Scams Against Seniors: Don’t Get Fleeced Out Of Your Golden Years

How to Protect Yourself From Scam Artists That Target Seniors: Internet ScamBusters™ #267

All we can say is Wow — and Thank You! The response to last week’s survey was amazing. We really appreciate all of the amazing questions you asked — as well as the fabulous feedback we received on Scambusters. We’ll do our best to answer as many of these questions as we can — they are GREAT questions.

Today we have a Special Issue on Scams Against Seniors. However, even if you’re much younger, we believe you’ll find this issue useful for two reasons: 1) these scams affect younger people as well; and 2) you can share it with your parents and/or grandparents and other seniors you know.

There’s no reason to be more fearful of a scam just because you are a senior citizen. Most of the scams out there are equal opportunity social evils — they affect all generations, not just one.

But today we highlight a few that are more often committed against seniors, either because the scam artists will have greater success if they target someone older or because seniors seem to fall for them more often.

Helping us with this issue is Sally Hurme from AARP. As a lawyer in AARP’s Security Unit, Hurme studies a broad range of fraud committed against seniors.

Let’s get started…

Scams Against Seniors: Don’t Get Fleeced Out Of Your Golden Years

Seniors aren’t necessarily more vulnerable to scams, says AARP’s Sally Hurme. But seniors are at a different point in their financial lives than other generations, and that can bring some special challenges.

“Scams that can really hurt seniors will target their savings, which can be more significant as a person grows older. Or they might exploit a senior’s worries about living on a fixed income,” Hurme said.

All The Money You Will Ever Need — Seniors Easily Hurt by Lottery Scams

We’ve written about lottery scams many times before.

However, Hurme says older people tend to be more trusting of lottery scam artists than the average person.

The lottery scam often begins with a telephone call from a stranger who excitedly tells you that you have won a contest. You can’t believe your good fortune.

Then the caller explains, there will be some fees you have to pay — taxes or a courier fee — to collect your winnings.

You send the money, but the winnings never arrive.

“The reason older people want to believe this scam is because it sounds like it will be all the money they need to solve all of their financial problems,” said Hurme.

Worse, if you fall for it, the scam artist may do what is known as re-loading, says Hurme.

“You might send $2000. Then they tell you there’s another fee you have to pay,” she said. “They string you along to see how much money they can get out of you.”

Lottery scams have two signature traits, according to Hurme:

– The caller makes exaggerated claims of the amount of money that will have to come out of your winnings, and

– They tell you that you have to pre-pay to get those winnings.

“It’s illegal to ask for money to collect winnings. That’s a key thing that suggests it’s illegitimate,” Hurme said. And you can find a lot more about lottery scams at the link above.

No Such Thing As a Free Lunch — The Investor Education Lunch Scam

Seniors need to protect and sometimes even grow their life savings. Reputable advisors are trained to help them find the best investments to do so.

But beware. Not all investments are appropriate for elderly people and others may be too uncertain to risk your nest egg over.

Increasingly, untrained and even unlicensed professionals are selling seniors “investments” that offer them little benefit while lining the agent’s pockets with a fat commission.

A September 2007 U.S. Senate Special Committee on Aging hearing reviewed the growing problem with so-called “free lunch” seminars. At these, seniors enjoy a free meal in a resort-type setting, as part of an “educational” seminar offering investment advice.

Many real investment advisors also pick up new customers through educational seminars. But the scam seminars have detectable differences.

“The seminar’s main purpose is typically to get an appointment to come into the person’s home,” said Hurme. There seniors are pressured with high sales tactics to purchase unsuitable investment products, like variable annuities, she said.

“Variable annuities, with something like a 20-year payout, are not appropriate for an 85-year-old. Most of these come with a high commission, which is not revealed,” Hurme said.

A hybrid between a life insurance policy and an investment product, variable annuities often charge hefty penalties when money is withdrawn early. This makes it inappropriate for an elderly person, who might need to access the cash earlier for health or other reasons.

Hurme says to watch out for free lunch invitations that hype you with over-exaggerated problems or claims, like those that tell you to invest $10,000 and you will make $1 million tomorrow.

If you do attend, do not agree to an in-home visit.

If you would like to buy an investment, check out both the product being sold and the person selling it. The Financial Industry Regulatory Authority offers an online broker check where you can find out if any complaints have been filed against a broker or a company. You can find it by clicking the FINRA BrokerCheck link on the left of the page.

The Ponzi Investment Scam

As hurtful as inappropriate high-fee investments may be, Ponzi scams are worse. A Ponzi scam may appear to be a real investment deal. But upon closer examination it turns out to be a complete fraud.

The scam artist usually organizes the Ponzi scam as a pyramid scheme in which early investors appear to be earning “returns,” but they are actually being paid off by later investors.

“These are the biggest scams that hurt seniors,” said Hurme. “They have the opportunity to totally wipe you out.”

Many Ponzi scams are made to sound enticing, exciting and sophisticated investments that promise to pay high returns. Some common examples are:

– Mortgage deals

– Real estate deals

– Oil and gas leases

– Promissory notes in startup companies

– Housing for the homeless

“They make it sound like it’s really logical and plausible” said Hurme, but there’s nothing really there. “It’s not even a leaky bucket. It’s a bucket with no bottom.”

Be especially suspicious of a company that claims to be registered in one state, physically exists in a second state and sells to investors in a third. It’s likely the physical company does not exist and the scam artist is counting on investors living too far away to check out the facts.

Always check with your state securities regulator to verify the company’s registration. You can find out who that person is for a given state through the North American Securities Administration Association website. Click on the Contact Your Regulator link and the state where the business is supposed to be registered.

If you think you may be a victim of a Ponzi scam, contact your state Attorney General’s office.

To get more advice on scams committed against seniors, visit AARP’s website and click on either the Scams or Investment Fraud links.

You can find out more about investing scams and Ponzi scams in our Investing Safely article.

Time to conclude for today — have a great week!