By Roger Wohlner
NEW YORK (AdviceIQ) -- Sure, you save your money because you're scared of poverty in your retirement. Financial pitchmen know this and target your fear, which us why you need to learn how to protect yourself.
Many TV and radio ads use fear to pitch various annuities, insurance or other commissioned financial and investment products. Recently I heard a commercial for a variation of the insurance product called Be Your Own Banker Its pitch: the inevitability of a 50% loss in the stock market.
Far too often these fear mongers seem to target seniors scared of losing their nest eggs. Ameriprise, for instance, runs a commercial in which no less than movie star Tommy Lee Jones asks folks if they fear outliving their money in retirement. The question is valid but at least partially a scare tactic.
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Many folks in their 50s or 60s and looking for planning help ask themselves this question (and often the answer is obvious). Whether based on fear or stemming from a desire for preparedness, the question makes a good lead-in to financial planning. Nonetheless, scaring people, especially seniors, into buying a financial product that may or may not be right for them is suspect.
In a prior post I listed making financial decisions based on emotions as one step on the road to a lousy retirement. This holds especially true when you're sold annuities or insurance products, because many come with onerous surrender charges -- meaning it costs you dearly to move your money elsewhere over the first five to 10 years you own the product.
Advisers' logic in pitching a financial product instead of a financial plan -- other than desire to earn a sales commission -- escapes me. Financial planning strategy generally comes first and implementation of that strategy, including the use of appropriate financial products, after.
Inflation versus investment loss. Many fear-based product pitches cropped up in the wake of the financial crisis of 2008-09 and the corresponding drop in the stock market.
As a retiree, fear the impact of inflation on your buying power more than losing money in the stock market. Even a relatively benign 3% inflation rate cuts your buying power in half over 24 years.
Yes, the stock market took a hammering in 2008, and if you use the Standard & Poor's 500 as a benchmark the market gained very little 2000-09. A diversified portfolio, though, did reasonably well even during this lost decade.
Ask questions and do your homework. Many successful financial salespeople are very personable and may even be your neighbor or fellow member of your church or Rotary club. This doesn't disqualify the adviser from helping you, but you must scrutinize credentials and products with the same tough standards you would apply to a stranger.
For example, dig very deep before writing a check for the BYOB type of insurance policy. I found much of the presentation confusing and containing little or no information about the policy costs and expenses.
Whether dealing with an insurance policy, an annuity or commissioned investment products, ask many many questions of the adviser:
- What are all associated fees, expenses and restrictions on moving my money?
- How do you get paid?
- How solid is the company behind this insurance policy or annuity contract?
Don't fall for a pitch preying on your fear. The only financial products to consider are those right for your situation.
-- By Roger Wohlner, CFP, a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Please feel free to contact him with your investing and financial planning questions. Check out his Financial Planning and Investment Advice for Individuals page to learn more about his firm's services. Roger is active on Twitter and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans. He is also a regular contributor to the US News Smarter Investor Blog and has been quoted extensively in the financial press including the Wall Street Journal, Forbes and Smart Money, Roger is a member of NAPFA, the largest professional organization for fee-only financial advisors in the country. All NAPFA Registered Advisors sign a fiduciary oath promising to act in the best interests of their clients..
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