Older Americans

Last week, I got my 401(k) plan fee disclosure notice in the mail. I almost threw it away.

At first, it looked like all of those form notices you get – you know, the ones with the window envelope and “US Postage Paid” in the top right-hand corner. Not the most exciting-looking mail.

So, why am I telling you?

Because I work for the Bureau’s Office of Financial Protection for Older Americans, and because I’m an older American learning through my own experiences. A big part of our mission is to help people understand how to plan and save for retirement.

What’s a 401(k)?
A 401(k) account helps you to save for retirement by making contributions from your paycheck. In some plans, your employer also makes contributions. In many cases, participants choose from among the investment options available through the plan. The money saved in a 401(k) account, and the growth in the account, isn’t taxed until you retire. This tax deferment helps your retirement savings grow faster.

While everyone with a 401(k) plan pays fees, an AARP survey found that over 70 percent of people with a 401(k) thought that they weren’t paying any fees at all.

Possible fees include investment fees for the funds, stocks, bonds and other investments you choose, individual service fees for things like taking out a loan from the plan or selling shares in a particular investment fund, administrative fees and more.

That’s where last week’s mail comes in. Under a new rule from the Department of Labor, everyone with a 401(k) must receive an annual disclosure about fees. Many have received them already and more will get them in the mail around Labor Day. To see how fees can affect your retirement savings, check out this video:

How will this new information help me?
The disclosure will tell you the fees and expenses for the investment options your plan offers and how those investment funds have performed over time. You can use the statement to compare your options.

What can I do to get a better deal?
If you think the fees in your 401(k) plan are too high, you can ask your employer to find more cost-effective investment options or plan services.

What else do I need to know?
Remember that fees are not the only factor in choosing 401(k) investments. Your plan may offer access to professional investment advice. If you’re thinking about rolling over your 401(k) savings into an IRA, consider that IRAs have fees, too, and those fees could be higher than your 401(k) plan fees.

To learn more, the Department of Labor offers resources that cover what you should know about your retirement plan.

And of course, I’ll be there learning with you along the way.

Since we launched on July 21st 2011, we’ve heard directly from consumers about the challenges they face in the marketplace, brought their concerns to the attention of financial institutions, and helped address their complaints. Accepting, resolving, and analyzing consumer complaints is an integral part of our work.

This week, we’ll be featuring stories from consumers who we have helped, and who have agreed to let the CFPB make their stories public.

Greg, a 39-year-old insurance adjuster from Michigan, whose credit rating was damaged after a bank failed to tell him that an account with which he was associated was in arrears.

Greg added his name to his 71-year-old mother’s checking account after he helped her move into an assisted living facility. Six months passed without Greg getting any statements or hearing from the bank. Little did he know, however, that his mother had written a check and the account was racking up big fees because its balance had fallen below zero. He found out about it when he checked his credit report and saw that he owed a collection agency $469.

Greg paid the bill but his credit was harmed and he says the bank wouldn’t help. After the CFPB got involved, the bank apologized for their error, called off the debt collector, and had Greg’s negative credit record removed.

Learn more

To see more about how we handle consumer complaints, read our Consumer Response Snapshot and to see all credit card complaints, visit our consumer complaint database.

Today, we released a Report to Congress on reverse mortgages. http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf

The Dodd-Frank Act, which created the CFPB, specifically recognized the unique financial needs of older Americans. Our Office of Older Americans is dedicated to protecting this population. In that effort we have taken a special look at one financial product only sold to them: reverse mortgages. Today’s report presents the findings of that study.

A reverse mortgage is a special type of home loan that allows older homeowners to access the equity they have built up in their homes now, and defer payment of the loan until they pass away, sell, or move out of the home. Reverse mortgages require no monthly mortgage payments, but borrowers are still responsible for property taxes and homeowner’s insurance.

Our study finds that reverse mortgages are complex products that are difficult for consumers to understand. Borrowers are also increasingly using reverse mortgages in ways that are different from what was intended. Nearly half of recent borrowers were in their 60s, and nearly 3 out of 4 borrowers took all of their money upfront in a lump sum. The Bureau is concerned that these borrowers will have fewer resources to pay for everyday and major expenses later in life.

