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Advisory Council April 2015 Meeting Presentation: Retirement Security and Dementia

Tuesday, April 28, 2015

Retirement Security and Dementia Panel: Consumer Financial Protection Bureau, Office for Older Americans

Disclaimer

This presentation is being made by a Consumer Financial Protection Bureau representative on behalf of the Bureau.  It does not constitute legal interpretation, guidance or advice of the Consumer Financial Protection Bureau.  Any opinions or views stated by the presenter are the presenter’s own and may not represent the Bureau’s views.

Office for Older Americans

  • Together with other divisions of the CFPB, helps older consumers
    • Prevent unfair, deceptive and abusive practices aimed at seniors
    • Make sound financial decisions as they age
  • The only office in the federal government specifically dedicated to the financial well-being of seniors

Older Consumers in the Marketplace

  • A growing population, living longer, and facing a number of challenges as they age.
  • Increasing threat of financial exploitation.
  • A shifting retirement landscape that places greater decision-making responsibility on consumers.
  • Cognitive impairment adds need for financial caregivers.

Net Worth

Bar Chart: Less than 35 ($10,400); 35-44 ($46,700); 45-54 ($105,3000; 55-64 ($165,900); 65-74 ($232,100); 75+ ($194,800); All ($81,200).
SOURCE: Federal Reserve Board, 2013 Survey of Consumer Finances.

Savings and Assets

  Financial Assets
(excluding home and
other property)		 Retirement Accounts Vehicle(s) Primary Home
  % with  
Assets		   Median  
Value		   % with  
Assets		   Median  
Value		   % with  
Assets		   Median  
Value		   % with  
Assets		   Median  
Value
65-74   97.4% $72,000 48.0% $148,000 89.4% $16,400 85.8% $175,000
75+ 96.9% $28,000 29.0% $69,500 76.0% $10,500 80.2% $145,000
SOURCE: Federal Reserve Board, 2013 Survey of Consumer Finances.

Decisions, decisions…

  • Retirement Decisions
    • Managing debt
    • Tapping Home Equity
    • Medicare
    • Claiming Social Security
    • Pension Payout
    • Moving to a different residential setting
    • Rollover
    • Planning for incapacity
    • Finding a job
    • Considering a care facility
    • Catch-up contributions
    • Downsizing
    • Investments
    • Working longer
    • Estate planning
    • Paying off mortgage

CFPB Initiatives

  • Educating financial caregivers about their fiduciary duties
  • Educating older consumers and other stakeholders about senior financial adviser designations.
  • Alerting older consumers about managing debt, pension advances, reverse mortgages and other financial decisions.

Helping financial caregivers

  • Managing Someone Else’s Money a set of guides for:
    • Agents under power of attorney
    • Guardians of property Trustees under revocable living trusts
    • Social Security representative payees and VA fiduciaries.

Managing Someone Else’s Money

  • Four duties:
    • Act in the person’s best interest
    • Manage the money carefully
    • Keep the money separate
    • Keep good records
  • Watch out for financial exploitation and scams
  • Where to go for help

CFPB Initiatives

  • Educating financial caregivers about their fiduciary duties
  • Educating older consumers and other stakeholders about senior financial adviser designations.
  • Alerting older consumers about managing debt, pension advances, reverse mortgages and other financial decisions.

Senior certifications and designations

  • Senior Designations for Financial Advisors: Reducing Consumer Confusion and Risks
    • Report on senior certifications and designations for financial advisers to Congress, SEC*
    • April 2013

* CFPB was mandated under Dodd Frank Act to make recommendations to Congress and the SEC

Confusing Marketplace

  • APA
  • ARPC
  • CEPS
  • CEBS
  • CPC
  • CRA
  • CRC
  • CRFA
  • CRPS
  • CRSP
  • CSA
  • CSC
  • CSFP
  • CASL
  • CRPS
  • CRPC
  • CSFP
  • CRO
  • DRP
  • ECS
  • MCRS
  • QPA
  • QPFC
  • REBC
  • RIS
  • RIC
  • RA
  • RFC
  • RPC
  • RPA
  • RS
  • SBC
  • SFP

 

  • Senior Pension Consultant
  • Senior Markets Manager
  • Senior Investment Executive
  • Senior Financial Advisor
  • Senior Benefits Consultant
  • Retirement Planning Specialist
  • Retirement Advisor
  • Retirement and Investment Consultant
  • Retirement and Estate Planning Consultant
  • Personal Retirement Planning Specialist
  • Elder Care Specialist
  • Director of Retirement Plans
  • Chief Retirement Officer

Educating Consumers

Know your financial adviser consumer guide

CFPB Initiatives

  • Educating financial caregivers about their fiduciary duties
  • Educating older consumers and other stakeholders about senior financial adviser designations.
  • Alerting older consumers about managing debt, pension advances, reverse mortgages and other financial decisions.

Protecting older consumers

  • Older Americans blog
    • Consumer advisory: 3 pension advance traps to avoid
    • Consumer advisory: Three steps you should take if you have a reverse mortgage
    • Four things older Americans can do about debt collection

Contact

 

Retirement Security andDementia Panel

Carolyn McClanahan

Important Background

  • The game changed for retirement safety in the 80’s
    • Move from Defined Benefit to Defined Contribution Plans
    • Lack of financial education to deal with a new paradigm
    • Investment professionals
      • Rewarded for selling products
      • Paid for managing money
      • Not providing the true planning needed for this scenario
  • Over half of elderly with cognitive decline get NO HELP with finances outside of their spouse
  • Unintended result -- we have a crisis
    • Baby Boomers left to fend for themselves
    • Many will lose the cognitive ability to do so
    • And the incentives in the investment industry are not aligned to help them with this problem

Individual Recommendations

Simplify Day to Day Finances

  • Minimize the number and types of accounts
    • One checking account
    • One savings account
    • One retirement plan account
    • One taxable investment account
    • Two credit cards

Automate Income and Outflows

  • Auto-deposit
    • Social Security
    • Pensions (if any)
    • A monthly “paycheck” from investment account
  • Auto-pay
    • As many bills as possible using one credit card paid off monthly

Structure Investments Appropriately

  • Simplify Investments
    • Retirement is the time to protect your money, not beat the market
    • Create an investment policy statement
  • Consider annuitizing some investments
    • IMMEDIATE FIXED ANNUITIES
    • Creates an income stream for life
    • Simplifies income planning

Arrange Financial Caretakers

  • Identify future financial caretakers
    • Consider a joint account holder on checking
    • Have power of attorney pre-approved by institutions
    • Have them get to know the banker, financial planner, attorney, insurance agent.
    • Provide all financial information
      • Directly
      • Use fiduciary advisor as intermediary

Use a Financial Portal

  • Consider an online financial portal
    • Consolidates information for easy tracking
    • Does not allow access to accounts -- only viewing
    • Provide to future financial caretaker for monitoring
    • Set alerts for unusual activity or balances

Hire the Appropriate Advisor

  • Hire a real “Financial Planner” not an “Investment Manager/Broker”
    • Advisor -- Must Be A Fiduciary
      • Cash flow planning
      • Budgeting
      • Investment Management
      • Should not sell products
      • Ideally charges hourly or retainer fees
Files
Mtg16-Slides3.pdf (pdf, 1.35 MB)