4 Smart Tips for Spotting Retirement Scams

Retirement Planning and Investing? Spot Retirement Scams Before They Happen

FINRA and the SEC recently released a joint fact sheet to help Americans spot retirement scams, including early retirement schemes, which typically lure investors with promises of early retirement without significant lifestyle changes.

A real-life example included in the fact sheet was a scheme pitched by a broker at a "free seminar" that promised attendees an early retirement if they cashed out their 401(K)s and pensions and opened a traditional IRA at his firm. He said they could earn returns of up to 18 percent, but failed to mention the risks associated with the high-risk investments he was pitching. The plan outlined by the broker proved unrealistic and unachievable for the majority of the investors who followed it, and many lost a significant portion of their retirement nest eggs before realizing they'd been mislead.

"Signing on to an early retirement investment strategy presents risks. It only makes sense if you have saved enough to begin with, make smart investment choices during your retirement years and withdraw money at a rate that does not deplete your savings too early," warned FINRA and the SEC in the fact sheet.

To help root out early retirement scams, the organizations recommend investors watch out for the following claims:

  • Everyone can retire early! Not true, say FINRA and the SEC. "The reality is that many employees simply do not have the resources to do so."
  • You can make as much in retirement as you can by continuing to work! "Promises like this usually hinge on unrealistically high returns on investments and unsustainably large yearly withdrawals," they warned.
  • You can expect high returns of 12 percent or more!"The stock market is inherently volatile-it goes up, and it goes down," warned the organizations. "Over the past 80 years, there have been many short term periods that produced returns well below the historical average of 9.6 percent."
  • You can withdraw 7 percent or more and never run out of money! "While there is no perfect consensus on what this withdrawal rate should be, the uncertainty of return, market fluctuations and increased life expectancies among other factors argue for being conservative with your withdrawals, especially during the first years of retirement. Many experts recommend withdrawal rates between 3-5 percent per year, especially in the first years of retirement."

UPDATE: New Rules to Protect Retirement Accounts in 2017

If you need help learning how to spot a scam, or if you believe you may have already lost retirement money to an investment scam, please take a moment to watch our helpful video!


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