From CFP Board's Consumer Advocate, Eleanor Blayney, CFP^®

Part I

It’s hard to be productive at work when financial worries accompany you to your desk. It’s hard to let go of concerns about a spluttering economy, or uncertainty about taxes, particularly if you start your work day with a newspaper.

But if you are in your forties, fifties, or even sixties, you may be lugging an even heavier issue in your briefcase. At this age, you may have an elderly relative who requires care. According the National Alliance for Caregiving and AARP, almost 1 in 4 American households care for an aging relative, and the average age of the primary caretaker is 49.2 years. Of these caretakers, a significant majority is employed.

We generally think of elder caretaking as protecting and providing for their physical safety. But what about financial safety?

Understanding senior financial abuse

The elderly make easy targets for financial abuse. They tend to be more trusting of the advice of so-called “experts,” while at the same time they may be losing their mental acuity. But often the last person they want to intervene is their own child or relative. Turning over financial information or documents to a family member can be as traumatic and demoralizing as being told they can no longer drive.

Another reason why seniors are so often victimized by financial scammers is because they, of all generational groups, are most likely to have significant amounts of money in the form of accumulated savings or home equity. They are also interested in income-producing investments to supplement pensions or Social Security, and therefore can be easily lured by promises of high interest rates, which carry unacceptable risk or are simply untrue.

At Certified Financial Planner Board of Standards, we have recently been focusing on the problem of rampant elder abuse, which results in billions of financial loss each year. As a survey we conducted last summer showed, senior financial abuse is rarely reported by its victims, who may be afraid of repercussions and confused about what has happened, or they are too embarrassed to admit that they have become a “victim.”

As a current or future caregiver to an elderly loved one, you need a three-pronged response to financial abuse:

1. Understand the special vulnerabilities of the elderly to misleading or fraudulent financial practices.


2. Be aware of the warning signs of common abuses.


3. Develop a proactive plan for preventing or dealing with financial exploitation of an aging family member.

Identifying the red flags

It’s actually quite easy to tell when an elderly person is in physical trouble. She’s not eating regularly. He’s fallen several times. She’s not getting out of bed. Yet not so apparent are the signs of financial abuse at the hands of another individual.

Be on the lookout for sometimes-subtle changes in behavior, such as:

• Expressions of financial worry, particularly when there is little reason for such concerns


• Changes in long-established spending patterns


• Reference to a “new friend” who is helping on financial matters or who comes to the home


• Inability to pay bills that have formerly always been paid


• New secretiveness about finances


• Large withdrawals from checking, savings, retirement and/or brokerage accounts


• Mention of an investment that pays much higher rates of return than what is generally available in the market

Be alert, too, to the elder’s social or community activities that seem to be connected to investing in some way. Many seniors get caught up in affinity fraud, where they are induced to invest in a scam or Ponzi scheme because others from their religious community or social circle are also investing. And if your senior talks about going to a “free lunch” seminar, a red flag should appear. Often these events are thinly disguised high-pressure sales pitches, with the goal of getting the senior’s personal information as the next step to getting them into a totally unsuitable investment.

In my next installment I will focus on creating a preventive, proactive plan you and your family can use in caring for your senior loved ones.

Financial Planning for Women

CFP Board Consumer Advocate Offers Money Advice for Women

In the context of money advice women should ignore, CFP Board's Consumer Advocate Eleanor Blayney, CFP^® provides some valuable financial tips. In the past, consumers who purchased stock were advised to let it sit and grow. But today's experts say it is better to rebalance one's portfolio annually. Blayney notes that consumers often have a mixed investment portfolio, such as a 401(k) comprising stocks and bonds. Letting a portfolio sit allows riskier vehicles to grow faster. "You could be taking on more risk over time, which isn’t necessarily what you want as you get older,” Blayney says. With regard to income tax, Blayney says consumers should use tax software or talk to a professional to ensure that the amount of taxes they pay is close to what they actually owe. She also urges consumers to have sufficient medical insurance. "Medical debt is about not having the insurance you need and not having a reserve fund to cover you when you can’t work due to illness," Blayney explains. This makes it vital to always have medical insurance, even if it is a high-deductible policy that covers only catastrophic situations, and to continue it even in the case of unemployment. Blayney also believes it is important for people to invest in themselves rather than a bathroom renovation, for example. "Few of us live in a million-dollar home. So improving your ability to earn money through education or training is likely to be a better investment." She also says consumers should be careful about lending money, even to family members; be wary of giveaway offers; and use online banking services, checking in once a month.

