Here’s what they told an audience ranging in age from 25 to 70 — Which of the following is a true statement?

1) Annuities are straightforward, excellent investments for most people at or near retirement. In fact, the older you are when buying an annuity, financial advantages are increased, making them even more suitable.

2) Sale skyrocketed after the 2008 stock market crash as they became highly attractive to people who had lost retirement money, wanting to assure income they could not outlive.

3) While rare, when a life insurance/annuity company fails, others step in to pay policyholders. In addition, there is protection from the FDIC, just like with banks, making your annuity a safe, guaranteed investment.

Fear — a powerful sales tool

Ingrid Evans (EvansLaw.com) is a financial elder abuse attorney, now in private practice, having prosecuted one of the first cases of this type 10 years ago when she was a deputy city attorney in San Francisco. She has seen firsthand what results when an annuity salesperson’s most powerful tool — fear — is used on the elderly, she told You and the Law.

“Fear is an incredibly effective tool — the fear of not having enough money as we age. Even a mediocre salesperson will either sense that fear or create it by painting a world of gloom and doom in which the only way to safeguard yourself is by purchasing an annuity to assure a source of money that you just can’t outlive,” she explains.

“There is nothing simple about most annuity contracts, but when reduced to their basic elements, you give the insurance company X dollars, and they agree to either start paying some of it back immediately, or at a time in the future. Generally, the big selling feature is lifetime income, where payments can be yearly (from which the word, annuity — annual — comes), monthly or whenever the policyholder specifies,” Evans states.

Stockbroker X, who is a friend of this column and works with one of the nation’s largest investment houses, observes, “What made annuity contracts attractive were guaranteed increases, where, for example, your payments might increase yearly by a certain percent, or the value of the annuity would go up. Let’s say 5 percent a year — possibly more if you had an annuity which invested some of your money in the stock market.
“But in our almost zero interest rate environment, those increases have shrunk dramatically with newer policies, and some insurance companies are no longer even selling annuities,” he points out.

“Annuity ads splash around the word ‘guaranteed’ — a direct appeal to people who lost money in the 2008 crash. The impression created is that your money is just as safe as in a bank. The need for safety and a desire to protect remaining money led to a dramatic increase in annuity sales starting in 2008,” he explains.

Rarely a good investment, terrible for many people

“If you might need access to your money — possibly for health care issues, especially for those over 65 — annuities are horrible. Money is typically locked up for years, and cashing out often means enormous penalties on top of the huge commissions charged.

“What’s worse is that deferred annuities — which start paying years down the road — are being pushed to seniors. Often, these are completely inappropriate because of the age of senior citizens, many who will never be able to take advantage of the various features sold them,” Evans notes.

“Annuities are not like a bank CD. They have no FDIC protection. There is a real risk of loss. While other insurance companies may take over some assets of a failed insurer, they are not obligated to. Finally, state guarantee associations do not provide complete protection for all policyholders,” the elder abuse attorney stressed.

She is completely right.

In April of this year, even with $700 million contributed from state guarantee associations across America, thousands of Executive Life Insurance Co. policyholders lost hundreds of millions of dollars from its failure — many having their monthly payments slashed by more than half.

“Hold on a moment,” you might be thinking. “Can an annuity ever be a good investment?”

“Yes, indeed, and they do serve a purpose. That’s why it is so important to obtain objective financial advice from a fee-only financial advisor who isn’t going to be influenced by the enormous commissions annuity sales generate,” our friend, Stockbroker X told us, and we absolutely agree.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Ken, a retired agricultural consultant who lives in “a place that is so hot in the summer only the scorpions are happy,” sent the following e-mail:

“My grandson got an eviction notice that says he has to be out within three days for being behind in his rent. He is a month and a half behind. My question is, where can you find another place in three days? Aren’t there any renter’s rights concerning this? He received the eviction today, Sunday, which means he’s got to be out by Tuesday or be taken to court. Help!”

