Secure your retirement against these 3 hidden vulnerabilities

Author -  Tobias Taylor

As we get older we are likely to be confronted with a number of hidden financial vulnerabilities, or some especially difficult, personal challenges, that go beyond just maintaining a steady income from our retirement savings and investments.

As a financial adviser, I have the privilege of working with a large number of retired clients, and as a result I have seen firsthand the problems that many older Kiwis have to wrestle with.

Three of the most common problems elderly retired face are:

  1. One partner is responsible for all the finances (the money manager) and when that person dies, the surviving partner is vulnerable because they don’t know what’s going on with the money;
  2. Historical financial structures which have become redundant; and
  3. Financial exploitation of the elderly.

1. The sole money manager

In my experience, particularly with the older generation, the wife or female partner is usually happy to leave the management of the couple’s financial affairs to the husband or male partner. The exception to this rule is often the retired rural family where running the family farm or orchard was very much a collaborative exercise, often with the wife or female partner also being the financial controller.

This of course is a demographic that is changing with time.

Unfortunately, what happens in most other instances however, is that the husband passes away first, leaving his wife unprepared to take over management of the finances – very often she has no idea of what their financial position is.

To avoid this problem, both partners should participate in the financial management of their affairs, including attending all meetings with their financial advisers.

At the very least, have a checklist, which summarises your current situation and what needs to be done. This should be kept with other important papers like your annual accounts.

2. Redundant historic structures 

Another potential problem faced by some people in retirement is that the financial structures that were set-up in the past – particularly some trusts – have not been future proofed. It is always a wise idea to discuss contingency and succession planning with your professional or independent trustee.

This is especially common in rural areas. Clients set-up these structures and once ‘everything is in place’, forget about them. An annual review of your financial position, including your financial structures, is absolutely essential.

Just like your farm or business, a succession plan is vital to your ownership structures.

Part of the difficulty is that many older people do not like talking about money. They are private, but also very trusting. For that reason, I cannot over-emphasise the importance of having a reliable, independent support person on hand to offer advice, particularly when making big financial decisions.

Another area where a support person is important is in helping you to work through, and understand, complex financial documents.

3. Financial exploitation

Financial exploitation of retired people is too common a problem that the elderly face. It is a problem because, while you may want to help people who are in need, you risk eroding your only means to support yourself into old age.

Louise Collins, who co-ordinates Age Concern's efforts to fight elderly abuse, believes that financial abuse of the elderly is a very big and on-going problem, which is fuelled by the attitude that older people don’t need the money – that they are sitting on a nest egg that the younger person has more of a need for, or is more deserving.

“More than 75 per cent of those that financially abuse older people are family members that we see. The problem is, elderly people have no means of generating an income after they’ve given the money away. As a result we see them unable to afford to replace things like their spectacles or hearing aids (which are not subsidised), because they’ve given their money away.

“We are supportive of older people being able to make decisions to give money to their children. The problem comes when they are forced to do it through threats or bullying,” Ms Collins said.

One solution is to require the signature of an independent, professional support person, like a lawyer or accountant. That person, being aware of the financial situation, is likely to know the risks and vulnerabilities you face, and this provides an extra layer of protection for those who may find it difficult to say ‘no’, ask ’why?’ or at least discuss the rationale behind unplanned activity.

In my opinion, the support person should certainly not be the person’s manager of funds. Separation of duties and responsibilities when managing client funds is essential. When I manage a client’s funds, I believe that I should not have a say in providing permission for the distribution of that money, other than giving written and researched advice in line with my agreed scope of service.

The so-called ‘trigger signature’ or ‘second signature’ for a transaction should not sit with the financial adviser who manages the client funds. This is why I respectfully decline to be a trustee on client portfolios.

A financial plan is the best answer

A good start towards overcoming challenges like the death of a spouse, financial exploitation and historic structures that have not been future proofed, is to have a financial plan in place from the beginning – it’s a way to roadmap your retirement so that every phase, and eventuality, is considered and planned for.

A good financial plan is a visual, step-by-step big picture both partners can understand. It should also have precautions built in; such as annual financial reviews to ensure goals and portfolio are kept current.

With a plan, you can exercise a measured approach to your income that is related to the various stages of ageing that you will experience. It also oversees the releasing of funds in a planned and structured manner – it gives your funds a sustainable lifecycle.

A trust that is properly set-up to ensure longevity is one more protection for people in retirement. However, a trust is not for everyone and legal and estate advice should be sought before making any changes to one’s ownership structure.

Having a financial plan is also a structure that protects your money because protecting your capital is a financial goal in itself. Finally, a plan is also better able to deal with things like a conflict between maintaining your income and protecting your capital.

By Tobias Taylor, Spicers Adviser.

The information in this article is of a general nature only and is not to be used as a substitute for personalised advice. If you would like advice that takes into account your particular financial situation or goals, please contact Tobias Tobias’ disclosure statement is available on request and free of charge.

Secure your retirement against these 3 hidden vulnerabilities

As we get older we are likely to be confronted with a number of hidden financial vulnerabilities, or some especially difficult, personal challenges, that go beyond just maintaining a steady income from our retirement savings and investments.