Women's Inherent Traits Are Good for Investing

Teresa Mitchell, CFP^® says that women are naturally good at investing because of traits inherent in their gender. Women tend to have lower risk tolerance than men, meaning they are more eager to achieve their goals without too much risk or worry. This leads to a focus on the long-term and avoidance of unnecessary risks when making investment decisions, in turn helping them to better meet their financial goals. Women also tend to trade less often and be less beholden to the opinions and whims of the media and the masses. They allow time for their investments to grow naturally rather than switch over to the next big stock before their current investments have had time to flourish. Women also tend to have more diverse stock portfolios that draw upon a number of investments, rather than relying on a few investments. One problem that crops up with a multitude of investments is that more amateur investors do not fully understand the fees and other costs associated with their investments, meaning they might find themselves paying out more than they thought they would. In times like these, it is good for an investor to seek professional advice, and this is the final area where the female gender excels. Women investors are more likely to seek help from someone well versed in finances when they feel overwhelmed with their investments.

Financial Planning for Your Children

Help Your 'Boomerang' Kids Become Self-Sufficient

Many college graduates today find themselves moving back in with their parents. Part of the problem is the high cost of tuition saddling them with student loan debt, but few available jobs and low starting salaries combine to make it more difficult for new graduates to support themselves. Making matters worse, moving back home can lead to stress between parents and children, damaging their relationship. But if parents prepare, things can go more smoothly. Paul Markowich, CFP^® suggests that parents and adult children sign a contract stating the rules of the house. "Children will eventually sign a contract for renting an apartment,” he says. “This shouldn't be any different.” He notes that many parents also charge rent, which is a good idea because “a kid can get a loan for a house or a car, but parents can't get a loan for their retirement." Parents should not become “enablers” and give their kids too much money, as it may discourage them from ever leaving, he adds.

Teach Your Kids to Grow Up Wealthy

Teaching children about good financial practices in an increasingly online world that caters to instant gratification can be a daunting task, but Nancy Anderson, CFP^® offers three tips to help children grow into responsible, money-savvy adults. The first tip is to let children explore online games and services to learn about managing money. Several online games, including some sponsored by Visa and the National Football League, help children learn about finances from a young age, while smartphone apps like Easy Envelope let users track their expenditures. The second tip is to personalize financial lessons for your children. This can be done by giving your children a set budget to buy certain items, such as personal care products, and allowing them to keep any cash they have left over. This will encourage them to spend thriftily and look for deals rather than splurging on the most expensive items. The third tip is to allow your children to teach the financial lessons they have learned to someone else, perhaps one of their siblings, so that it sticks with them. Teaching someone how to do something is the best way to master any skill set, and having your children help someone else to better manage their money will cement the financial lessons you taught them.

Financial Planning for Your Life Now

Assess Your Finances, Create Some Financial Goals

Money experts say that in order to make a financial resolution stick in the new year, you must set a reasonable and actionable goal and then perform a thorough personal finance assessment. Karl Byrd, CFP^® says that to take an assessment, list on a sheet of paper all you own (your assets) and then all you owe (your liabilities). Subtracting liabilities from assets gives your net worth. Byrd recommends conducting this evaluation every year to help spot trends over time. Once your assets and liabilities are made clear, you can begin plotting your financial goals, as long as these goals are realistic and include scheduled, periodic evaluations. CFP Board Ambassador Dan Keady, CFP^® recommends selecting one or two financial areas to improve in, such as shoring up your retirement or saving more for your children's college, and make them the focus for the year. "If you pick five personal faults to work on at one time you are trying to apply a lot of effort to a lot of things which is very difficult," Keady says. "Pick one or two things and monitor the month-to-month progress." Byrd says every household needs an emergency fund that covers at least six months of expenses in order to cover unexpected events such as a job loss or an unforeseen illness. One aspect of managing retirement savings is keeping a close eye on investments. Byrd advises against focusing on the day-to-day fluctuations of the market. He suggests making a vow to create a long-term investment plan and stay current on major shifts in the macro and micro economy that could impact investments. In addition, he says people should review their market exposure as the year progresses, as well as examine what they are investing in and the rate of return on investments, to see if they align with retirement goals.

