Keep These Red Flags In Mind and Prevent Yourself From Falling Victim To an Annuity Scam

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By Jessica Nowak

For as long as investing has been around, people have been scammed into spending large amounts of their assets on products that are not suitable for their lifestyles. More specifically, charming brokers tend to convince elderly individuals to invest in annuities that end up being more costly than they are beneficial. Occasionally, annuities can be great investments, but they are not meant for everyone. When selling annuities, some brokers have their own best interests in mind, not yours. Brokers generally receive enormous commissions from the purchase of these products and leave out important facts in their description of the annuity, like the severe penalties for cashing out early. Most annuities that people get tricked into are long-term fixed rate or variable annuities, where the investor is required to hold onto the product for at least 10-15 years before the consequences for cashing out subside.

In order to save you from the headache that comes with being conned into an unsuitable investment, here are a few red flags to look out for:

  • Large fees for breaking the annuity earlier than 7 or 8 years from the date of signature.
  • “Today only” deals or the push for you to sign on the spot.
  • Annuities that last more than 7 years, especially if you are age 65 or older.
  • Large commission percentage for the broker.
  • High surrender fees.
  • Little to no interest earnings combined with severe cash out penalties.
  • The agent or broker requests that the check to be made out to his name, not the company’s name.
  • When the verbal terms don’t match the on paper terms of the contract.
  • Large yearly maintenance fees.

As you near retirement, you want to make sure that you invest in products that are suitable for your lifestyle, age, and future goals. Long-term annuities with large hidden fees and little growth are usually not the way to go for those who have retired. Make sure that you have a trusted friend, family member, or financial advisor review the contract before signing it. Brokers may set up shop in your local bank, grocery store, or even community center. Just because you trust the owners of the establishment does not mean you should trust the individual broker. Be aware that you are talking to someone who may not have your best interests in mind. For more tips on how to stay well informed on these types of scams, visit the FINRA website at http://www.finra.org/investors/early-retirement-seminars-101-smart-tips-spotting-retirement-scams.