing, remember that there are unbiased, noncommercial places to go for information about investing.”

Seniors with questions about investments, including these free meal scams, can always call FINRA Securities Helpline for Seniors at 844-57-HELPS (844-574-3577), Monday – Friday from 9 a.m. to 5 p.m. Eastern Time.

Long-term care insurance

Purchasing long-term care insurance can be one of the best tools for safeguarding your financial future, yet it is one of the most neglected, says Stephanie Fox-Marin of Bankers Life and Casualty.

“Medicare says that at least 70 percent of seniors over the age of 65 will need long-term services at some point in their lives,” she says.  “Yet seniors don’t understand that Medicare does not pay for custodial care.  Medicare only allows for 20 days of care in a skilled nursing facility and then only after you’ve been in the hospital for three days.  Without long-term care insurance, how will you afford a longer stay?”

A patient needs long-term care when his physical situation keeps him from performing two daily activities —- such as dressing, toileting or feeding himself — for 90 days.  This is when a long-term policy will go into effect.

“Apply for long-term insurance when you are young and healthy,” Fox-Marin says.  “You should apply about the time your children are graduating from college.  Policies are expensive but not nearly the cost of a day in a nursing home, which can run from $150 to $200.  And with long-term care insurance, you choose the facility you want to use; with Medicare, you have to go where they send you, and that’s not always a pleasant place.”

Underwriting a policy calls for complete medical record submission.  A cognitive test is performed by a nurse over the phone.  Blood and urine samples must be provided, and there’s an extensive application.

Fox-Marin says the investment is worth the time and the money.  “Do this for your children,” she says.  “Do it to save your family grief.  If you are 70 percent likely to need long-term care, why would you even think of neglecting this kind of financial planning?”

References

(1) FDIC Consumer News, summer 2013.  Federal Deposit Insurance Corporation.

(2) “6 Financial Planning Mistakes to Avoid.”  Anderson, Jeff.

By Robyn Barnes