Financial pitfalls to avoid for our seniors

Ashleay: Welcome to iA Financial Group’s “In Your Interest!” podcast. My name is Ashleay and today I’m joined, as usual, by my colleague and chie strategist Sébastien Mc Mahon. Following our last podcast, in which we talked about the importance of discussing finances with your spouse and children, today we’ll be talking about the importance of discussing money with the elderly. And once again, we’re pleased to welcome our colleague, Paul Santos, who’s joining us remotely from Toronto. Paul’s a financial planner in the Group Savings and Retirement Sector. Hello, Paul, thank you for joining us.

Paul Santos: Hello. Thank you for inviting me back.

Ashleay: Thanks for being here. Paul, why do you think it’s important to discuss finances with the elderly Paul Santos Financial management has evolved in recent decades. Elderly people may sometimes need to adapt their strategy. This could be due to people living longer, the impact of inflation and so forth. So having a budget, for example, is still important—if not more important—during retirement. In retirement, income generally decreases and although some expenses may also decrease, health-related costs might increase with age. We also need to talk about having a withdrawal strategy to ensure that this is optimal and advantageous for the elderly person. A withdrawal strategy and a budget go hand in hand. It’s also important to ensure that estate planning is compliant and that everything has been considered. And finally, it’s essential to raise awareness among the elderly about fraud. The elderly are much more vulnerable to financial abuse, including fraud.

Sébastien: Yeah, I agree, Paul. This is a very serious issue. I’ve been looking at some studies recently, and there was a public inquiry conducted by the Canadian Radio, Television and Communications Commission that revealed that no less than 75% of seniors in the country reported being targeted by misleading or aggressive sales techniques. We’re more used to using technology than the elderly, so, of course, we’re more careful in situations like, for example, if we get a text message out of the blue saying, “This is the Government of Canada, please enter your financial information here.” But for the elderly, since technology advances pretty quickly, let’s say their reflexes might not be as sharp as they are in younger folks. That’s why it’s important to have these conversations to protect your grandparents from this kind of fraud.

Ashleay: You touched on it a little bit, but what in your opinion, Paul, makes the elderly more vulnerable to fraud and financial scams.

Paul Santos: So firstly, people think it will never happen to them, but there is no age limit. You know, fraud can happen to anyone with money and really anyone who receives text messages, emails or phone calls. For the elderly, I think limited knowledge of the digital world and the different types of fraud that can occur is a major factor. Information and awareness on the subject are therefore extremely important, and the elderly need to become more vigilant when it comes to looking for signs of fraud.

Another factor that often makes the elderly a target of scammers is the fact that they have accumulated assets over time, compared to, for example, a 16-year-old who is more likely to have a very modest income and little assets.

Sébastien: Yeah, of course. And elderly people are, obviously, still human beings, they have emotions. There’s a type fraud of that uses romantic ploys. Because older people often feel very lonely, it can make them vulnerable to certain scams. And now with social media like Facebook, for example, someone who has a very nice picture and says very nice things can make certain requests, but you don’t know exactly who’s on the other side of that profile. Speaking of the romantic schemes, there was a study recently that showed that this type of fraud resulted in over $9 million in losses among seniors in 2019 alone, representing about 25% of all losses. So, educating the elderly on the subject is very important.

Now, it’s hard to believe, but the elderly may suffer financial abuse from members of their own family, such as children or grandchildren. They place a great deal of trust in these people and can be easily scammed by loved ones with bad intentions. This can be more subtle than we might suspect. A few decades back, let’s say, people who were cheating on the will was something that was maybe easier to catch. Maybe, I don’t know. But with technology here, it’s easy to see money leave a bank account for another foreign bank account, for example. Technology allows us to do more, including fraud, sadly.

Ashleay: What advice can we give to the elderly regarding financial fraud?

Paul Santos: So firstly, and probably the best advice we can give is to be aware of the signs of fraud and to be vigilant. We must remind them that they have the right to refuse to act, even if they feel pressured, or when there is a sense of urgency to act. Whenever there is a marked insistence or a sense that we are being forced to do something, it’s often a sign of fraud. It’s also very important that they surround themselves with trusted people to turn to with questions, or to expose or review a situation that raises doubts. These trusted people can be family members or even a financial advisor, for example. And to further support them, we can also refer them to sources of information about fraud and fraud awareness resources.

Ashleay: And we were also talking earlier about one of the subjects we should discuss with our elders, which is a withdrawal strategy. What should we talk about more in detail?

Paul Santos: Yes. So, when you look at the purpose of financial planning for the elderly, you can almost look at it in terms of planning to ensure that the elderly do not run out of money during retirement, and part of that planning is to develop a withdrawal strategy. A withdrawal strategy (also known as a decumulation strategy) is a plan or guideline on how you will take money out of your savings to be used for retirement expenses. Now, to develop the strategy, there are a number of items that you need to take into consideration: What are you invested in and what is the value of your investment currently? What are your other sources of income, such as CPP or OAS, for example? What is your current and projected future tax brackets? Your expected longevity, inflation, market variability and risk tolerance, and estate and beneficiary goals. You also need to understand your retirement expenses, because even in retirement, there may be nuances to your spending depending on whether you’re at the beginning, in the middle or near the end of your retirement. Once you’ve collected all this information, it’s then critical to sit down with your advisor and discuss all of this. You can then come up with a withdrawal strategy that will sustain you throughout your retirement years.

Ashleay: Right. And we were also talking earlier about estate planning. What would be the best advice to give the elderly on this subject?

Paul Santos: First we need to ensure that estate planning is thoughtful, comprehensive and compliant with the laws of the person’s province of residence. It’s also always a good idea to consult specialists such as a notary or a lawyer, financial planner, or accountant so that they can help guide you through the estate planning process. Also, ensuring that all necessary documents are available to prepare an estate plan. For example, make sure you have your marriage contract or a divorce judgment, co-ownership agreements, life insurance policies and investment statements are all critical documents for preparing an estate plan. Also, designating an executor as well as an alternate executor just (case your primary executor is unable to fulfill their duties). Once you have all this information, you want to ensure that this is properly drafted. It’s generally a good idea to review the will every five years to ensure that the wishes are truly respected.

Sébastien: Of course. And another point that’s important to address—even if it’s not directly related to estate planning—is that it’s always good to plan for the last moments of life. This is not, of course, a fun conversation to have, but it’s likely one of the most important conversations that you can have with your loved ones who are getting older. They may want to have a protection mandate, also known as a mandate in case of incapacity, which determines the roles and responsibilities of the mandataries to take care of them and manage their property in case they become incapacitated. They may also want to define ahead of time the healthcare that they would accept or refuse to receive, in case they become incapable to consent to such care. So these are tough conversations, but, you know, when people fall ill or when they reach the end of life, there’s just so much happening that it’s a big help to everyone involved if these things are planned ahead.

Ashleay: Thank you Sébastien, and thank you, Paul, for this very interesting discussion and sound advice. I hope it will encourage some of our listeners to start a conversation with the elderly people around them. Our elders are so precious, and it’s our turn to ensure their safety, transmit knowledge and support them when they need it. Love this podcast? Want to know more about economic news? Follow our “In Your Interests!” podcast, available on all platforms. Visit the economic news page on ia.ca or follow us on social media.