Say It Ain’t So!

Here is the true story of someone who recently contacted me for help:

  • She retired from the Federal Government in 2008.
  • Went to a retirement seminar where the adviser got her to withdraw all of her money from the government TSP plan and invest it in an annuity.
  • In 2010 the adviser told her to take her money out of that annuity, pay a penalty for early withdrawal and reinvest in a second annuity that paid a good bonus on initial deposits.  The idea (I guess) was that the bonus would offset the penalty and this new annuity would be a better investment going forward.
  • Then in 2011, she was advised to take what “free” money (a small portion of money free from penalty for early withdrawal) she could from the second annuity and reinvest it in…you guessed it..a third annuity.
  • Finally the adviser admitted she should take all the money out of that second annuity because it was now run “by the guy that ran AIG and having legal issues”, pay a penalty if needed, and consolidate her money in that third annuity.
  • Today in 2014, after the stock market is up triple digits from it’s March 2009 lows, she has less money than she started with.

This story is hard to stomach but maybe we can all learn from it:

  •   The Governments Thrift Savings Plan (TSP) has the lowest cost and some of the best investment options out there.
  • Annuities are SOLD because they are some of the highest commission-paying products out there.  Every time you put money in an annuity the broker gets his or her money (usually around 6-10% of the deposit) in upfront compensation.  The annuity company makes that broker payment up by charging you high annual fees and making sure you are locked into paying those fees for 6 years or more unless you want to pay a penalty to leave.
  • Take good notes when a broker gives you advice.  They will come in handy in court – which is right where this women should be headed.