Certified Financial Planners: How Financial Planning Works

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Eleanor Blayney is the consumer advocate for CFP Board of Standards, a group that fosters professional standards among certified financial planners. A 20-year financial planning veteran, Blayney often writes for CFP Board of Standard's consumer website, Let's Make a Plan.

What's the number-one financial planning mistake that adults over age 75 tend to make?

Eleanor Blayney: There are several. One is being overly conservative with investments if their net worth is more than sufficient for their lifetime needs. Another is failing to prepare for out-of-pocket medical costs, which can be significant at this phase. A third is not understanding the impact of income recognition on their taxes and Medicare premiums.

But the number-one mistake is not adequately planning for death and the need for advanced care. Too often, older individuals assume that a will takes care of everything and may be relying on one that was drafted years ago and is no longer optimal for their personal circumstances or the current tax scenario. Along with updated wills and trusts, other planning documents are vitally important: powers of attorney (in the event that the individual physically or mentally cannot make his or her own decisions) and advanced care directives. These directives provide a trusted family member or friend with the authority to make medical decisions if the individual cannot, and specify what medical treatments and procedures the individual wants at the end of life. It's imperative that all these documents be reviewed frequently as an individual's health and family circumstances change. Decisions about end-of-life care can change as death becomes more of a reality, but if the planning documents do not reflect this, an individual might get expensive care he does not want -- or fail to get the care he does want.

What's your advice for a family caregiver who discovers too late that a parent with dementia hasn't put the right financial plans into action? It's a very common scenario.

EB: If dementia has advanced to the point where the individual truly cannot make financial or other decisions, in the judgment of a qualified physician, the family caregiver may need to take guardianship of the individual in order to manage his affairs. Generally, there are two types of guardianship:
1. Guardianship of the person, which involves making decisions about the personal care and living arrangements of the incapacitated individual
2. Legal guardianship, which involves making decisions about the property of the individual. This is a court-adjudicated process in which a bailiff serves the individual with notice that a guardianship has been requested.

What about a scenario where the aging parents don't want to discuss their finances with their adult children -- who don't have any idea what's going on but worry about it?

EB: This is a situation where an objective third-party advisor, such as a CFP professional, could be brought in to facilitate the discussion and emphasize the importance of intergenerational planning. He or she practices as a fiduciary and will ensure that everyone understands the basis of his or her advice, and that each person is heard. The CFP professional can defuse some of the emotionality of these discussions -- including the parents' fears that the adult children may want to "take over," and the children's fears that Mom and Dad may do something irrational or ill-advised with their money.

What are the top mistakes or errors or misjudgments that family caregivers have about finances -- theirs and loved ones'?

EB: One of the biggest mistakes made by caregivers is failure to meet their own financial (as well as physical and emotional) needs when they take on the care of a loved elder. This is particularly true of middle-aged women: The typical caretaker of an elderly family member is a woman aged 46. She may withdraw from the workplace or go part-time to avoid the costs of a third-party caretaker or due to the constant demands of personally caring for her relative. In doing so, she loses wages, benefits, Social Security credits, and the ability to contribute to a retirement plan. She loses workplace skills and experience, and if she goes back to work at a later date, she may find herself at a lower pay level than she had before.

Before making the decision to be the primary caretaker for her parents or relatives, she needs to fully understand the costs to her own financial security, and compare these to the costs of third-party care. She also needs to understand her relatives' resources: whether they can pay her to provide care, and whether this care is reimbursable under any available long-term coverage the relative may have. Too often, the decision to be the primary caretaker is made purely on an emotional basis, or out of a sense of family loyalty, without also considering the financial impacts to all involved. Again, speaking with a CFP professional can be very valuable in helping do this analysis.

How can family caregivers best safeguard older loved ones from financial abuse? Sometimes the predator isn't a stranger but another family member.

EB: Family caregivers should be on the lookout for various warning signs that financial abuse may be occurring. These may include:

  • New secretiveness about financial affairs
  • Large, unexplained withdrawals or transfers from accounts
  • Worry about money, where none existed before
  • Mention of a "new friend" who is helping with money and/or comes to visit the home

CFP Board has recently released a consumer guide, "Financial Self-Defense for Seniors," available at www.letsmakeaplan.org, which identifies ten of the most frequent forms of financial abuse of seniors by so-called professionals, and what families can do to prevent such abuse. The guide also provides links to resources that can help in cases where the abuse has already occurred.