Federal Deposit
Insurance Corporation

Summer 2013

For Seniors: 15 Quick Tips for Protecting Your Finances

Audio (MP3 23.6 MB)

As many consumers get older, they often face issues such as how to maintain their lifestyle and pay for medical expenses on a fixed income for years into the future. Here are banking and other money-management tips for seniors to consider for their retirement years.

Getting Help

1. Decide if you need financial help from an expert, and then choose wisely. A financial advisor could help answer questions such as how quickly to take money from savings and how to invest in your later years.

But FDIC Community Affairs Specialist Ron Jauregui cautioned that “before you follow the advice of a supposed ‘expert’ who claims to have special credentials for advising seniors, research what that title may or may not mean and the advisor’s background.” According to a report by the Consumer Financial Protection Bureau (CFPB), the training, standards and regulatory oversight for more than 50 senior designations used by financial advisors can vary significantly.

To learn more about professional designations and for tips on choosing an investment advisor, the Financial Industry Regulatory Authority has a Web site at www.finra.org/Investors/ToolsCalculators/ProfessionalDesignations/DesignationsLookup.

2. Prepare for the possibility that you may become unable to handle your finances. Consider writing down a list of your financial institutions and account numbers and keeping it in a safe place that would be accessible by your loved ones in an emergency. An attorney can help you decide if you should have a legal document known as a power of attorney (POA), which would allow one or more people you designate to make key decisions with as much or as little of your financial or personal life as you choose.

Note that a “durable” POA takes effect when you sign it and remains effective if you become incapacitated, while a “springing” POA generally becomes effective only if and when you have been declared incapacitated. (The laws governing POAs vary from state to state, so consider consulting with an attorney who is knowledgeable about such matters.)

You can also add a co-owner to a deposit account, but that person has the ability to conduct transactions, including withdrawing money from a checking or savings account, without your prior approval. Your banker or attorney may be able to help you identify other possible alternatives, but you still must think carefully about who you give access to your money. Also, if your co-owner owes a debt and cannot pay it, the funds in your account may be taken to pay the debt.

Spending Money

3. Develop a spending plan for your retirement. Having a plan for your money and limiting expenses in retirement is important. Consider new ways to cut costs, such as by letting your auto insurer know you no longer drive your car to work. “Consider continuing to put some of your income into savings, especially for short-term goals such as holiday gifts, because that can help you avoid a large, sudden withdrawal from your retirement investments,” added Luke W. Reynolds, Chief of the FDIC’s Outreach and Program Development Section.

4. Consider limiting the mail and phone calls you receive from marketers. Unsolicited offers from unfamiliar companies can result in you overspending your budget or paying for shoddy merchandise or service from vendors who don’t stand behind their products. Consider being added to the national Do Not Call Registry (call 1-888-382-1222 or visit www.donotcall.gov). Also review the privacy disclosures that banks and other financial companies you do business with send at least once a year. They explain if and how you can limit certain sharing of your information.

For more guidance on stopping unwanted mail and phone calls, see information from the Federal Trade Commission at www.consumer.ftc.gov/articles/0262-stopping-unsolicited-mail-phone-calls-and-email.

“To protect yourself in general, be wary if someone approaches you unexpectedly to say he or she specializes in helping seniors with home improvements, health cures or financial products. Don’t let anyone make you think you need a good or service that you didn’t need before,” Reynolds said. “In fact, a recent study suggests that many consumers pay hundreds of dollars each year in fees that get automatically charged to their credit card or bank account, often on a monthly basis, for a subscription or other service they probably never really wanted. So closely review your credit card and bank statements to find any charges that you may be able to cancel because they are for products or services you can do without.”

Borrowing Money

5. Review your credit reports even if you don’t plan to apply for a new loan. Why? Mistakes or other errors on your credit reports could make it more costly for you to buy insurance or borrow money (for example, if your credit card company raises your interest rate on future purchases because of a problem tied to a credit report). And, monitoring your credit reports is a way to detect identity theft. Order your free credit report at least once every 12 months from each of the three main credit bureaus at www.annualcreditreport.com or by calling 1-877-322-8228.

6. Think twice before accepting an offer to “advance” (lend) you a portion of your future pension, Social Security or other retirement income. These offers are similar to payday loans and they likely involve costly fees and interest. You can also find yourself taking out similar loans in the future — paying additional fees and interest charges — to make up for new cash shortages as you repay the original loan. “If you need to borrow money fast, check with your bank and other financial institutions, and compare the products they offer based on the Annual Percentage Rate,” advised Reynolds.

7. Use credit cards cautiously. Accumulating debt can be costly, yet many seniors have considerable credit card debt. Before making purchases using your credit card, consider whether you will be able to pay your balance in full when the statement arrives, so you will avoid costly interest charges. Even small purchases can add up to big credit card bills.

8. Remember that a reverse mortgage will eventually have to be paid back — with interest. Reverse mortgages allow homeowners age 62 or older 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, such as staying current on property taxes. However, the money borrowed plus interest must eventually be repaid, usually when you or your heirs sell the house.

“If you do get a reverse mortgage and you live in the home with your spouse, some experts suggest that both of you sign the reverse mortgage agreement to ensure that the surviving spouse can continue to live in the home if one dies before the other,” Reynolds added.

For more about reverse mortgages, see Borrowing From Your Home in Retirement? Carefully Research the Benefits and Risks as well as the Spring 2010 FDIC Consumer News (http://www.fdic.gov/consumers/consumer/news/cnspr10/advice_for_seniors.html).

