Boomers Beware! Don’t Fall for These Retirement Savings Tricks

With ghosts and goblins about to hit the street, baby boomers beware!  Financial fraud is on the rise.  A Met Life survey estimates that seniors older than 60 have lost nearly $3 billion a year to financial abuse.  After working for decades to ensure financial security in retirement, that security can be threatened or eliminated overnight if we become victims of financial fraud or investment scams. Here is a look at what Melody Juge, RetireMentor for MarketWatch and founder and managing director of Life Income Management says are some of the biggest “tricks” boomers fall for when it comes to saving for retirement and how to avoid them;Boomer: Why do so many boomers get exposed to investment scams at retirement?Juge: There are two primary reasons for this: First, the sheer number of boomers pre-retirement, entering retirement or in retirement has created a larger pool for scammers to draw from. Second is the greed factor that con artists prey on.  The promise of an above average investment return with little to no risk can be very attractive to certain personalities. The appeal is often directed to those boomers that are uncomfortable confronting the reality of their actual “less than adequate” retirement resources. Creating a retirement plan and funding that plan with legitimate investments takes work, patience and the willingness to confront the reality of possibly having to adjust to a much reduced lifestyle or running out of money during the senior years.  For a generation obsessed with youth, excessive spending and material possessions, this can be a difficult transition.  Boomer: Is there a generalized scammer profile that boomers need to be aware of? Juge: Yes, much of the fraud is brought to this demographic through unregistered securities and unlicensed individuals posing as licensed investment advisors. Always check to see if the investment that is being offered is registered and if your investment advisor is licensed and has the appropriate industry affiliation with a reliable brokerage house.  If you are asked to write a check to an individual or a privately owned company, don’t.  This practice is against the standards of the Financial Regularity Authority. Make sure your check is written to a legitimate investment house or a legitimate clearing house.  Many a retiree could have been saved from financial devastation if only they had checked on the licensing of the individual offering the too-good-to-be-true investment opportunity. Here is an example of what I am referring to: Several years ago there was a scam exposed in the small town I reside in.  When I heard about this I was curious and did a bit of research and this is what I found: the primary targets of the scam were single women who were widowed or divorced.  The scammer was a charming fellow the women knew through their church.  He was trusted.  One at a time he wined and dined the ladies, paying each of them special attention with flowers and little gifts. Then he used each of them as a referral source for his new targets as his pool of unaware victims grew.  All the money involved in the scam came from checks which were written to the scammer personally as well as to his business.  He provided a fake investment statement to each victim on a quarterly basis.  He was not licensed and of course what he was offering was a non-registered product. When he was finally caught and the investigation concluded it was found that there were no investments.   The scammer simply used the money for his lavish lifestyle. He was prosecuted but the people involved were out the money they thought they had invested for their retirement.Boomer: What can boomers do to protect themselves from the trickery that may loom around the corner?Juge: Watch for warning signs such as; when you are told that you have to act quickly or you will lose the investment opportunity being presented. If there is a dramatic sense of urgency created for you to act, don’t.  Stop. Take the time to check out the investment. Check for a company’s website, make inquiries, check with the Better Business Bureau, and call the company to be sure they are legitimate.  Also, check the licensing of the person offering themselves up as an investment advisor or insurance agent. The Department of Insurance in your state has a registry of licensed insurance agents and their status.  A listing and status of licensed investment advisors along with their broker dealer affiliation can be found at FINRA under Broker Check. The more pressure that is placed on you to act, the quicker you need to remove yourself from the situation. Legitimate investment advisors will be patient with you and will encourage you to do your due diligence, they have nothing to hide.Boomer:  Are there specific things that set a boomer up for being a target for fraud?Juge: Yes, not understanding their risk profile. The key issues are lack of education, lack of a clearly defined retirement plan and being uncertain regarding their retirement risk profile. There are three basic phases of accruing money, the accumulation phase, the preservation phase and the distribution phase.  The risk profile of each phase is usually different with the risk factor reducing as one ages.  Education on what each of these phases represents and how to move through the process of creating a retirement plan is essential.  Your risk profile for pre-retirement and retirement age can be very different than the risk profile taken for the early years when the focus was on accumulation. Fraud can happen when a boomer, realizing that they may not have enough money to generate a decent retirement income, actually gets talked into an unregistered investment program that promises a high return and  low risk. It is an emotional reaction to the fear of being left destitute. Many years ago I was introduced to a couple who were panicked by the sudden loss of on-going income which was needed for them to retire. The husband had lost his job at 66 and was unable to find adequate compensation and another positon in his field, so they were forced to retire.  When they confronted the actual shortfall in their retirement savings, rather than creating a plan and addressing the idea of a reduced lifestyle they decided to invest their money with someone who guaranteed a 15% minimum return, with an average expected return of 21% year in and year out. This promise from the scammer came complete with charts and graphs. They relaxed and went on a lavish vacation and continued with their excessive lifestyle.  Three years into the so called, “dream investment” with the “charming and brilliant fellow” they were notified by the authorities that they were victims of a scam and their investment dollars had completely evaporated.   Boomer: Getting into investments that may sound too good to be true.Juge: The old adage is, “if it sounds too good to be true it probably is too good to be true.” Many things can fall into this category, even legitimate retirement income instruments such as annuities.  I have found that the very best approach to choosing the appropriate investment and insurance products for a boomer’s retirement income portfolio is to create the retirement plan first with the main emphasis being on: What are the results that you need and want for your income flow? When do you want the income flow to start? How much will you need to hold in your emergency expense fund?  Does there need to be an income flow to support long term care? Are there health issues that need to be planned for? The hype at product-specific annuity seminars can often cause havoc with a boomer’s retirement money. In the throes of the moment people have a tendency to hear what they want to hear, and perceive that there is a magical solution to their biggest concern of outliving their money. One of the most concerning transactions I see is an entire 401(k) being rolled into one annuity contract, with one insurance carrier, with no retirement plan to support the transaction and no attention to the limits of the State Guaranty Association in the state of purchase. This is how people get into trouble down the road when all their money is tied up in one contract  Annuities should never be bought when presented like a shiny penny that will solve all retirement income problems but rather they should be carefully chosen and strategically placed in a portfolio for specific reasons.