A Frank Discussion About Aging


Two recent developments have placed the financial status of older Americans in sharper focus.  One development was a report from trustees for Social Security and Medicare.  In 2020, Social Security revenue will be insufficient to pay benefits, requiring the fund to dip into its reserves for the first time since 1982.  By 2035, the reserves will be depleted unless steps are taken to shore up Social Security.  Beginning that year, according to projections, Social Security benefits would need to be reduced to the level of payroll tax receipts.  Medicare is expected to exhaust its reserves in 2026.

After the previous occasion when the Social Security Administration had to dip into reserves to pay benefits (1982), Congress and the President worked together to shore up the fund.  The payroll tax rate was increased, benefits became taxable to some recipients, and a program was put in place to gradually increase the eligibility age for full benefits.  The tax rate was raised a couple more times, most recently in 1990.  That was almost 30 years ago!

Among the many problems is that average life expectancy for a 65-year old has risen three years since the early 1980s while eligibility for full benefits has risen just one year.  Full retirement age is scheduled to rise another year over the next seven years and remain at 67 thereafter.  Demographics will make the problem even worse.  The majority of Baby Boomers (1946-1964) have yet to reach full retirement age.

I didn’t hear much about Social Security and Medicare in the recent political season, nor so far in the emerging 2020 presidential campaigns.  Time is ticking, but seniors shouldn’t be overly alarmed despite the deep political divisions that make the early 1980’s bipartisan plan seem impossible.  Both parties know that seniors vote, and that the monthly Social Security deposit represents an inviolable contract in the minds of seniors.  I hope the resolution won’t be too painful on we middle-aged people, but I’ll take the added longevity that produced the shortfall.

The second issue focusing attention on older Americans is that Fidelity recently sent out letters to all clients offering the chance to name a “trusted contact” in case they become incapacitated.  I was surprised that we received only a few phone calls and emails from clients.  These letters are part of a broader industry push promoted by the Financial Industry Regulatory Authority (or FINRA), the regulatory agency for brokerage firms like Fidelity.  FINRA requires brokerage firms to offer their customers the opportunity to designate a trusted contact.

Rising life expectancies mean that people are spending an increasing portion of their lives in the age range when diminished mental capacity is more common.  According to government health statistics, men born around 1900 were expected to live only 13 more years once they reached age 65.  For women, it was closer to 17 years.  Now, those figures are 18 (age 83) and almost 21 years (age 86), respectively.  Assuming retirement at age 65, Americans are spending 25%-40% more time in retirement than a couple generations ago.

While we as a society are much healthier than previous generations because of our increased knowledge of proper diet and exercise, the body still ages.  Older friends, relatives, and clients tell me that they don’t recover from physical setbacks like they did when they were younger and don’t recall facts as well as they used to.  Previous generations didn’t spend as much time in a diminished physical or mental state because they didn’t live as long.

Governments and regulatory agencies have tried to address the issue of financial abuse of the elderly.  Many states have offices to whom cases of suspected elder financial abuse can be reported, but usually after a crime may have occurred.  By contrast, “trusted contact” letters are a proactive step, encouraging account holders to designate a person they trust to be a liaison in case of diminished capacity in the future.  Fidelity won’t allow trusted contacts to have access to client funds; they are just people to contact in case Fidelity believes the client isn’t capable of acting on his/her own behalf, or if the client exhibits behavior suggesting potential exploitation.  In many cases, the trusted contact will be someone already known to Provident; completing the form formalizes our ability to talk to them if needed.

We support the concept of a trusted contact, but that doesn’t mean all clients need to rush out and complete the form.  Trust accounts typically provide for successor trustees to take over in case of incapacity and the powers of a trustee vastly outweigh the minimal rights granted to a trusted contact.  Jointly-titled accounts already have a presumed trusted contact, the joint accountholder.

Trusted contacts are particularly useful for accounts titled in a single name regardless of age.  We work with spouses on all accounts owned by the household, but Fidelity does not recognize anyone who isn’t established as an “owner” of the account unless they have been established as a trusted contact.

The time to set up a trusted contact is now, when you are healthy and alert and don’t think you need it.  Please contact us if you would like to add a trusted contact to the accounts we manage.

Scott D. Horsburgh, CFA