Beginning earlier this year, Social Security made it mandatory to receive payments electronically.
One result has been an increase in the number of people living in retirement who are paying their banks significant overdraft payments because they can't manage their accounts, according to a report from the nonprofit Center for Responsible Lending.
The center blames exorbitant overdraft fees charged by banks. In a report on the problem, the center's attorney Rebecca Borne points to a woman living on $1,200 a month in Social Security who was charged a total of $448 in overdraft fees over the course of two months. Borne concludes that this woman would have been far better off if she had declined the bank's overdraft "protection" because two of the transactions would have been immediately refused, lowering the penalties to $242. "Consumers have the right to opt out of this extremely high cost product, even customers who have opted in after they have been persuaded by aggressive marketing," Borne says.
While Social Security prevents lenders from garnishing Social Security (except for student loan and child support payments), it doesn't prevent banks from taking money from recipients' accounts to pay overdraft fees, Borne says. In fact, she believes banks have actually identified these vulnerable customers as potential sources of profit. "I think that banks are going to great lengths to maximize overdraft revenue, and they prey on those who have trouble coping and make their situation worse," she says.
Nobody's retirement planning can withstand this kind of fiscal onslaught. If it happens to you once, don't let it happen a second time. The obvious solution is to closely monitor your spending, taking out enough money to pay incidentals with cash, ensuring that there is enough money in the account to cover the bills you must pay directly from it.
As my mother used to say, "Fool me once, shame on you. Fool me twice, shame on me."