You’re probably wise enough to avoid a get-rich-quick scheme but can you recognize an early retirement scam? The idea of retiring early holds significant appeal for many of us – and scam artists know this. If you find yourself receiving an invitation to an Early Retirement Seminar, beware, this may very well be a fraudulent investment pitch.
Because the allure of a leisurely retirement can be very tempting, and those who promote early retirement schemes can be extremely persuasive, it’s critical to think carefully before you act. Early retirement scammers are masters of manipulation, tailoring their pitches to match the psychological profiles of their targets. They look for an Achilles heel by asking seemingly benign questions-about your health, family, political views, hobbies or prior employers. Once they know which buttons to push, they’ll bombard you with a flurry of influence tactics, which can leave even the savviest person in a haze.
In an effort to help you avoid these traps we have listed 5 red flags that may indicate a fraudulent or misleading retirement scheme:
Everyone can retire early!
The reality is that many employees simply do not have the resources to do so. Early retirement is not feasible for many people and is particularly risky for workers who haven’t saved enough for an extended retirement and who have limited opportunities for other employment.
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.
This investment opportunity won’t last!
If you feel pressured to make a quick decision, steer clear. Even if it’s not fraud, this type of sales pitch is inappropriate
You can expect returns of 12 percent or more!
First of all, no one can predict what an investment will do from one year to the next-and even if an investment performed well in the past, this is no guarantee it will do so in the future. Second, any return over 9.6 percent exceeds the historical long-term returns for the stock market (assuming all dividends were reinvested rather than spent), and greatly exceeds long-term returns for less risky investments such as bonds, for which the average annual return over the long term is less than 6 percent. Finally, the stock market is inherently volatile-it goes up, and it goes down. 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 a year 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.
You are your own best defense. Following are tips for protecting your savings and making informed decisions:
Do your research first.
If you’re considering an offer, do your research first. Get all the information in writing, and have documents reviewed by a lawyer. The following sites can assist you in determining the legitimacy of an investment offer or salesperson.
Take your time—don’t be rushed into investment decisions.
Never let someone push you to make an immediate decision. A salesperson might warn you that the deal will disappear if you don’t act immediately. Just because someone you know made money, or claims to have made money, doesn’t mean you will too. Be especially skeptical of investments that are pitched as “once-in-a-lifetime” opportunities, particularly when the promoter bases the recommendation on “inside” or confidential information. Remember that a fraudster does not want you to think too much about the investment because you might figure out the scam.
Protect your personal information.
Don’t ever give your bank account information or your Social Security number to a stranger on the phone or in an e-mail.
Never pay for an investment with a check made out to an individual person.
Your transaction should be with a regulated financial institution, like a bank or a brokerage firm. The person should also be licensed and registered, but all financial transactions should go through a company.
Get it in writing.
Never agree to an investment or send a check based on a description you hear in a conversation or phone call. By law investment salespeople have to make specific disclosures in writing. These disclosures may even require your signature. Make sure you read them, and if you don’t understand something keep asking questions until all the potential risks and rewards are clear to you.
If you suspect fraud, or have been the victim of fraud, file a complaint.
To file a complaint, contact your state regulator. You can find your state securities regulator by visiting: www.nasaa.org