Retirement schemes faulted on regulation

The Baltimore Sun

Think you're immune to people who want to separate you from your money in retirement?

Maybe you can spot an identity thief or a sweepstakes huckster a mile away, but can you choose the right bells and whistles on an annuity or pick the best deductible period for a long-term care policy?

The latter two questions don't fit the usual definition of elder fraud, but combating the issues with complex retirement products such as annuities, reverse mortgages and long-term care insurance may be even more important than nailing a few rogue operators, an elder-fraud expert told regulators and senior advocates recently at a forum sponsored by the Securities and Exchange Commission.

Richard L. Kaplan, a University of Illinois law professor and faculty adviser to the university's Elder Law Journal, believes more regulation is in order for these products, particularly as the wave of baby boomers heads into retirement.

Until that happens, he said, consumers need to arm themselves with as much information as possible and push for the best features, including inflation protection and shortened lock-in periods for retrieving money from annuities, he said.

Here are some other issues that Kaplan said seniors should watch out for as they consider money moves in retirement:

Don't rely on regulations for protection

When retirees could rely on permanent Social Security and private pensions, strictly regulated annuities weren't a high priority, Kaplan said. Now defined benefit-pension plans have waned, almost to the point of extinction, he said.

"Defined-contribution plans were not intended as the sole source of funding for retirement. Now everyone from the receptionist to the president of the company has them, and people are dealing with large lump sums at retirement, but no one ever gave them instructions, which puts a tremendous responsibility on them with no training," he said.

"It's hard work to structure a retirement portfolio, and it's unrealistic to think this is what people want to do in retirement," he said.

Simply punting the ball to an investment adviser isn't always the answer, either, because many investors aren't knowledgeable enough to know how to conduct proper background queries to make sure they are dealing with an appropriate adviser, Kaplan said.

Like it or not, retirement financing choices are seemingly unlimited, giving many people just enough rope to do some serious damage to their financial futures, he said.

He would like to see standardized annuity-policy options, clear standards of product suitability for different types of investors and greater prosecution of sales-practice abuses. He also advocates a federal guaranty system similar to the Federal Deposit Insurance Corp. for the banking industry.

In the meantime, consumers should keep in mind that none of this has happened yet. That means they should query any sales representative about why a particular product is suited to them.

Too often, Kaplan said, consumers are tailored to products, not the other way around.

Old-fashioned fraud is still rampant

Concern about tighter regulation of legitimate products doesn't mean that outright fraud has been stamped out for seniors, Kaplan said.

Fraud is "still going strong, along with some new shenanigans such as identity theft, telemarketing, online sweepstakes, and the whole range of 'helpers' who seek to ingratiate themselves with older people by providing informal home care, financial assistance, or just companionship," he said.

"The increasing geographic dispersion of families means that more seniors are socially isolated, with fewer family members living nearby. Isolation translates into vulnerability."

Watch popular, but costly, options

Reverse mortgages for elderly people have soared in popularity as home values increased in recent years, but they are still often very costly products, he said.

Tapping home equity can be a good solution for seniors, but they should weigh the costs of a reverse mortgage product against downsizing into a smaller place and banking the leftover cash, he said.

Beware fountains of youth

As Baby Boomers age, Kaplan predicts, scams will increasingly involve health and anti-aging products and procedures.

"Cosmetic surgery is often less effective on older people, but don't try to tell that to a boomer," he said.

Have a retirement question? Write to, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611. If your letter is selected, we may include you and your question in a future column.

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