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Tuesday, April 26, 2011

Financial Advice For 75-Year-Old Widow

 SmartMoney offers monthly portfolio advice for people in different stages of life. Much of the advice is worth considering for people as they contemplate their personal finances.  As with online advice in a lot of areas, however,  it sometimes is desperately in need of  further elaboration.  Consider this month's SmartMoney advice, "Perfect Portfolios: Finding the Right Fit,"  to the 75-year-old widow.

SmartMoney suggests " may consider putting about half of your savings into a guaranteed investment such as a fixed annuity."  Yikes!

I love 75-year-old widows.  In fact, I truly believe they are among the nicest people in the world.  Even the crotchety ones, if you can catch them in a rare good mood. Still...........

I don't have a problem with annuities per se.  The difficulty facing elderly widows (or any other annuity buyer for that matter) is knowing what they are buying.

From my experience, if you get one hundred 75-year-old widows in a room, 80 of them at least will have no knowledge of annuities, types of annuities, or how annuity sales people are compensated.  This makes them easy pickings for annuity salesmen and salesladies.  Suppose they accept the advice above and tell the sales person they would like to consider putting half their savings in annuities. Yikes!  What happens next?

This part isn't difficult to imagine.  The highest commissioned products will be pushed.  The widow will be hard sold on equity-linked products.  "Look, you can get stock market returns and be guaranteed that you won't lose your original investment."  "Look at this chart showing the S&P 500 since March 2009."   She will be sold on deferred product.  She will be hard sold on variable annuities . And, at least, 80 out of one hundred 75-year-old widows will have no idea what questions to ask.  If she buys the types of annuities that will be pushed on her, she'll have no idea what she bought.

How do I know?  They ask me later about how  the annuities they own work. What are the fees, etc.?  Were they good purchases?

The fact is that the right kind of annuity can be a great product for a 75-year-old widow.  Winning the lottery can also be great and, sad to say, the odds better than getting the right kind of annuity in many instances.

I would suggest that, just as you take an attorney to a real estate settlement, take an hourly compensated financial advisor when you sit down with the annuity sales person.  It is the easiest way to understand the fees, the guarantee, the likely performance of the annuities presented and, most importantly, whether the product is appropriate.


  1. Unfortunately, seniors are a very attractive target for annuities and reverse mortgage salesmen.

  2. Insurance salesmen love this demographic and this kind of advice from Smartmoney.

  3. Thank you Robert Wasilewski. Everyone always says to go with a fixed annuity. Your blog has helped realized that I need to look into other options before I just jump into a fixed annuity .

  4. This comment has been removed by a blog administrator.

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