Thousands of Americans are approaching retirement. Every day, retirees are pitched plans about how to protect their assets and invest without any risk. These products have been the focus of watchdog groups and topped the Securities and Exchange Commission list of scams. Here are a few things that if you are pitched you should investigate deeply before investing.

Annuities
Insurance companies and commissioned insurance agents have pitched annuities as the ideal investment to manage risk and protect assets. Products like the fixed annuity which pays you a guaranteed interest rate much like a bank CD. The variable annuity invests in mutual fund-like portfolios known as subaccounts. Equity indexed annuity is a hybrid between a fixed and a variable annuity. This annuity usually pays a guaranteed interest rate while allowing you to share the gains of the stock market.

Let’s look at the pros and cons for a minute. And if you are like me, I always want the bad news first. So we will start with the cons. And the biggest con here is the fees. Many annuities lock in your funds for a period of at least 5 years and some as high as 10 years. If you needed your money or decided you wanted to do something else with it during that time period, you would have to pay early withdrawal penalties as high as 7%. There are also high commissions - between 4% - 10% depending on the product - paid to the agent who sells the product.

The pros of annuities are that they do offer a guaranteed interest rate and the gains are tax deferred until you withdraw them. For example if you like CDs and CDs are all you are comfortable investing in, then an annuity may work for you. Your money is safe due to the guaranteed interest rate, but be aware like any other guarantee you will pay for that right in the form of forgone higher interest rates.

Alternatives
Here are some sales pitches you may hear and some alternatives that may be better suited to your retirement needs.

“You can earn stock market returns with no risk”
If you hear this you are likely being pitched an equity indexed annuity. You will pay higher early withdrawal penalties and there will be caps on how much you can earn. A better solution may be to purchase a diversified stock and bond portfolio. You’ll take on more risk, but you’ll have a lot less fees and have the potential for more growth.

“Don’t you want to protect your IRA from market downturns?”
If you are hearing this you are likely being pitched an IRA rollover annuity. The guaranteed protection being referred to is very expensive in the form of high early withdrawal penalties. It is also usually unnecessary to protect an IRA from market downturn due to the diversification of the IRA. A better solution is to put the IRA in to mutual funds and buy an income annuity once you retire. These income annuities offer you the guaranteed interest rates needed during your retirement years and are setup to provide you with steady monthly withdrawals to live off of.

When you are pitched these plans, be sure to get all the facts and do your homework. Ask to speak with folks who have purchased these products and have had them for 2 years or longer. Also be sure you are dealing with someone who has the experience to fully explain the product. Don’t be afraid to ask for time to take a few days to read over the details before you do anything. If the agent balks at these requests, then walk away. You can visit the Retirement Planning Center at FinanceNewsToday.com for more help with planning your retirement.

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