Frequently Asked Questions about Investments for
Senior Citizens, Retirees and the Elderly

Why seniors?

Criminals often target senior citizens (65 or older) because they manage a large percentage of the nation’s liquid assets and may be more vulnerable to fraud and deception due to age-related physical and cognitive limitations.  The assets stolen may represent an elderly victim’s life’s savings.

Older people are increasingly the prime targets for investment scams. According to national statistics, people over 60 years of age constitute only 12 percent of the population, but they make up over 30 percent of fraud victims.

Senior citizens may be hesitant to report this financial abuse because of embarrassment or simply because the system may seem so cumbersome. Seniors may be afraid of losing their independence, losing control over their finances or being moved from their home. Senior citizens therefore need the support and encouragement of family and friends.

Fraud operators swindle the elderly more often because:

• They are sometimes "more trusting." They grew up in a time when you could take people at their word or at a handshake.
• They are more apt to be at home when smooth-talking con artists call.
• They are often home and willing to talk to telemarketers since they are lonely.
• They fear that inflation will erode, or that they will outlive their savings and they won't be able to maintain their current lifestyles.
• They want to leave a nest egg for their children or grandchildren.

The best protection is PREVENTION,
and the informed consumer can learn to identify fraudulent practices before becoming a victim!

How big a problem is this?

The FBI reports that there are an estimated 14,000 illegal telemarketing operations bilking consumers every day and as much as much as $40 billion per year is lost to fraudulent telemarketers.  Telemarketers who take money from seniors, making promises they know they cannot deliver, are criminals.

Seniors are frequently bombarded with “investment opportunities” and just as frequently are not given enough information to evaluate the opportunity carefully.   If you aren’t certain about an investment, pass it up.  

But even greater losses may result from the so-called legitimate financial services industry.  Thousands of seniors are advised to buy investments that are far riskier than they appreciate, every day.  

Saying, “I don’t want to put my funds at risk” may not be enough. It is important to be able to understand when that instruction is being followed and when it is not.  If the professional with whom you are dealing is not following our instructions, fire him/her and get someone who will.

If you really don’t want risk, then CD’s and government or investment grade corporate bonds are probably the best investments for you.   Everything else carries the potential that you will lose some or all of your money.  Become educated and be careful.

So avoid strangers and cold callers and all will be well?

A lot of people buy bad or fraudulent investments from people they know.  Affinity fraud continues to top the list of investment problems for seniors.  Just because someone is a member of your church, civic or fraternal organization doesn’t mean that they are honest, or that they are really qualified to advise you about investments.

The large national financial firms don’t usually sell viaticals, private promissory notes, trust deeds, gold mines, or similar private products.  And they don’t offer hedge funds to anyone who is not sophisticated enough to understand the risks.

If someone you know offers you an investment that seems too good to be true, then remember, it probably isn’t true.  And you should not invest your money unless you can fully absorb the loss of all of your funds. 

Even if you know and trust the person who is offering an investment to you, unless you thoroughly understand all of the risks and rewards, and can investigate the company to which you are making out your check, get a second opinion.  Ask another professional, such as your accountant, if he or she thinks that this is a legitimate investment, and one that is suitable for you.   If you don’t get an unqualified yes, or if they have questions that can’t be answered, pass on this investment. There will be others.  And a mistake can cost you your life’s savings.

What’s the biggest problem regarding investments for senior citizens ?

In two words, inappropriate portfolios.  One of the most significant problems facing seniors is the fact that a great many will outlive their money.  Many of the baby boomers now retiring will live longer than their parents, and experts tell us that living to 100 years old or and beyond is here or just around the corner.  So, seniors frequently ask: how do I pay for it ?

Many retirees are advised that, in order to keep up with inflation, it is necessary to invest their retirement funds seeking additional growth, i.e in stocks or stock mutual funds. This may turn out to be the biggest and most costly mistake a retiree can make. 

Consider that once you retire and begin to draw on your retirement funds to pay your monthly expenses, your account balance will begin to go down.  It is always important to make certain that your portfolio contains investments (bonds or other income producing securities) that are generating income equal to or greater than the amount you are taking out.   Sound obvious?  Ask your financial advisor about it.

Add to that fact the possibility that, if you keep your funds invested in stocks, you might have a losing year, or two or three years in a row.  That will also deplete your portfolio, and, in the normal course, you will never be able to recover enough to fund the later years of your retirement.   

A correct asset allocation for someone who is retired and who is periodically drawing on their funds always requires income securities which yield as much as the draw, or the portfolio will eventually become depleted.   For example, if you are drawing out $2000 a month, then you need to have bonds which yield $24,000 per year; that is, if you have $400,000 in bonds paying 6%, you will be able to have your monthly draw, and not deplete your principal.  If you have more than $400,000 to invest, then stocks or other investments may be suitable with the remainder of your funds.  But you should never deplete your principal, if you can avoid doing so.

This asset allocation problem is especially insidious because a lot of otherwise knowledgeable and honest financial professionals only give lip service to it.   Many professionals will tell you that they understand asset allocation, but do not.  Many seniors are still trying to grow their portfolios after they retire, and leave their funds at risk to whims and cycles of the stock market.    

What can I do to help?

The first thing that you should do is avoid becoming a victim yourself.  And the best way to accomplish this is to learn about investments in general, and especially about those where you are investing your money. If you don’t know what you are doing with your money, you are foolish, and everyone knows what happens to fools and their money. 

Beyond that, we recommend the following: 

• If you become aware of a fraudulent investment scheme, be it someone selling viaticals, private promissory notes or other suspicious investments, report it.  Every state has a regulatory body that handles complaints about fraudulent investments. Find the correct website, and tell them what you see.
• Become educated, and pass on what you learn.  You may find yourself in a  conversation about investments.  Learn to ask intelligent questions.  Insist on competent answers.  If you see a problem speak up.
• Write to us and let us know. The Center for Investor Protection will do what it can to blow the whistle on scam artists and crooked operators, and to help individual investors who become their victims.