Identity Theft in Retirement: How to Protect Yourself
In today’s information age, the threat of losing your livelihood and identity to hackers is both terrifying and real. For retirees saving and investing their entire lives, identity theft puts both their financial stability and security at risk. A breach could impact one’s income sources, tax returns, credit, and healthcare information.
Unfortunately, the recent National Public Data (NPD) breach in 2024 underscores just how vulnerable personal data can be, exposing 272 million tax ID numbers, along with names and addresses, to potential fraudsters. Beyond just awareness, this risk calls for proactive protection strategies to safeguard your savings and prevent fraud before it happens. Fortunately, financial advisors and modern monitoring tools can help you stay vigilant and protect your hard-earned assets.
In this article, we’ll break down how identity theft can affect your retirement plan, as well as proactive measures you can take now to protect yourself. This includes commentary from Kevin Knull, CFP®, president of TaxStatus, who breaks down the gravity of the recent threat and strategies to secure your livelihood.
Understanding the 2024 NPD Breach
In early 2024, 272 million tax ID numbers were stolen from NPD, a company that regularly conducts employee background checks. According to Knull, “The NPD breach should concern everyone” due to the “sheer number of TINs exposed along with names, addresses, and phone numbers.” The hack also caused NPD to have “inadvertently shared passwords to its internal systems, allowing hackers to gain access to volumes of sensitive taxpayer data,” he adds.
One of the important consequences of the NPD event “is the heightened risk of fraudulent tax filings,” says Knull. When tax ID numbers are stolen, criminals can “submit fake returns early in the tax season,” allowing them to take your refund at will. “Imagine a fraudster submitting a fraudulent return on January 2, 2025, while your client, who typically files on the extension date, submits their return on October 15, 2025,” explains Knull.
As mentioned earlier, the NPD breach, along with others, underscores the need for vigilance and proactive measures to protect yourself from identity theft. The unfortunate reality is that today, cybercriminals are a persistent threat.
How Identity Theft Can Affect Retirees
Identity theft, while damaging to anybody’s financial health, can be especially problematic for retirees. At this stage, you likely rely heavily on fixed-income sources and life savings in tax-advantaged accounts to boost your income. A breach could impede your access to those funds either temporarily or permanently (if a hacker steals it) and impact your tax filings and other crucial records.
Below are specific ways an identity theft can impact your life as a retiree:
1. Retirement Savings and Income
Identity theft can impact both your retirement savings and income sources. With access to vital information, such as your Social Security number, criminals can gain access to your bank accounts where your cash and investments are held. As a retiree, this can result in a significant portion of your income and assets being in limbo or, potentially, gone completely.
2. Delayed or Denied Tax Refunds
As financial expert Kevin Knull underscores, criminals can illegally claim your tax refund by exploiting your tax ID number. With this information, they may file a return in your name well before you do, taking what’s rightfully yours. If you’re relying on a tax refund to supplement your income, this can be a major blow to your financial security.
3. Credit and Loan Issues
Hackers with access to sensitive personal information can take out loans or make unauthorized purchases in your name. You may especially be a target if you’re a high-net-worth individual, where smaller transactions can often go unnoticed. This type of fraud, unfortunately, can be quite damaging to your credit and hinder your ability to obtain loans in the future.
4. Healthcare Fraud
Getting prompt healthcare is crucial as you get older. However, identity theft can produce changes to important records or result in misuse of Medicare or private insurance. These issues may result in denial of care when you need it most, as well as fraudulent charges or claims that can impact your credit.
5. Risk of Additional Financial Exploitation
When events like the NPD Breach happen, other crucial personal information, such as your name, address, or phone number can get into the hands of scammers. This increases your risk for scams and phishing attempts, which many can fall victim to. For example, a hacker might text or email you directly to get your Social Security number, birthday, or other vital details.
6. Mental and Emotional Impacts
Beyond the damage to your financial health, dealing with identity theft can be emotionally taxing. Recovering accounts, losing money, and having someone disrupt your life can take valuable time and energy you’d rather spend enjoying your retirement.
Proactive Measures Retirees Can Take
Despite the threats identity theft causes, there are many steps you can take now to shield yourself from risk. Acting before any fraud occurs, especially after a major data leak, can both give you stronger peace of mind and protection against criminals. Here are several proactive measures you can take:
1. File Tax Returns Early
One of the most important actions you can take is filing your tax returns as early as possible. By doing so, you give thieves less of an opportunity to fraudulently claim your refund if they have access to your tax ID number. As soon as you receive your tax documents, such as your W2, it’s wise to move toward finalizing your documents for the year.
2. Improve Your Online Security
Online mindfulness is important. Knull recommends using “unique, complex passwords and enable multi-factor authentication wherever possible.” He adds that this “can help prevent unauthorized access to sensitive financial information.”
In addition to securing your passwords, the U.S. Internal Revenue Service (IRS) offers its IP PIN system. This adds extra security by preventing crooks from “filing false returns under a taxpayer’s Social Security number,” describes Knull.
3. Freeze Your Credit
Because identity theft can impact your credit, it can be smart to freeze it when it’s not in use. This prevents hackers from opening new lines of credit in your name. You can do so through a credit bureau, such as TransUnion or Equifax.
4. Regularly Review Financial Accounts
Vigilance is one of the key habits you can employ to prevent fraud. This includes making it a constant habit to review your financial accounts for unauthorized or unrecognized transactions. If you notice anything, it’s important to take swift action, such as contacting the lender.
5. Hire a Financial Advisor or CPA
Protecting yourself against identity theft can be a tall task, especially if you’re busy or feel overwhelmed by the fine details of your finances. For this reason, it can be greatly beneficial to hire a professional, such as a financial advisor or certified public account (CPA) to help you. They are able to help you monitor your financial accounts, review and file documents promptly, and educate you on the best practices for preventing fraud.
If you’re working with a professional, Knull recommends asking them “how they can help monitor your tax account with the IRS.” Additionally, he explains that tools “such as TaxStatus.com” are “helping more and more financial and accounting professionals serve as another line of defense for their clients.”
6. Learn About Common Scams
Another important way to avoid falling victim to identity theft is by knowing what common scams look like. Doing your research on phishing scams, either via email or phone, can prevent you from accidentally sending sensitive information, such as a security question answer or your Social Security number.
Many of the most common scams, for instance, occur on social media platforms, like Facebook. Accounts that pose as family and friends asking for money or your information are frequent. You may also see innocent-looking posts asking a simple question, such as “What was your first car?” or “What high school did you attend?” These often exist to gain answers to security questions for your financial accounts and should be avoided if you can help it. Before posting or replying to messages, stay mindful of the information you volunteer and consider who might be able to access it once you hit send.
Phone scams asking for personal information are also prevalent. Be aware that the IRS does not contact you by phone to ask for personal information or payment. The organization’s standard is to reach you by physical mail first before attempting other methods, such as in-person. If in doubt, hang up the phone and call back using the number on IRS.gov.
Bottom Line and How to Stay Vigilant
The reality, as the NPD Breach displays, is that identity theft is a rampant and ongoing problem, especially if you’re a retiree who relies on fixed income and your life savings. However, by being intentional and vigilant in your preparation against criminal activity, you can shield yourself from potential risks.
The key, however, is not to wait until disaster strikes. Rather, the time to act is now, such as by hiring a financial advisor or improving your online security measures. With the right habits and strategies, you can gain valuable peace of mind and protect what you’ve spent your life building.
Original Article: Canonica, Sean. “Identity Theft in Retirement: How to Protect Yourself.” Comparison Adviser, 11 Nov. 2024