Top 3 Investor Threats Retirees Face Today

Financial abuse is a fast-growing form of elder abuse that can range from investment scams to identity theft. The National Adult Protective Services Association (NAPSA) reports that financial abuse isn’t often talked about—only 1 out of 44 cases is actually reported—yet it appears to be happening everywhere. One out of 20 older adults admit to perceiving some form of financial mistreatment in the recent past, and 90 percent of victims are preyed upon by people they already know, including professionals with whom they have a trusting relationship.

The North American Securities Administration advises investors to be on the lookout. “An uninformed investor can be the best friend of a financial criminal.” Here are the top three financial products and practices identified as potential threats by the most recent NASAA annual survey.

THREAT #1 Promissory Notes

Promissory notes sound simple in theory. As a financial instrument, it’s basically a written note by one person or entity promising to pay a defined sum of money to another person, typically called the note’s payee. These notes often promise high-interest rates and given our low-yield environment, that can lure the unsuspecting investor who is living on a fixed income. Be extremely wary of short-term notes with a duration of nine months or less, promises of high returns in the double digits, and little-known (or perhaps even nonexistent!) companies or entities.

The Facts: Promissory notes were identified by 74 percent of state securities regulators as a leading source of investor complaints or investigations.

The Alternative: If you’re looking for another source of income with simple terms and no income rider fees, consider an immediate annuity. They can give you income for a set period of years, after which any money left over in the account would be paid out to your beneficiaries. Ask your question here.

THREAT #2 Real Estate Investments

If you’ve been invited to a seminar to hear testimonials about how people have doubled or even tripled their retirement income by doing something called “hard-money lending” or “property flipping”, then you may have been preyed upon by a real estate investment scam. A REIT, or real estate investment trust, is a company that owns or finances income-producing real estate, and these properties can be in a wide range of sectors. These investment opportunities are sometimes dangled in front of retirees as a better alternative to traditional retirement planning.

The Facts: State securities regulators reported 100 formal criminal investigations in 2016 involving REITs. Keep in mind that only 1 out of 44 financial crimes are actually reported, and these were the cases that resulted in enforcement actions.

The Alternative: Even if you don’t have a traditional pension, it’s still possible to do retirement planning to secure an income without relying on stocks and mutual funds. Here are the 5 Steps to Securing an Income.

THREAT #3 Variable Annuity Sales Practices

Variable annuities are often sold to investors as being the answer to everything because they have two components: the ability to invest in securities such as mutual funds, and the ability to provide an income stream. Because they are considered securities under federal law, they are typically sold by brokers, and the sales commissions for variable annuities are very high. They may not be suitable for someone during the later stages of retirement because the surrender periods are typically 10 years or more. Also, typically speaking, the longer the surrender period, the higher the commission.

Beware of any professional trying to convince you to buy a variable annuity inside your retirement plan, such as a 401(k) or an IRA, and especially if you own a 403(b). These types of plans already benefit from tax-deferred growth. If you are buying a variable annuity to grow your money for retirement, beware that the mutual funds inside a variable annuity come with additional restrictions and multiple fees. If you are 10 or fewer years away from retirement, be advised that variable annuities can lose money with the fluctuations of the stock market. They are also rarely (if ever) appropriate for 100 percent of your portfolio.

The Facts: Variable annuities are one of the most expensive types of annuities that you can own, and they come with high surrender fees for the first 10 or more years.

The Alternative: A fixed-indexed annuity also has a growth and income component but without the high fees. These annuities offer principal guarantees, so they may be a more secure way to invest without direct exposure to market risk. They may also offer higher income payment terms.

If you are worried about a family member who may be victim to one of these financial threats, we offer free retirement planning advice. Tell us your story here. To shop around and compare one type of annuity with another, head on over to our annuity review database. Or, better yet, have your annuity tested against another by contacting one of our retirement experts today. We’re happy to answer any annuity questions that you might have.

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