Manage Your Money Better in 2013

CFP Board Ambassador Dan Keady, CFP^® says there are several steps people can take to improve how they manage money. For instance, they can conduct a family meeting during which participants can assess how things were financially a year ago compared to this year. This can include retirement account balances, credit card debt, college savings, whether an emergency fund has been started or expanded, and whether money has been placed into a 401(k) or other tax-deferred plan. A good budget will be useful for monitoring spending, says Keady. "When people do this, they really find out where the money is going. That's step one. Then figure out your savings. Are you saving, say, 15 percent of after-tax take-home?" He also recommends that people review all their insurance policies to ensure they are receiving the appropriate coverage at the best rates. Consumers should also check the beneficiary on their life insurance and maintain a file of changes and endorsements that arrive through the year. If an emergency fund or savings is ample, it may make sense to go with higher deductibles on homeowner's or automobile insurance, he suggests. Keady advises starting with small financial goals and approaching other goals over time. This should include selecting a date on the calendar every month on which to review spending, and setting a timeframe and dollar amount for each goal. Spending time during a vacation to use online budgeting tools or meet with a financial advisor can also be useful.

Your New Year's Goal: Get in Financial Shape

John Fawaz, CFP^® says it is always important to be in good financial shape, and New Year’s resolutions are as good a time as any to get started. The first step is to create a budget in order to see exactly how one is spending one’s money. There are free smartphone apps that can help, or a simple notebook will do just as well for tracking expenses. After a month of tracking, the spending should be reviewed and areas of waste identified so that a sensible plan can be created. The next step is to create an annual net worth statement, which compares total liabilities with total assets. This is the true test of one’s financial health. And the final step is to write down specific goals so that there is a clear direction to follow and accountability for keeping to that path. Both short-term and long-term goals are beneficial, though they should be sensible and attainable.

Financial Planning for Your Retirement

Tips for Your Retirement

For the first time, Social Security statements became available online in 2012, and more than 1 million people have already downloaded them. Consumers can check their statement to ensure their earnings are accurately posted to their Social Security record and see how much they will receive from Social Security at various dates. The majority of baby boomers can claim the full amount of their earned Social Security starting at age 66. Individuals who sign up before age 66 will get a reduced payout, while those who delay claiming up until age 70 can increase their monthly payments. It is not necessary for a person to sign up for Social Security the year he or she officially retires. "You have some folks who, by default because they are going to retire, decide to take Social Security, and that's not always the smartest decision," observes Robert Oliver, CFP^®. "You get delayed retirement credits the longer you wait between ages 62 and 70. For most people, it makes sense to wait." As for Medicare, consumers can sign up for it starting three months before the month they turn 65, though three months after. Those who do not sign up during this time will see monthly premiums increase by 10 percent for each 12-month period they were eligible for Medicare Part B. "People really need to think about the cost of health insurance, especially if they are retiring from a company that has paid all their premiums," says Connie Brezik, CFP^®. "They might not realize how big a part of their budget that is going to be."

