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Jul 8, 2015 by |

Annuities May be Unsuitable Investments for Senior Citizens


Annuities are not always a suitable investment for the elderly, and they should educate themselves in order to avoid making a bad investment. Senior citizens hold two-thirds of the wealth in this country and the elderly population is increasing. As a result, elder financial fraud is growing as well, including through the sales of different kinds of annuities, according to San Jose financial elder abuse attorneys.

There are different types of annuities, and consumers have to choose the most suitable for their needs and future plans.

Fixed annuities ensure a minimum rate of interest and minimum periodic payments, whereas variable annuities vary according to the financial market and may be made up by stocks, bonds and mutual funds. Consumers should read and understand all of the information related to a specific investment, and understand the volatility of the investment. They should ask their broker for help if they do not understand something. Fixed annuities products carry risks, as long-term deferral periods may be risky as they hamper the investor’s access to his money.

Immediate annuities may earn some money to the investors during the first year, whereas deferred annuities may preserve the money for years before allocating any payment to the investors. If investors want to access to their money before the end of the deferral period, they will have to pay an expensive penalty and lose up to 25% of the principal funds. There have been some cases where insurance companies sold deferred annuities with deferral periods of over 15 years to seniors who were expected to live that long, or who may have needed the money for healthcare or caregiving.

Equity-indexed annuities is a category of deferred annuity. The income which derive from it are based on the stock market’s fluctuations and the rate of return is based on a stock market index such as Standard & Poor’s 500.

Consumers have to be careful of sellers who put high pressure on them by offering “limited offers”, by only meeting with them when they are alone, or by contacting them frequently or coming without appointment. Some seminars that are marketed as educational are often a venue for agents to sell annuities. An agent may also use a fake title to enhance their credibility.

Consumers should also understand the surrender charges. Which are the amount the investors will have to pay if they withdraw their money too early. In some cases, people can be charged with extremely high surrender charges, or sold annuity products with surrender charges that outlast their expected life expectancy., say San Jose financial elder abuse attorneys.

Although agents often market annuities as a safe investment, according to the SEC, investors who purchase an annuity related to a 401(k) plan or IRA do not receive any tax advantage. Those who withdraw money from a variable annuity before the age of 59 ½ may be charged a 10% federal tax. Consumers should be careful of sellers who praise annuities for guaranteeing the investments’ safety. The SEC also says that sellers may try to convince consumers to switch to another annuity product, but consumers should do their own research to make sure that the benefits will outweigh the costs.

Agents and insurance companies try to attract investors by proposing some bonuses but those are often followed by high fees and administrative costs. They may also drag them into risky investments that they cannot afford. Agents often gain a commission from the insurance companies they work for when sell products such as long-term deferred annuities to seniors. Consumers should ask trusted family and friends for advice on finding a reputable agent, and do their own research.

Evans Law Firm, Inc. handles annuity fraud lawsuits, as well as other types of financial fraud and consumer fraud cases. If you have purchased, or are considering purchasing, an annuity policy and want to know if it is a suitable investment for you, please contact Evans Law Firm, Inc. at 415-441-8669 or via email at

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