No one expects to fall victim to a financial scam, yet they happen with alarming frequency — and retirees are often in the crosshairs.
Nearly 1 in 5 Americans over 65 have been victimized by financial rip-offs, according to a 2016 study from the Investor Protection Trust, a nonprofit investor education organization. A 2015 study by True Link Financial, an investment advisory firm, indicates seniors lose $36 billion each year to elder financial abuse.
Investment swindles come in many forms, but no matter the methods, perpetrators have their eye on one thing: your retirement savings. Here are three signs of a swindle that could rob you of your nest egg.
1. Guaranteed returns
Investing is an inherently risky endeavor, even though many people would have you believe otherwise. Bernie Madoff’s firm sold clients on the investment dream: low risk and high returns. He didn’t mention he was running one of the largest Ponzi schemes in history.
Any investment that offers a sky-high guaranteed rate of return is likely trying to deceive you about the fees and risks you’ll encounter. While it’s always important for investors to be skeptical of new ventures, it’s especially vital when promises ring too good to be true.
Ponzi schemes are a criminal fraud, but some entirely legal investments also can be problematic. Take annuities, for example, which offer a series of fixed payments in exchange for money upfront from the purchaser. Many variable annuities have high expenses and implausible guarantees and don’t make sense for everyone — including low-income individuals and people who are very old or very rich. Yet annuities still are marketed to those groups.
Annuities also are very illiquid, meaning they can’t easily be converted to cash without incurring a big loss. Chris Schaefer, a certified financial planner and head of the retirement plan practice at MV Financial in Bethesda, Maryland, says annuities are one of the most problematic investments for his clients.
“Investors are promised high income with low risk, but we often have to correct someone’s expectations,” Schaefer says. “You have to do your due diligence to understand what the associated risk is.”