As we get older we are likely to be confronted with a number of hidden financial vulnerabilities, or some especially difficult, personal challenges, that go beyond just maintaining a steady income from our retirement savings and investments.

As a financial adviser, I have the privilege of working with a large number of retired clients, and as a result I have seen firsthand the problems that many older Kiwis have to wrestle with.

Three of the most common problems elderly retired face are:

  1. One partner is responsible for all the finances (the money manager) and when that person dies, the surviving partner is vulnerable because they don’t know what’s going on with the money;
  2. Historical financial structures which have become redundant; and
  3. Financial exploitation of the elderly.

1. The sole money manager

In my experience, particularly with the older generation, the wife or female partner is usually happy to leave the management of the couple’s financial affairs to the husband or male partner. The exception to this rule is often the retired rural family where running the family farm or orchard was very much a collaborative exercise, often with the wife or female partner also being the financial controller.

This of course is a demographic that is changing with time.

Unfortunately, what happens in most other instances however, is that the husband passes away first, leaving his wife unprepared to take over management of the finances – very often she has no idea of what their financial position is.

To avoid this problem, both partners should participate in the financial management of their affairs, including attending all meetings with their financial advisers.

At the very least, have a checklist, which summarises your current situation and what needs to be done. This should be kept with other important papers like your annual accounts.

2. Redundant historic structures 

Another potential problem faced by some people in retirement is that the financial structures that were set-up in the past – particularly some trusts – have not been future proofed. It is always a wise idea to discuss contingency and succession planning with your professional or independent trustee.

This is especially common in rural areas. Clients set-up these structures and once ‘everything is in place’, forget about them. An annual review of your financial position, including your financial structures, is absolutely essential.

Just like your farm or business, a succession plan is vital to your ownership structures.

Part of the difficulty is that many older people do not like talking about money. They are private, but also very trusting. For that reason, I cannot over-emphasise the importance of having a reliable, independent support person on hand to offer advice, particularly when making big financial decisions.

Another area where a support person is important is in helping you to work through, and understand, complex financial documents.

3. Financial exploitation

Financial exploitation of retired people is too common a problem that the elderly face. It is a problem because, while you may want to help people who are in need, you risk eroding your only means to support yourself into old age.

Louise Collins, who co-ordinates Age Concern's efforts to fight elderly abuse, believes that financial abuse of the elderly is a very big and on-going problem, which is fuelled by the attitude that older people don’t need the money – that they are sitting on a nest egg that the younger person has more of a need for, or is more deserving.

“More than 75 per cent of those that financially abuse older people are family members that we see. The problem is, elderly people have no means of generating an income after they’ve given the money away. As a result we see them unable to afford to replace things like their spectacles or hearing aids (which are not subsidised), because they’ve given their money away.

“We are supportive of older people being able to make decisions to give money to their children. The problem comes when they are forced to do it through threats or bullying,” Ms Collins said.

One solution is to require the signature of an independent, professional support person, like a lawyer or accountant. That person, being aware of the financial situation, is likely to know the risks and vulnerabilities you face, and this provides an extra layer of protection for those who may find it difficult to say ‘no’, ask ’why?’ or at least discuss the rationale behind unplanned activity.

In my opinion, the support person should certainly not be the person’s manager of funds. Separation of duties and responsibilities when managing client funds is essential. When I manage a client’s funds, I believe that I should not have a say in providing permission for the distribution of that money, other than giving written and researched advice in line with my agreed scope of service.

The so-called ‘trigger signature’ or ‘second signature’ for a transaction should not sit with the financial adviser who manages the client funds. This is why I respectfully decline to be a trustee on client portfolios.

A financial plan is the best answer

A good start towards overcoming challenges like the death of a spouse, financial exploitation and historic structures that have not been future proofed, is to have a financial plan in place from the beginning – it’s a way to roadmap your retirement so that every phase, and eventuality, is considered and planned for.

A good financial plan is a visual, step-by-step big picture both partners can understand. It should also have precautions built in; such as annual financial reviews to ensure goals and portfolio are kept current.

With a plan, you can exercise a measured approach to your income that is related to the various stages of ageing that you will experience. It also oversees the releasing of funds in a planned and structured manner – it gives your funds a sustainable lifecycle.

A trust that is properly set-up to ensure longevity is one more protection for people in retirement. However, a trust is not for everyone and legal and estate advice should be sought before making any changes to one’s ownership structure.

Having a financial plan is also a structure that protects your money because protecting your capital is a financial goal in itself. Finally, a plan is also better able to deal with things like a conflict between maintaining your income and protecting your capital.

By Tobias Taylor, Spicers Adviser.

The information in this article is of a general nature only and is not to be used as a substitute for personalised advice. If you would like advice that takes into account your particular financial situation or goals, please contact Tobias Tobias’ disclosure statement is available on request and free of charge.

Secure your retirement against these 3 hidden vulnerabilities
Important information

The content on this website is for information only. The information is of a general nature and does not constitute financial advice or other professional advice. Before taking any action, you should always seek financial advice or other professional advice relevant to your personal circumstances. While care has been taken to supply information on this website that is accurate, no entity or person gives any warranty of reliability or accuracy, or accepts any responsibility arising in any way including from any error or omission. A disclosure statement is available from your adviser on request and free of charge.

 

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