With $16 trillion in retirement accounts, baby boomers and their parents have become a prime target for scam artists who push overhyped investment returns, unsuitable annuities and Ponzi schemes. Kimberly Lankford, contributing editor of Kiplinger’s Personal Finance Magazine, shares tips that can help you avoid retirement rip-offs:
Ignore the hype
Be suspicious of any sales pitch that promises unrealistic returns. Anyone who guarantees annual returns of 12% or higher isn’t in the ballpark — that’s even higher than the long-term average return for large-company stocks, and much higher than guaranteed investments. Be particularly wary of claims that you can retire early based on those high returns — a common pitch salespeople use when they hear that a company is making early-retirement offers.
Be skeptical of ‘free lunch’ seminars
Salespeople often make their initial contact with seniors in “free lunch” seminars. But in a sweep of these types of seminars, the Securities and Exchange Commission found unethical business practices in nearly half. And don’t trust a salesperson just because he or she has a professional designation that focuses on seniors. Such credentials sometimes require little more than paying a fee and passing an easy take-home test.
Do background checks
Before doing business with a broker, check his or her background using the Financial Industry Regulatory Authority’s BrokerCheck tool at www.finra.org. Look for disciplinary actions taken against the broker, as well as red flags, such as if the broker has frequently changed firms. For insurance and annuities, check whether the agent is licensed with your state insurance department (see www.naic.org for links). And check on certified financial planners at the CFP Board of Standards (www.cfp.net).
Get investment information in writing
Maintain notes of conversations with salespeople about your investments and keep copies of broker mailings and sales presentation handouts. After speaking with a broker about your investment goals, ask him or her to summarize your discussion in writing. Ask the broker to rate an investment’s risk on a scale of one to 10 and put the answer in writing, too.
Ask about surrender charges and guarantees
Before buying an annuity, ask specifically about surrender charges and how much money you can withdraw each year. Many deferred annuities levy a surrender charge if you try to withdraw your money within the first seven to 10 years. Also ask about interest guarantees. Some annuities offer a bonus in the first year, after which the minimum guarantee drops to 2% or 3%. Ask for a written summary of everything you discuss with the salesperson.
Set up an account
To avoid falling prey to a Ponzi scheme, establish an account at an independent financial institution (typically a brokerage) to hold your money. Never write a check directly to an individual — only to the custodial institution, which must send you quarterly statements.
Don’t feel pressured
Consult with your adult children or another financial adviser before investing your money.
Ask regulators for help
If you have questions or discover that you or your parents have been sold an unsuitable investment, contact your state securities department (go to www.nasaa.org for links) or contact your state insurance department (www.naic.org) for complaints about unsuitable insurance or annuities.