How to Protect Yourself When Investing in Annuities

How to Protect Yourself When Investing in Annuities

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Annuities may be attractive to investors for a variety of reasons, but one of the main benefits is usually their perceived security. In the wake of the 2008 financial crash, many investors have become skittish about the potential unpredictability of stocks and mutual funds, preferring to trade lower returns for the greater security of investments that come with guaranteed and predictable payouts. Annuities may be one such option, but they can have hidden risks and fees that unscrupulous brokers can exploit, particularly when dealing with elderly investors.

The Dangers of Surrender Fees

One way brokers can take advantage of less-savvy clients is by convincing them to purchase annuities that are inappropriate for their ages or situations. As people age, their need to be able to access their funds increases. For example, it would not be in the best interests of an 80-year-old investor to purchase an annuity that won’t mature for 20 years, as he or she may not live to see the return on the investment. If such an annuity is purchased and an urgent need for the funds arises, the annuity’s owner could pay an enormous surrender fee. Unscrupulous brokers have incentives to talk elderly investors into entering into these kinds of deals. The broker collects a commission at the time the purchase takes place, and then has the potential to collect again in the event the annuity’s purchaser has to pull the money out early.

Uninformed Investors: A Broker’s Cash Cow

A July 15, 2015 article in the Sandusky Register references a case reported in Kiplinger.com in which an elderly woman was repeatedly scammed by her broker. Time after time, he talked her into selling annuities she had previously purchased – each time paying a surrender fee – and buy new ones that would prevent her from accessing her funds until she was over 100 years old. The scam took place over more than five years, and when the victim surpassed the age of 90 – the maximum age for purchasing annuities in most cases – the broker secretly transferred her funds to other family members in order to continue engaging in his predatory tactics.

Get the Facts

There are often community resources aimed specifically at protecting seniors from compromising their financial security when targeted by crooked brokers and other predatory agents. No one should ever make an investment without knowing the details up front, but seniors should be particularly diligent. No matter how secure an investment sounds, be sure to check it out thoroughly with information from a trusted source before risking your financial security.

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