Deceptive marketing is a long-standing problem in this market, with many older Americans receiving solicitations implying that a reverse mortgage is a government benefit rather than a loan. Prospective borrowers are required to attend counseling, but these deceptive advertisements and an increased array of product options make the counselor’s job very difficult.

We have submitted a Notice and Request for Information to gather public input on follow-up questions about reverse mortgages. We are seeking feedback on the factors most important to consumers when they are considering a reverse mortgage, the way consumers use reverse mortgage proceeds, the longer-term outcomes of reverse mortgage borrowers, and certain practices that may differ depending on the type of business that is offering the reverse mortgage . Sign up for our email list and we’ll notify you when the comment period opens. You can view the Request for Information here

Additionally, our Office of Older Americans released a 4-page consumer guide to reverse mortgages and a new and improved set of answers to common reverse mortgages questions on Ask CFPB. We’re also taking complaints on reverse mortgages through our complaint system.

It can be hard to picture yourself older – but doing just that can spur you to plan for your later years.

Take one Stanford study, for example. First, researchers showed students what they would look like at 60. Then, they asked: “If you had $1,000, how much would you save for retirement?”

Those who saw pictures of their older selves said they would save twice as much as those who didn’t.

Just as it’s important to save money for our future selves, it’s also important to plan for the possibility of an older self who can no longer handle her own finances.

In addition to physical changes that occur with age, many people experience cognitive decline, developing Alzheimer’s disease or another form of dementia. In the United States, 22 percent of people age 71 and above have mild cognitive impairment. Once we get into our 80s, our rate of cognitive impairment increases markedly.

As our cognitive abilities decline, so do our financial abilities. A Boston College study showed that we peak at about 53 – after that our financial ability goes steadily downhill. (When I presented on this topic at a recent forum on retirement in Atlanta, I laughed with the audience members who, like me, found themselves on the wrong side of that equation!)

These statistics illustrate exactly why it is important to think about your money and your older self now: when your abilities decline, you’ll need someone to help you handle your finances.

Finding the right person to help you with your money is particularly important because as your abilities decline, you become more vulnerable to frauds, scams, and other kinds of financial exploitation. If you find a trustworthy financial helper, not only will you have someone to help you with your money, but also someone who can help protect you from exploitation by others.

One thing that people are doing to plan for their financial futures is creating a power of attorney for finances. A power of attorney (POA) is a legal document that allows you to designate someone else to act on your behalf – your agent. Creating this legal document is a private way to appoint a substitute financial decision-maker. It’s relatively inexpensive, although you may want to seek help from a lawyer.

If you don’t create a POA before your decision-making ability declines, a friend or family member might have to go to court to have a guardian appointed – often a lengthy, expensive, and uncomfortably public process. Acting now makes it easier on family members later.

Getting a power of attorney does involve some risk. It gives someone else – your agent – a great deal of authority over your finances without regular oversight, which can lead to abuse. Your agent might pressure you for authority that you do not want to grant. Your agent may spend your money on himself rather than for your benefit. Your agent might do things you didn’t authorize him to do – for example, make gifts or change beneficiaries on insurance policies or retirement plans. Also, sometimes scammers forge powers of attorney and use them to take other people’s money.

What are some ways to minimize these risks? You should trust, but verify. Only appoint someone in whom you really have confidence and make sure they know your wishes and preferences. You can also require in your power of attorney document that your agent regularly report to another person on the financial transactions he or she makes on your behalf. Another strategy is to tell other friends, family members, and financial advisers about your power of attorney arrangement so they can look out for you. And remember that power of attorney designations are not written in stone – you can always change or cancel your power of attorney if you decide that your agent is no longer the best person to handle your finances.

Finally, beware of someone who wants to help you out by handling your finances and be your new “best friend.” If an offer of help seems too good to be true, it probably is.

Naomi Karp is a policy analyst in the CFPB’s Office for Older Americans

We took an important step today towards looking out for older American consumers. Director Richard Cordray announced a public inquiry to learn more about the many ways in which older Americans are financially exploited and about the best practices for elder financial management.