Make Wise Choices for Your Retirement in 2013

George Sisti, CFP^® says people should not invest in an asset because they think its price will go up. Rather, they should have a long-term focus on assets and align new assets with existing ones in their portfolio. He also believes the optimal way to save for retirement is not through picking stocks or correct market timing but by saving as much as possible and investing those savings in a low cost, tax efficient manner. This can include investing in a total stock market index fund that is more reliable than a single stock. Listening to stock market predictions is also not a good idea because no financial advisor can actually foretell what the stock market will do in the coming year, says Sisti. Similarly, few consumers are aware of their portfolio's rate of return and even fewer know how it compares to a portfolio of similar index funds. If an investment product appears complex or confusing, a consumer should get a second opinion from a financial professional who has no economic interest in the transaction. Sisti also advises consumers to spend sufficient time determining how to reach their financial goals. He asserts that the most important financial planning question is, "How large does my nest egg need to be so that I can retire at the time and in the lifestyle of my choosing?" Investing for retirement requires a high degree of expertise in specialized subjects, so it is important to look for competent advisors.

Evaluate Your Finances if You'll Be Retiring Soon

People who expect to retire soon will particularly benefit from making a year-end financial evaluation, says Byron W. Ellis, CFP^®. This includes finding out how much money is spent each month and creating a budget geared toward long-term needs. Once retired, it is essential for seniors to replace their paycheck with income from other sources. This calls for carefully looking at retirement account balances, lifestyle needs and wants, and major financial changes like the sale of a home. Consulting with a financial advisor and tax professional can facilitate the creation of a plan for managing a fixed income. It may become necessary for retirees to reallocate assets to more stable choices that will not fluctuate significantly with the market. If a will is not already in place, it should be drawn up in 2013, and an existing one should correspond with current wishes and be rechecked for beneficiary designations. It is important to discuss such plans with one's spouse and children, who should know where important documents can be found. Although having these conversations can be challenging, they will help curb the stress family members could potentially face in the future.

Hiring a CERTIFIED FINANCIAL PLANNER™ Professional

Carefully Choose Your CERTIFIED FINANCIAL PLANNER™ Professional

Financial experts say it is essential to select a financial advisor carefully because he or she will affect one's retirement security and other long-term financial goals. The first step a consumer needs to take is to determine what type of advisor is appropriate among the four types – registered representatives, financial planners, financial advisors and money managers. With regard to financial planners, it is important to limit potential selections to those who have earned the CERTIFIED FINANCIAL PLANNER™ professional, CPA/PFS or ChFC designation. The next step is to rule out advisors through a process of elimination based on suitable qualifications, such as whether the advisor has retirement planning expertise. It is also crucial to collect and compare data from multiple professionals in the areas of ethics, practices and results. Specifically, credentials should address such things as experience, education, certifications and association memberships; ethics should address compliance record, criminal record, licensing, registration and fiduciary status; and business practices should address track record, methods of compensation, expenses, types of reports and ongoing services. The Internet, including search engines like Google, can be used to evaluate financial advisors or their firms. Additionally, third-party content like newspaper and magazine articles that mention the advisor should be reviewed, and consumers can search advisors' names with keywords like "fines," "scams," "fraud," "lawsuits," "guilty," "suspensions," "FINRA" and "SEC," as well as check advisor and firm compliance records with FINRA and the U.S. Securities and Exchange Commission. After this thorough research, have a face-to-face interview and question-and-answer session, and check their references, asking about the length of the reference's relationship with the advisor, types of services, amount of assets, service quality and why they selected this advisor.

Tips on Selecting a CERTIFIED FINANCIAL PLANNER™ Professional

Roger Wohlner, CFP^® offers a few tips for people who are searching for a financial advisor. Wohlner notes that financial planners generally provide assistance for such issues as retirement planning, college savings, investments, insurance and estate planning, tax planning, and employee benefits and company stock, and adds that it pays to have a list and know what you are looking for. Your needs could be more specific, such as help managing company stock grants, or situational, such as an inheritance, and understanding what you are looking for will help you determine if a particular advisor is a good fit. You should understand how the advisor is compensated, and verify that the prospective advisor is not in regulatory trouble. Information about CERTIFIED FINANCIAL PLANNER™ professionals can be found on the CFP Board's website. Also, you should talk to the advisor to determine how often you will meet, what type of information will be provided, and if they have worked with clients in similar situations.

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