Earning Money

9. Think about ways to turn a hobby or another interest into a part-time job. Other possibilities for supplementing your income in retirement include a seasonal job or freelance consulting. But consider if this extra money could affect other aspects of your finances tied to your income, such as a potential increase in your Medicare costs or a possible temporary reduction in your Social Security benefits. Also consider any income tax implications.

Saving and Investing

10. If you’re considering an annuity, understand the potential pros, cons and costs. You’ve probably seen or heard promotions for annuities, which are financial products tied to a contract between a consumer and an insurance company. Insurers sell annuities but so do other financial institutions, including banks. You buy an annuity by making either a single payment or a series of payments to the insurance company. In return, the company promises to make payments to you, either as one lump-sum payment or a series of payments for a specified time period.

Because there are different types of annuities and a mix of potential benefits and risks, it’s important to learn as much as you can before investing. A good place to start is on the U.S. Securities and Exchange Commission’s Web site at http://www.sec.gov/investor/pubs/varannty.htm or by calling the SEC toll-free at 1-800-732-0330.

“Remember, even if purchased through an insured bank, annuities do not qualify for FDIC deposit insurance or any other comparable protections under federal law,” advised Jan Templeman, an FDIC Consumer Affairs Specialist. “So unlike FDIC-insured CDs and other deposits, your right to receive payments on an annuity is likely to depend almost entirely on the stability and strength of the insurance company offering the product.”

11. Know if you’ve agreed to let your bank cover certain overdrafts. You have a choice whether or not your bank will charge you a fee, perhaps $30 or more, to cover everyday purchases you make with a debit card when you don’t have enough money in your bank account to cover the cost of the purchases. And, you can change your mind on this decision at any time. A recent study by the CFPB found that consumers who have “opted in” (agreed) to be covered by an overdraft program are more likely than consumers who don’t opt in to pay costly fees and face the possibility of having their bank account closed.

“Not being opted in to an overdraft program would mean that debit card purchases would be declined if you didn’t have enough money in your account, but on the other hand, you would avoid paying a sizable fee for making that purchase,” said Reynolds. He also noted that your ability, under the law, to decide whether to opt in to an overdraft program only involves everyday debit card payments, such as at a store, and does not apply to checks you write or recurring bills charged to your account.

Another way to avoid overdrafts is to keep tabs on your account balance before using your debit card or writing a check. In addition, you can also ask your bank to link your checking account to savings to cover any overdrafts, perhaps for a small fee.

12. Look into discounts and other deals. “For consumers over a certain age, some financial institutions may offer breaks on the cost of bank products and services,” said Mary Bass, a Senior Community Affairs Specialist with the FDIC.

But even if your bank offers a special deal for seniors, you may be able to do better elsewhere or with another type of account at that bank. “Comparison shopping is key,” Bass added. “Banks and other businesses may negotiate with respect to fees or other account terms, so ask questions and show them what is being offered by competitors. You might be able to get a better deal than what is advertised.”

Getting Organized

13. Make it easier to manage your money and pay the bills. If you’ve accumulated multiple bank and investment accounts and credit cards over the years, consider whether you can close some you no longer use or need. This can reduce the number of accounts you have to manage.

Also, for payments you are due to receive, including money from pensions or tax refunds, there are benefits to having them automatically deposited into a low-cost or no-cost checking or savings account using direct deposit. If you manage that account well and avoid fees, it’s likely to be less expensive and offer you more features than alternatives. You can also have automatic withdrawals from your bank account to routinely put a certain amount of money into a savings account or a U.S. Savings Bond.

14. Consider additional ways to save time and money. Your bank and the companies you do business with also will likely provide alternatives for you to pay your bills electronically. These options can include online bill paying or having payments automatically transferred from your account. These can save you time and money by avoiding unnecessary trips to pay bills. And, making scheduled payments automatically can help avoid late charges or service interruptions.

Your bank and other financial services providers also may offer incentives if you receive your statements electronically instead of in the mail. It’s important, though, that you keep the anti-virus and security software on your computer updated, promptly review each bill for accuracy, and monitor your account balance to avoid the risk of overdrawing your account.

“Be cautious about going paperless if you aren’t tech savvy or comfortable going online to review your statements when they arrive,” warned Reynolds. “The law is clear: if an error or a fraudulent item appears on your statement and you promptly report it to the bank, your liability is limited. Likewise, the bank may send you important notices that tell you about changes it plans to make to your account, such as with respect to fees. You need to decide for yourself what will be the best way for you to review these key communications in a timely manner.”

15. Organize and protect your important documents. Items to keep at home, in a secure place that’s easy for you to get to, may include your bank and brokerage statements, insurance policies, Social Security and company pension records, and other personal and financial papers you or your family might need on short notice. If caregivers or others regularly visit you, make sure that your checkbooks, credit cards and other financial records are protected.

A safe deposit box is best for storing documents or valuables that could be difficult or impossible to replace and that you probably won’t need access to on a night, weekend or holiday. Good candidates include originals of birth certificates, property deeds and car titles. Think twice before using a safe deposit box for an original of a will or power of attorney because it may not be possible for your loved ones to access them quickly if you become incapacitated or pass away. For guidance on where to store these documents, check with an attorney about what is required or recommended based on state law.

Regardless of where you keep important documents, seal them in airtight and waterproof plastic bags or containers to prevent water damage. In case of a natural disaster or a fire, you may want to prepare one or more emergency evacuation bags with essential financial items and documents, such as some cash and checks, copies of your credit cards and identification cards, and a key to your safe deposit box.

To learn more financial tips for seniors, just keep reading our special coverage.