Congress gave my Office for Older Americans a broad mandate to look out for the consumer financial interests of older Americans. As part of that work, we are keenly focused on the important issue of financial abuse and exploitation of the elderly. According to a recent study, seniors lost at least $2.9 billion to financial exploitation in 2010. Unfortunately, it is a growing trend. From 2008 to 2010, there was a 12 percent increase in the amount of money scammed from seniors.

The CFPB wants to hear from the public – especially people working directly with seniors – about these issues. In particular, we want input on how seniors can best determine the legitimacy of the credentials of financial planners and advisors. We’re also seeking information on what financial education, counseling or management programs are tailored to the unique needs of older Americans, their families, and their caregivers. We want to know what programs exist and and how effective they are.

We are looking out for our senior veterans, too. The Bureau wants feedback on what specific types of fraudulent, unfair, abusive, or deceptive practices target older veterans or military retirees. We know that Veterans Affairs “Aid and Attendance” benefits exploitation and military pension buyout schemes are being used in ways that can put veterans’ assets and pensions at risk. We want to learn more so we can better help older veterans and military retirees protect themselves.

The information we gather will benefit senior consumers in many ways. As my Office conducts its research on certifications and designations of senior financial advisors, the information we hope to gather here will give us a better picture of what is happening in the marketplace. With that information we can let seniors know where to look for fair and sound advice from reliable resources. Then they can make their own informed choices.

We want our inquiry to be as complete as possible and we need your input. The information gathered from this Request for Information will help guide future work for the Bureau and my office. We want to help seniors avoid fraud and make good, responsible decisions when they make financial choices. So please let us know about your experiences, good and bad.

We look forward to hearing from you.

Last week, I was back in Florida. Stetson University’s College of Law invited me to speak at its annual Elder Consumer Protection Law Day. It was a beautiful day in Tampa Bay!

I started the day with an early morning “Think Tank” breakfast – a meeting of regional leaders coming together to discuss ideas and share approaches on the issue of elder consumer protection. This meeting brought together area elder advocacy leaders, elder law attorneys, regulators, prosecutors, and local and federal law enforcement. I described our work here at the CFPB and learned from them about the increasing number and frequency of scams and frauds which target older Americans. I learned about the excellent multidisciplinary work by – and cooperation between – many elder fraud teams in Pinellas and Hillsborough Counties, and others, in the Tampa area. Our conversation produced the promise of an annual Think Tank on Elder Consumer Law Day.

I then toured Stetson’s Eleazer Elder Courtroom, a specially designed courtroom for older advocates, judges and witnesses. Some of these design elements featured deadened background noise to make it easier to hear, better screens to make it easier to see exhibits, and a new podium and doors to make it easier for wheelchair-bound advocates and witnesses to move around the courtroom. Most of these accommodations are invisible. They would be a big help in every courtroom for every advocate and witness.

As we all know, raising awareness about the frauds and scams facing older Americans is key to my work. I gave a local TV interview you can see on the Tampa Bay Tribune’s website. (I also have some consumer advice that will be available on the Stetson University Law School website.)

My favorite part of the day was speaking to an audience of over 150 seniors who had come for Consumer Protection Law Day. I described what the CFPB is doing on their behalf, and the work of my office, in particular. Our lively question and answer period continued long after my remarks. I listened to many stories about the epidemic rise in identity theft of seniors’ personal information. This serious concern has many seniors worried about the effect of identity theft on their credit rating, their credit card accounts and their income tax refunds. I brought their concerns back to the Bureau for a further look.

I also visited with over 40 exhibitors at the event, who provided important sources of information for seniors. In addition to handouts, seniors received important services including on-site secure document shredding drop-off, registration with the do-not-call/opt-out registration, and free annual credit report services.

This meeting gave me a wonderful opportunity to learn directly from seniors about how they are faring in this economy. It also gave me a chance to learn what the law school is doing to create courses to for young lawyers to concentrate in the area of elder law. As our senior population continues to grow over the next 20 years, this work will become more and more important.

Thank you, Stetson!