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Should You Buy a Deferred Annuity at a Bank?

February 1, 2013

Many of my clients walk into banks where they used to be able to trust in the safety of their investments, and are concerned about how little the interest rates are. Many banks have now “investment advisors” available, and elderly clients are shown that they can receive a higher interest rate on a deferred annuity that they could receive on a Certificate of Deposit. It is my understanding that tellers and bank managers may be receiving bonuses or other perks for identifying customers who could be sold an annuity.

Elderly clients trust the bank, and do not realize that the “investment advisors” and the bank will receive a healthy commission for making the annuity sale. Elderly clients who are sold deferred annuities often do not understand that if they want their money back, surrender charges will apply. That means they can lose a substantial amount of the original money placed into the annuity.

When one member of a married couple buys a deferred annuity and soon thereafter needs nursing home care, to obtain MassHealth coverage we often have no choice but to surrender the annuity and get stuck with the surrender charges. That is a reason not to be buying annuities at banks, where just about the only point they tell you about is that you’ll receive a higher interest rate.

I recently met with an older client who had no home and an investment portfolio of less than $300,000, including a speculative penny stock she had recently bought for $80,000 that was now worth only $20,000. It was apparent to me that her stock broker lacked any common sense and was putting her into gambles, so I referred her to a financial adviser that I trust. We have since learned that the failed stock broker has now been hired to be a “financial advisor” at a large bank. The fact that he is still in the financial business and will no doubt be convincing older people to purchase annuities that they do not need is one more reason not to be buying annuities at banks.

One Comment leave one →
  1. July 12, 2013 5:30 pm

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