The first signs of elder financial abuse are easy to miss. Maybe there's a new, overeager "best friend" who gives off a strange vibe. Or excessive secrecy around an online lover. Paranoia or anger when talking about money can be a tipoff, too. Don't count on discovering sudden large withdrawals from savings or checking accounts. By then, it'll probably be too late.
A perfect storm of factors make America's elderly the target of a fast-growing, insidious crime. Americans are living longer, and with the shift from pensions and toward retirement savings, they face a dizzying array of complex choices about what to do with their money. Making matters worse, as each year passes, their cognitive abilities tend to decline while the stakes of their money decisions get higher. It's a recipe for disaster. Criminals always steal from where the money is, and scam artists always flock to wherever financial confusion can be found.
There's no central agency to compile elder fraud data, but the most oft-cited study, conducted by insurer MetLife, estimates that older Americans are cheated out of $2.9 billion annually. In another study, one in 20 older adults report being victimized by "financial mistreatment" at some point in the recent past. The crimes are often profound. The average loss is between $100,000 to $150,000 -- often, an entire lifetime of savings. And unlike the plight of swindled youth, who can work to rebuild their savings, there is no way for an elderly person to recover the lost money.
Americans are living longer -- the fastest-growing segment of the population is the over-85 set -- but aging still takes its toll. Decline in financial decision-making skills is a fact of life. About half the population between 80 and 89 years old either has dementia or a diagnosed cognitive impairment.
But the problems may begin much sooner than many realize. In a landmark paper called "The Age of Reason" authors Xavier Gabaix (NYU) and David Laibson (Harvard) found that the peak age for financial decision-making prowess -- when adults enjoy the best blend of experience and mental acuity -- is 53. After that age, financial literacy rates decline about 1 percent each year, according to later study.
Variations on a scam
There's a wide range of crimes older Americans face. Some are brazen crimes, such as the sweetheart scam, in which a lonely elderly person is seduced by a fake online lover into sending thousands of dollars to a criminal. Or the grandparent scam, when a criminal contacts an elderly person -- often through social media -- and claims a grandchild is in trouble overseas and needs money wired to some remote location immediately.
Perhaps more insidious are crimes -- or deceptions -- committed by family, friends or trusted advisors. In Georgia, a neighbor acting as a caregiver and her husband were indicted in 2012 for allegedly stealing $182,000 from an 80-year-old Air Force veteran suffering from dementia. The couple allegedly withdrew money from the victim's account and used it to pay for improvements on their own home, and to buy a boat.
Elder fraud can also involve professional financial advice ranging from ill-conceived to criminal. Stories of elderly Americans being placed into too-costly annuities or bad insurance products abound. Here's one: Ruth Alice Roach-Worak was in her 80s when Texas insurance agent John F. Langford talked her into buying $950,000 in phony "private annuities." He is serving a 15-year prison sentence; by the time authorities seized his assets, however, they could only return $35,765 to Roach-Worak.
The biggest challenge
While annuities have a bad reputation, they can be appropriate for certain investors. But they are usually the most complicated product an investing consumer will face during their lifetime, and many are forced to make decisions about them when they are least able to make good choices.
To make matters worse, research released this month confirms what those who would cheat older Americans often know implicitly: The elderly are often the last to know their mental capacity is slipping. Experts at the Center for Retirement Research at Boston College conducted an extensive study of elderly who were slowly losing their financial decision-making skills and found a common problem: Overconfidence. Like an aging driver loathe to surrender a license, the study found many older Americans fail to ask for help with money because they don't realize they need it.
"Participants who suffer cognitive decline experience a reduction in their financial literacy but no change in their confidence in managing their money," the study found.
That leaves children or other family members in the unenviable position of trying to wrest financial control from aging relatives who don't want the help.
Even if you don't have an older relative, this is your problem. There is a social cost: A report by the Utah Division of Aging and Adult Services in 2011 found that about one in 10 financial abuse victims will turn to Medicaid as a direct result of losing their own money to fraud.
"(These are) funds that could have been used to pay for basic needs such as housing, food, and medical care. Unfortunately, no one is immune to abuse, neglect, and exploitation," says the U.S. Department of Health and Human Services.
The problem has the potential to become more prevalent. In 2010, there were 5.8 million people aged 85 or older. By 2050, it is projected that there will be 19 million people aged 85 or older. By then, people age 65 and older are expected to comprise 20 percent of the total U.S. population.
Signs of elder abuse
The National Committee for the Prevention of Elder Abuse offers this detailed list of signs that someone might be suffering from elder abuse.
"Some of the indicators listed below can be explained by other causes or factors and no single indicator can be taken as conclusive proof," the agency cautions. "Rather, one should look for patterns or clusters of indicators that suggest a problem."
- Unpaid bills, eviction notices or notices to discontinue utilities
- Withdrawals from bank accounts or transfers between accounts that the older person cannot explain
- Bank statements and canceled checks no longer come to the home
- New "best friends"
- Legal documents, such as powers of attorney, which the older person didn't understand at the time he or she signed them
- Unusual activity in the older person's bank accounts including large, unexplained withdrawals, frequent transfers between accounts, or ATM withdrawals
- The care of the elder is not commensurate with the size of his/her estate
- A caregiver expresses excessive interest in the amount of money being spent on the older person
- Belongings or property are missing
- Suspicious signatures on checks or other documents
- Absence of documentation about financial arrangements
- Implausible explanations given about the elderly person's finances by the elder or the caregiver
- The elder is unaware of or does not understand financial arrangements that have been made for him or her.