Is an annuity a legitimate income source for seniors?

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My father updated that their personal banker at their bank advised them to deposit a large sum of their assets in an annuity. They were told that the annuity would provide them 9% interest in income yearly (which still wouldn't cover their independent living facility expenses), but they would not have access to the principle, especially if (most likely when) they did not outlive the term of the annuity - handing over a large chunk of their assets to the bank.
The financial planner appointed by my parent's elder law attorney advised my parents against this annuity, that the banker has not taken their best interests into account.

Doing a quick Google search, I see many articles about the how annuities have become forms of elder abuse, particularly when the term length of the annuity is not revealed.

Is an annuity a legitimate income source for my parents, or are they being pushed something that is against their best interest?

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And my friend with an annuity just hates to pay over $200 in fees just to have them ALLOW her to withdraw some money. Big red flag when you have to beg to get your own money back.
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I think you should stop this if possible. One of these sales creeps got a hold of my father as his dementia was beginning and sold him an awful mess of complicated annuities. I've been three years trying to fix this mess. It's a lot of money tied up that needs to be used for care.
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8 years ago my widowed mother, 79 yrs old at the time, purchased 2 annuities - one 7 yr and one 10 yr - from the "financial advisor" at her credit union. I would be interested in knowing what his commission was on the sale...it could have been as much as $50k. She and my sister did this without first asking any of the rest of us about the idea. We only heard about it a month later, when the 30 day right of recision had run out. My mom actually had no idea she had purchased 2 annuities, until she had me read the documents a month after she had signed them. I never saw a beneficiary page on either document, so none of us (except my sociopathic sister) know who is listed as a beneficiary. I have heard horror stories about bankers naming themselves as beneficiaries on the annuities of unsuspecting elders. Does anyone really think an 80 year old would actually READ the documents before signing, much less UNDERSTAND page after page of convoluted legal-ese?? Not a chance. I couldn't make sense out of it myself, and I have an accounting/finance background. So she has now outlived one of her annuities, but still has 3 years to go before the 10 yr one matures. I asked her recently what happens to the annuity funds once it reaches maturity, which is now...she said she has no idea. 8 years ago she plunked down a total of $500k to the "nice, trustworthy" financial advisor at her bank and doesn't have a clue what she bought or how it all works. My daughter says that in NY where she lives it is actually illegal to sell an annuity to a person of the age my mom was when she bought. There is a reason for that - because only the financial "advisor" comes out ahead. The saying is: "Annuities aren't bought, they're sold". The elderly make an easy target for financial exploitation. They are so trusting and truly ignorant of all the many ways they can be exploited.

My brother, who had sold annuities years ago, was livid when he found out our mom and sister had done this. He felt it was very unethical for the banker to sell such a long-term product to a woman almost in her 80's. But they never asked for his advise. I have also heard that the insurance companies that write and back these annuities sometimes go out of business before the maturity date...a good way to get out of paying the annuitant (or his heirs) back their money when the time comes. Lots of reasons to be wary of the annuity biz.
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My folks got snared into a 7-year, fix-rate annuity when their CDs matured. I took them to our local bank and sat with them while the banker sold them on the annuity. I tried to call my brother (an accountant) for his opinion and couldn't reach him. I should have said, "Let us research this" before they signed on the dotted line. But when you're dealing with the elderly, hobbling into a bank with walkers, sometimes the path of least resistance seems to be the wise thing to do in the moment. But I had a sinking feeling when they signed.

So I immediately came home and researched it. While my parents did OK with it, as soon as the annuity matured, we took that money and invested it in lower fee accounts. An annuity is an insurance product and only as good as the insurance company backing it up. It makes a big commission for the banker, so keep that in mind. Just do your homework!
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Sleepless, you've received very good, and insightful advice. Without sounding maudlin, at 84, your father is too old to be getting involved with an annuity. The time at which he could take distributions w/o penalty might be too late for the annuity to benefit him.

Take others' advice - in this situation the annuity benefits the sales person, not your parents.

It's really disturbing to learn that some people are still trying to snare older people into investments that benefit the salesperson and not the elders. But there are always people who only care about what they can get from a situation.
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Geewiz makes a good point regarding the bank. The bank is not the company that is directly in line to benefit from an annuity sale - for the most part. Most larger banks have investment divisions. Wells Fargo, Chase, US Bank etc. they sell "products" as an agent - stocks, bonds, annuities, mutual funds and the like. The broker/agent at the bank would earn a commission which benefits the bank in a small way. The "owners" of annuities are insurance companies. People shouldn't take away from what I've posted that annuities are all scams or bad investments - just not the best idea- IMO - for seniors, generally speaking. A good annuity purchased at a young enough age can be a great source of monthly/annual income. Like geewiz says, just be sure to do your homework prior to purchasing one - in fact doing your homework before making any investment decision is a very good idea!
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Sleepless, I worked in the Annuity field for many years. AND, I have taught seniors about scams that may affect them in more recent years. Hence, I feel I have knowledge on both sides of this issue.

There are SO-O many different types of annuities and many are so complicated I feel that sales people don't always understand what they are offering. And there are commissions to consider, as there are with ANY financial instrument. And that may shade the recommendation from the sales person.

The Bottom line? Without knowing what your Dad said his needs and objectives are, what every other source of income and assets are, and more about the specific proposal was I would not be able to fairly comment on your question. And, I don't think others on this site can give a fair assessment either.

As an aside, the bank would not benefit from an early death ---And your Dad would not be handing over a large chunk of money to the bank. The insurance company that issues the annuity would receive all of the money. Depending upon the type of annuity (Fixed, variable, immediate, deferred) and the terms and riders it would be unfair to brush this proposal as abuse or scam.

As always, a good bit of caution is needed in making investments --- personally too many senior fail to get competent family input for such investments. Even wise investors lose their edge as part of the aging process and investment products have surely become more complicated.
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Babalou is correct. Annuities have the largest comission rate of all investment funds a broker can sell such as stocks, mutual funds, bonds etc
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Thanks! This validates my impression from when my father explained that the banker was proposing taking this route. My father is 84 and my mother is 77 (with Parkinsons), so I joked with him that if he waits a couple years I am sure they would offer him the annuity at an even higher interest rate.

But seriously, the point that you made about this practice being unscrupulous really made me nervous for how vulnerable seniors are, even from a person working at a mainstream bank.
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Find out how much of a "cut" the "personal banker" gets of the chunk of change that your parents are thinking of handing over. Dad may see why the "personal banker" wants him to do this.

I would be in touch the the State Banking Commission and the State Attorney General about this bank and their practices. With a CC to the Better Business Bureau and the new Federal Consumer Protection Agency for good measure.

And maybe you could tell us which bank it is.
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