As I was doing the usual first-of-the-year stuff at my small community bank - setting up astronomical lines of credit, filling my file with financial reports, etc. - when our conversation turned to the problem the bank president anticipates with elderly people rolling over CD's.
With current rates for a 1-year CD in the vicinity of 1.6%, savers who rely on that fixed income are getting pretty desperate. Too many, she worries, will opt to leave it in an interest-bearing checking account until something better comes along. Not only is that of course worse for earnings (about 0.6%, I think), it leaves the money way too accessible for her comfort.
She's not alone in that concern.
Mike Konczal today comes up with something which in and of itself is reason enough to set up a Consumer Financial Protection Agency: ageing boomers. As David Laibson notes,
the prevalence of dementia among Americans “explodes” after age 60, doubling every five years to more than 30% of the population over age 85.These individuals are sitting ducks for predatory financial-services professionals, and it’s entirely right and proper for the government to step in and stop such thievish firms from extracting huge chunks of elderly people’s life savings.
The fact is that choosing a financial advisor is just as hard as picking stocks, and it’s statistically inevitable that millions of cognitively-confused Americans will choose badly. That’s not really their fault, and the CFPA, among other institutions, should hold all financial advisors to a strict fiduciary obligation, cracking down hard on those who end up costing their clients large amounts of money. This is not a role that bank regulators can or should have, and I certainly have no faith in institutions like Finra to grow any teeth when it comes to such matters.
So let’s get a CFPA up and running soon: the rich are becoming old fast, and that’s a potentially explosive combination. [More]
To add to the danger, increased financial regulation is introducing new paperwork, which, while trying to protect both savers and borrowers adds another layer of explanation for the finance industry. All the time the general atmosphere of general distrust on conservative media (which is popular with older folks) provides a backdrop for bad decisions by the elderly with their money.
Other countries are struggling with the same problem of how to protect older citizens without infringing their rights - or at least too much. More information (transparency) doesn't appear so far to be a magic bullet.
A better example is the market for annuities. Unlike health care, providers can offer identical products; it is simply a series of payments made to the annuitant. If two insurers have the same credit rating, their probability of defaulting should also be identical. Thus the price they offer for a particular product should be roughly equal. This has traditionally not been the case.
In America this may be because so few people buy annuities; the market is very thin. In Britain people with private pension accounts are required to buy annuities, but there still exists a wide dispersion in annuity prices. To increase transparency the Financial Service Authority (FSA) website offers annuity estimates from highly-rated insures. I just checked the price of a life annuity with an inflation adjustment. I found a 22% difference in monthly pay-out, for the same premium, between the highest and lowest offer. That is a 22% difference in monthly income for the duration of a pensioners' retirement!
It could be that pensioners do not bother to check the website because they take the annuity offered by their pension provider. Providers sometimes offer a loyalty rate or facilitate the annuity purchase. Perhaps prices will converge as more people retire and receive more education. But so far the evidence suggests the benefit of transparent pricing is limited, particularly when insurance companies are involved. [More]
I'm afraid not simply questionable investment salespeople, but charities and advocacy groups will intensify their focus on our aging Boomers and their considerable wealth. The results will not be pretty.
This could impact farmland and elderly owners - both positively and negatively for farmers. Very old owners tend to be reluctant to make tenant changes, and frankly are often taken advantage of by operators. More than one career I have seen ended when a landowner death brought an end to an operation accustomed to obsolete (highly favorable) rental terms. And more than a few of us pray for landowners who hang in there until we are retirement age.
But at the same time, it does afford some scarce tenure security in highly competitive markets. I could also see farm management companies marketing as heavily into this group as financial advisers are doing for the elderly.
All the more reason to constantly work on deepening your personal as well as professional relationship with your landowners.
And to get our wealth in the control of a younger trusted brain while we can still think at 100% (or as close as we normally get).