You need to be. Because there's a blurred line between a product that will nicely flesh out your portfolio, and something that will bleed you dry but earn the broker, or vendor a handsome commission fee.
Just how greedy are the vultures? You decide. The commission on an annuity worth $200,000 can earn the seller a whopping $24,000. For that kind of money you can be sure that a goodly number of unscrupulous vendors have dollar signs in their eyes, and they don't much care just whose lives they make miserable in the process.
And seniors make tempting targets. Take the case of Virginia LaValley, from Boynton Beach, Florida. She had a basket of existing annuities worth about $40,000 and a minimum return of 3 percent. There was also no longer a surrender period tied to them.
But guess what? The poor dear was persuaded to trade those annuities in on new, equity-indexed annuities with a 2 percent minimum return. Here, she is already down a point. And now she has a brand-new surrender period of 15 years to go along with it. Now, isn't that just ducky? Now she'll be looking at a penalty if she needs, or wants to withdraw the funds before she reaches 91 (if she lives that long).
In the first year alone, she would have had to pay a staggering 19 percent surrender surcharge if she had needed to withdraw any of the funds in the first year.
Who wins in this scenario? It certainly isn't Virginia LaValley. Her son Ken realized something was up when his mother, then 75, called to say excitedly that she had just made a new investment that was guaranteed to pay 7 percent annually. That didn't seem realistic, so he began to investigate.
What he found was that his mother had been duped into buying something that was totally unsuitable for her. Annuities, it should be noted, aren't all bad. Products that allow for immediate payouts are thought to be an excellent product for seniors looking to protect, grow, and have access to their income.
However, deferred annuities and variable annuities—together with equity-indexed products—are more appropriate for long-term investing, and are absolutely the wrong product for a senior, close or even inside of retirement and either in need of funds or expecting to be.
Vultures with friendly faces play on a senior's wish to retain their independence. Thus, they start making decisions at the behest of a smooth-talking salesperson without consulting their children until it's too late, and the rat that could have been smelled would be long gone. One rat in particular preyed on a number of seniors in their seventies and eighties, convincing them that buying equity-indexed annuities were the way to go. Somehow, his duped clients didn't understand that he would be making high commissions on those products. They also didn't appear to understand that the surrender period would take some of them to age 100.
It's the same rat that duped Virginia LaValley.
What is an Equity-Based Annuity?
What it is, is a complicated product that ties payoffs to stock market indexes, while guaranteeing a minimum return. But there is usually a surrender period, and hefty fees if you violate the surrender window. For a senior advancing in age, with questions over health, the inability to access needed cash for health, and other emergencies without the need to wave goodbye to a hefty chunk of capital just to have access to your money, is just plain foolhardy. And the thought of an opportunistic salesman taking advantage of a trusting senior is morally disgusting, and just plain mean.
But Virginia's financial story has a happy ending. Her son began seeing signs of dementia in his mother, and he determined that Virginia was not of sound mind when she would have purchased the annuities from the snake-oil salesman. Ken consulted a lawyer, and together they worked with American Investors, the issuer of the annuity, to get Virginia's money back.
A subsequent investigation by the Florida Department of Financial Services revealed a collection of similarly duped seniors. The agent was forced to surrender his license, and he was fined $40,000. He also had to help all the families he suckered, get their money back.
READ MORE VARIABLE ANNUITIES LEGAL NEWS
"Let's be careful out there." The beloved Sergeant Esterhaus, as portrayed on TV by the late Michael Conrad, might be a useful ally to have on your side the day an annuity hawk comes calling to sell you variable annuity insurance, even though a variable annuity is the last thing you want. It's hard to resist a smile, especially when a friendly face is trying to sell you variable annuity life insurance. But it happens all too often, and Sarge isn't around to look out for you.
Thus, if being careful isn't enough, and you get suckered with a variable annuity that's not right for you, call a lawyer.