Often inquiries such as this — on the surface dealing with landlord/tenant issues — have roots which go much deeper. Ken is a grandparent like so many of his generation who has been let down by his children and grandchildren. I had the gut feeling that he was about to be hit on for cash. In addition to explaining the law to him, I had to do what I could to prevent this rip off.
Under California law — and in most states for that matter — when a residential tenant has not paid the rent, a Three Day Notice to Pay or Quit may be given by the landlord. Once notice is given, the clock starts running.

If the tenant pays the rent, and any other charges owing within those three days, that’s the end of it. It is still possible to receive a 30-day notice to leave, even if the rent is paid, but that isn’t generally going to happen, as most landlords want to keep a paying tenant.

“How long did your grandson live in that apartment?” I asked.

“Three months. He paid the rent, but was always behind, and then lost his job at Albertsons,” my reader explained. That opened the door to other questions.

Why did he lose his job? How long did he work for the market? “Nearly five years, and why he was let go, I do not know,” was the reply. This was the kind of answer that suggested seriously wrong things in the young man’s life, such as drugs or dishonesty.

The reality was that 74-year-old Ken didn’t know much about his grandson’s life, but one thing was clear. “I know that he is going to ask me for money,” he said, with a voice that revealed a sense of fear.

“I am a guy who finds it difficult to say no to family members who need help, and I am out thousands of dollars already. What can I do?” he asked.

We read a lot about elder abuse, but not nearly enough about what so many elderly do to themselves, not because of illness or mental deterioration, but because they will not or just can’t say no. As America’s population is getting older, and amassing more money than at any other time in the history of our country, today’s ATM has gray hair and is receiving Social Security.
“We are living in an age when a great deal of wealth has been accumulated by older Americans,” elder law attorney Dorothy Meyers told me when we discussed my reader’s situation. She has practiced in this area of the law for over 20 years in Southern California.

“This sets them up to become targets of the freeloading family member whose life is a failure, looking at mom or dad, or the grandparents as the ATM you refer to. It is usually an adult male, unmarried with no job, financial difficulties, and often drug or alcohol problems. This is the profile of roughly 90 percent of all financial elder abuse situations.

“Rarely are lawyers or the legal system able to do to much unless we can show clear undue influence or fraud. Frequently, family members are made to feel guilty if they do not help, and this works very well on so many elderly as they have a biological connection to that younger generation. They have trouble in saying no. This is the problem where, as with your reader, the older person is probably fine mentally,” she pointed out.

“How do we empower your reader to say no? Often, other family members are aware that, as here, the grandson is a leech. But mom or dad or the grandparents love him, and the more his flaws are pointed out, the more vigorously they will defend and support him, even knowing better objectively,” Dorothy said, while shaking her head.

“The psychology involved here is dramatic. The older person is convinced they are doing the right thing, or if they fear that they are doing the wrong things, they can’t change course, as it’s a path they have usually been on before. This is the typical free-loader situation. This pattern can be broken, but it is difficult,” attorney Meyers added.

“Intervention from the outside, from a business or financial consultant whom all parties respect, as well as discussions with a psychologist, is a good idea. However, this may be blocked where the older person believes that speaking with a mental health professional is an admission of mental weakness,” my colleague observed.

Lawyers in general practice are witness to what happens when hair turns gray while bank accounts grow fatter. At some stage, it is no longer all about family, but very much only about money, and how to get it.

Often all lawyers can do is to wring their hands, because if that elderly person has capacity — all their marbles — a court will not appoint a conservator. In a real way, we are all free to allow ourselves to be victimized. At times, the real underlying issue that brings other family members to see a lawyer is fear their inheritance is going to vanish as grandpa helps the freeloader.

“This is where most of the complaints come from. Usually it is family members who seek professional advice when they see all the money going to the crooked relative. What makes lawyers more than a bit skeptical is that the real concern is not poor old mom or dad, but all their children who smell money,” Meyers concluded.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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