Elder Care: Get Advice on How to Secure Seniors' Finances

Mellody Hobson gives advice on how to handle the finances of elders.

June 25, 2007 — -- Sonia Tanner was shocked when she discovered that her 73-year-old mother gave away $300,000 to strangers who claimed she had won millions and simply needed to pay the taxes in order to collect the cash prize.

"My mom is a very, very strong, financially capable woman and has been all her life," Tanner said. "In my wildest dreams I would never imagine her to fall victim to a scam of this kind -- never."

Her mother's life savings was wiped out.

"There are a comb of reasons why people are vulnerable," said AARP CEO Thomas Nelson. "Part of it is sometimes loneliness just having that interaction with other folks, people who are doing this telescam become a good friend."

It started with mailings and requests for small sums. Later, phone calls came -- four and five a day. The scammers knew her schedule, her accounts and even the very personal details of her life -- so much so that she'd end her conversations with them by saying, "I love you."

Finally, the bank called Tanner. Her mother was trying to take out a home equity loan for $180,000, and the bank said she looked desperate.

"I was very very angry and tried to get the money back, and worked with the DA, the police, homeland security, and then I go through guilt -- a lot of it," Tanner said. She said she felt guilty and wondered what she could have done to prevent it all.

Unfortunately, as in Tanner's case, the elderly are at great risk for financial scams. ABC News personal finance contributor Mellody Hobson answered questions and offered advice for seniors looking to protect their money.

What advice do you have for seniors to help avoid this from happening to them?

Hobson: According to the Federal Trade Commission, 80 percent of the victims of telemarketing scams are over the age of 65. Under no circumstances should you ever respond to a phone call or e-mail with any personal information. It is a good rule of thumb to ask for the caller's phone number and tell them you will call them back. Never respond to any solicitation that asks for a quid pro pro -- basically, for you to give them something in return for something. Legitimate financial organizations never operate this way.

When it comes to helping to pay for your elderly parents' expenses, should you spend down your assets before tapping into theirs?

Hobson: Generally speaking, you should do everything possible to avoid tapping into your own retirement savings in an effort to defray your parents' costs. I cannot stress this enough -- you need to make your own retirement savings a priority. If you are not saving for yourself, it will create a vicious cycle for your family, continually shifting the burden to your children and their children and so on. As I have said before, there are no scholarships for retirement.

So, are there other ways besides tapping into your own savings to help pay for your parents' retirement and health care needs?

Hobson: Yes. If your employer or your spouse's employer offers a dependent care or flexible spending account, you should sign up immediately. These accounts allow you to defer up to $5,000 in pretax dollars -- meaning your taxable income is lowered by the amount you contribute -- to put toward the costs of care for a child or other qualifying person. An elderly parent would qualify if they were physically or mentally unable to care for themselves and if they met certain other criteria similar to those for the dependent care credit.

You also say the Internal Revenue Service can actually help with elderly care?

Hobson: They do, but it can get a little tricky. But, depending on your income and the income of your parent, the IRS can actually provide some financial relief. If you are caring for an elderly parent and you declare them as your dependent -- much like would any child who is living in your house -- you could receive a credit for $3,300.

Additionally, the IRS allows you to deduct medical expenses you make toward your parents' care as well as the cost for a caregiver. Again, there are a number of restrictions, so the best thing to do is go on the IRS Web site to learn more about the qualifications.

How about your parents? Do you have advice for them on resources they can use to support their retirement?

Hobson: Their first line of defense is Medicare, which is health insurance provided by the federal government to people who are 65 years and older, as well as some younger people with disabilities or kidney failure.

To qualify for basic Medicare coverage with no premiums -- also known as Medicare A -- a beneficiary or his/her spouse must have worked and paid Medicare taxes for a minimum of 10 years. Medicare A provides coverage for certain expenses related to limited stays in nursing homes, home health agency care and hospice care. Although Medicare will not pay for stays in assisted-living facilities, it may cover the costs of some services -- including home health care and doctors' visits -- provided in these facilities.

Hobson: After personal savings are exhausted, many seniors qualify for Medicaid. Jointly funded by the federal and state governments, Medicaid provides health insurance to those who are low-income as well as those who are 65 years and older, disabled or eligible for other government aid.

Medicaid offers Medicare beneficiaries assistance with their out-of-pocket expenses and also covers the costs of prescription drugs, eyeglasses and hearing aids, as well as other services not covered by Medicare. A key benefit of Medicaid is that nursing home benefits outlast those offered by Medicare which end after the first 100 days in each benefit period.

Outside of Medicare and Medicaid, are there other safety nets to help retirees?

Hobson: Yes, many seniors are sitting on an asset that can be a significant retirement lifeline -- their homes. If your parents own a home, it can be an important asset to help them cover their costs by either selling the home outright or applying for a reverse mortgage.

Reverse mortgages let you tap into home equity and repay the loan with proceeds from the eventual sale of the property. The greatest appeal of a reverse mortgage is that you can be guaranteed a source of monthly income for as long as you need it. The downside is that by tapping into your home equity, you reduce the amount of money you leave to your heirs upon your death -- this downside is minimized, though, if it enables seniors to continue to support themselves without having to financially rely upon their children.

Finally, can you give us some advice on how to approach the conversation with your parents about taking over their finances?

Hobson: This is a very hard conversation -- much like the discussion many people have with their elderly parents about driving. The best way to approach this is as open and straightforward as possible -- the harsh reality is that not knowing about your parents' assets could cost you and them financially. It is key that you know the location of all of your parents' accounts as well as their assets and debts.

Often the most difficult financial decisions are made at a time when there is great personal loss or crisis -- not the time to try to get your arms around the finances. So have this conversation now.