Financial Red Flags and Scams to Watch Out For
The world of annuities and investments can be confusing, and unfortunately, some bad actors use this confusion to their advantage. Seniors are often the primary target of high-pressure sales tactics and misleading promises. Here are some critical red flags to be aware of.
1. The “Free Lunch” Investment Seminar
You may receive a postcard or see an ad for a free dinner at a nice restaurant, coupled with a financial seminar on “guaranteed retirement income” or “beating the market with no risk.” Be extremely cautious. These events are almost always a sales pitch for a specific product, usually a complex and high-commission annuity or an unsuitable investment. The goal is to create a sense of urgency and pressure you into making a quick decision without consulting an independent advisor. A legitimate financial professional will not need to offer a free meal to earn your business.
2. Hidden Fees and Long Surrender Periods
Annuities, particularly variable and fixed-indexed types, can be loaded with hidden fees. These can include administrative fees, mortality and expense charges, and fees for the underlying investment sub-accounts. These costs can eat away at your returns. Always ask for a full, written disclosure of every single fee. Furthermore, most annuities come with a “surrender period,” which can last anywhere from 5 to 15 years. If you need to withdraw more than a small percentage of your money during this period, you will be hit with a steep surrender charge, which can be 10% or more of the amount you withdraw. This lack of liquidity can be a major problem in an emergency.
3. Promises of High Returns with No Risk
This is a classic warning sign for both investment and annuity scams. In the world of finance, risk and reward are always connected. If someone promises you the high returns of the stock market with the “guaranteed safety” of a bank CD, they are not being truthful. Variable annuities can lose money. Indexed annuities have caps that limit your gains. And any private investment promising sky-high returns is likely fraudulent. Always remember the old saying: if it sounds too good to be true, it is. For trustworthy information, stick to official government sources. To protect yourself from scams and for consumer information, consult the Consumer Financial Protection Bureau (CFPB) and the FTC.
This section is part of our comprehensive guide to senior finance and retirement income strategies.
