Protecting and Managing the Financial Assets of the Elderly

Abstract

For some time we have lived in a world where the return on investment capital was the focus. Market conditions have changed dramatically, so that we must now focus on return of investment capital. What does this mean for the elderly? It means they need more guidance than ever. I am an investment advisor and manager and have worked with many clients who understood the markets. Invariably age takes its toll and this ability to understand diminishes over time. While individuals age at different rates, my experience has been that everyone over the age of 70 needs a financial advisor regardless of how astute he or she may be. The markets and the players in them have become too complicated for self-direction in all but the simplest situations. This article, in which to some degree I address older persons directly, considers the following topics: * The most critical financial decision right now * The inescapable investment equation * How to allocate investment assets * Scary stuff and things to avoid * The mechanics of day-to-day financial life for the elderly * How to select an investment advisor I have included a list of Web site resources at the end of the article. THE MOST CRITICAL FINANCIAL DECISION RIGHT NOW: SECURE THE CASH With financial markets in an unsettled state, the most critical task is to confirm that cash is held in a safe depository and in a safe investment. This is the single most important step for every investor, given current market conditions. Cash can be held at a bank, an investment firm, or a brokerage firm. Unfortunately, it is important that you keep accounts at two or more institutions. This will allow you the ability to continue to pay bills, and so forth, in the event that one institution fails. Bank Accounts While the FDIC (Federal Deposit Insurance Corporation) steps in quickly to secure bank deposits in the event of a failure, do not put all your eggs in one basket and risk disrupting your life and adding stress. Be acutely aware of the insurance coverage limits. For banks, the FDIC insures deposits up to $250,000 now through December 31, 2009. This covers all deposits totaling $250,000 (checking, CDs, etc.) of whatever type in a single banking institution under an individual name. Do not go over this limit in one bank regardless of how sound you may think it is. I recently spoke with Jack, a client, who was worried about his stock investments. As we talked, I remembered that he had sold a piece of real estate last year and received a large cash payment which he intended to invest in another piece of real estate. I asked him if he had found a property and shortly learned that he had not. He had the $500,000 on deposit in a local privately owned bank. This decision carries tremendous risk, as only $250,000 would be covered by insurance in the event of a bank failure. His bank deposit may be more risky than his stock investments. If your cash assets are such that they need to be spread across more than two institutions, you can simplify the process by investing in multiple bank CDs through one institution. Numerous banks and brokerage firms now offer CDs from multiple banks in one account. This is easier than physically traipsing from bank to bank, but you need to be comfortable that the single institution is financially sound. This may be hard to ascertain. At the end of 2009, the dollar limit of FDIC coverage may change again. Remember to pay attention to how this limit changes and adjust balances if needed. Also, if you have accounts in two banks that merge, you have six months to reduce your total, if needed. My client, Susan, recently asked what would happen if the FDIC exhausts its funds. The answer is that the government will give the FDIC more funds. Banks will continue to fail, so pay close attention to the insurance limits. Brokerage Accounts Cash may also be held in a brokerage account. …