Five Money Mistruths
By Boyd Casselman
As I have met with people over the years to help them with their retirement planning, time and time again, I hear the same claims made by their money managers. Many of these claims are misrepresentative, completely false, and/or not in the best interest of their senior clients. So why would they make such claims? The answer is FIVE fold:
They don’t completely understand what they are selling,
They are not being completely honest,
They think that they represent all the products and strategies that are appropriate for their clients,
They believe that fixed or safe retirement strategies are not worthy of their client’s money and/or
Their primary concern is not what’s best for you but rather what’s in their best interest – keeping your money under their management so they can protect their income.
In fact, when you want to know the appropriate time to move your money out of the market, most money managers will not have an answer for you. The fact is, they NEVER want you to move your money.
The problem is that when it comes to managing his senior client’s money, the way an advisor earns his living is many times in direct contradiction with what’s right for the client—resulting in a natural conflict of interest for the money manager.
By Boyd Casselman
“If you’re in the market, keep your money there, since historically you are better off in the market than anywhere else.”
This may have been true prior to the year 2000, but things have changed. We had two major stock market downturns in an eight-year period (something that had never happened prior to the year 2000). The economy has been sluggish for going on six years. The national debt is out of control and continuing to rise, and government spending is unbridled and unfathomable. In fact, I believe the only reason for the so-called economic recovery we are experiencing and the recent market indices reaching their highest points ever is simply a function of government spending $85 billion dollars of new debt as stimulus.
Here’s the problem. What’s going to happen to the economy when the government can no longer borrow money for their ongoing stimulus effort? Believe me when I say that it’s going to get really ugly, and when it does, you won’t be able to hang on to your money invested in the market. In fact, many nervous seniors today are taking their government-stimulated earnings and moving these “gambling winnings” to safety before the next big crash happens. In my opinion, a crash is inevitable; it’s not a matter of if but when.
“You won’t make any money or keep up with inflation in a safe fixed annuity.”
I’ve heard this claim from prospective clients over and over again. Their money managers discouraged them from moving their at-risk investments to a safe fixed annuity, claiming that they will only earn 1% in a fixed annuity, which will never help them keep up with inflation.
First, the 1% fixed annuity growth claim is false. These retirement-appropriate savings plans offer strategies that can pay up to 5%, 10%, 15%, or more per year—all without putting your money at risk. Second, the claim that fixed annuities will not allow you to keep up with inflation is a funny one to me since the best way to not keep up with inflation is to lose your money. In many cases, the net growth of fixed annuities since 2000 has exceeded the overall growth of the stock market for the last 13 years.
Do the math: if the market has grown by about 33% in 13 years, then your money in the market has averaged about 2.5% per year before fees of at least 1% to 1.5%, making net stock market earnings about 1% percent or so per year. This is interesting when you consider the false claim made by money managers about fixed annuities. Oh, and by the way, the only way to capture that meager stock market growth is to sell and move your money to safety—something your advisor will not encourage you to do.
“I can offer you a 5% to 8% guaranteed interest rate—even if the market loses value.”
The guaranteed interest rate claim is the biggest misrepresentation in the industry. If someone offered you a guaranteed interest rate of 5% or greater, would it sound too good to be true? Well, it is. The guaranteed interest rate pitched by your advisor, agent, or someone at a seminar is NOT an interest rate at all but rather a rollup rate on an income base, which is a non-cash account.
Interest rates and rollup rates are two completely different things. You need to know the difference before purchasing one of these “guaranteed interest rate products.” Actually, in many cases, the person pitching the product does not even know the difference between an interest rate and a rollup rate. It’s pretty scary when the person helping you make important financial and retirement decisions does not really understand the product she is selling or is simply misrepresenting the facts. Yet it happens all the time. Knowledge is power. Know what you are buying before you make the purchase and remember: if it sounds too good to be true, it probably is.
“Your variable annuity charges your account value annual fees of about 1%.”
This is another misrepresented and undisclosed fact. In almost every case, by the time all annual fees are calculated, including mortality and expense fees, administrative fees, rider fees, and subaccount fees, the typical variable annuity charges about 3% to 4% in annual fees. In other words, for every $100,000 you may have in a variable annuity, you will pay, from your account value, $3,000 to $4,000 per year in fees.
“You don’t need to meet with any other financial advisor.”
This is one of my favorite—or least favorite—claims made by financial advisors. It’s amazing to me how many times I have had an initial meeting or follow-up meeting cancelled after a financial advisor told his client that he “doesn’t need to meet with me.” Hmmm, now why would an advisor not want their client to meet with me? If I have nothing better or more appropriate to present to their client, then what are they worried about? Financial advisors do not want their clients to meet with me because they don’t want any of their assets under management to go elsewhere since it would result in loss of their income. Whose interest are they really protecting? When it comes to finances, what you don’t know can and will hurt you, and in some cases, it can have a devastating effect on having enough income to last the rest of your life.
An Invitation
I invite you to attend one of the seminars advertised in this Senior Review issue or to simply call my office to schedule an appointment. I will sit down with you in the comfort of your home to have a real, valuable, fact-based, retirement-appropriate conversation about you about your retirement years. Either way, you’ll be glad you did. To attend a seminar or meet with me, call my office at 801-683-4333 and ask for Natalie or Sarah. We look forward to hearing from you.