A friend of mine is a financial advisor. He’s a really nice guy. However, he told me one day that when he meets with a retiree prospect, he sits down with them and their financial statements and then he asks them, “How much of this money can you afford to lose?” He then told me that he uses this question as a segue into an annuity presentation, which usually has some sort of guarantee feature (usually at a significant cost to the client).
I don’t like this question. I mean who in their right mind is going to say anything other than, “NONE OF IT!”??? I don’t like this question because it plays on the prospect’s fears. When people are scared, they make rash decisions. I can imagine a retiree having capital preservation as one of their top priorities. Asking a retiree, “How much of this nest egg (that you have spent your entire life building) can you afford to lose…” preys on that fear. It then places the advisor in the role as the white knight who is going to take care of them and lead them to the promised land. And, like I said before the “promised land” is usually reached via an annuity.
Sure, an annuity MIGHT be right for some people. I have never said that annuities don’t have a place in some retirement plans. In fact, I think fixed-immediate annuities can be a great thing if purchased right. However, annuities are far too often sold without the client fully understanding what they are purchasing and they are sold by salesmen who could care less about doing what’s best for the client.
My advice: BEFORE you sign on that dotted line, get a second opinion! Don’t go to another insurance agent. Instead, find a fee-only financial planner or fee-only insurance agent to look at the proposal. (DISCLAIMER: I am a fee-only planner) Sure, it might cost you $150 – $300, but it could save you thousands of dollars if it keeps you from getting ripped off.