Minnesota Attorney General's Office

1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101

(651) 296-3353
(800) 657-3787

M - F 8 am - 5 pm

TTY:(651) 297-7206
TTY:(800) 366-4812

Tips For Consumers Deferred Annuities and Senior Citizens

A deferred annuity is an annuity in which the policyholder begins to receive income payments many years later. The Minnesota Attorney General’s Office offers these tips to senior citizens as it relates to the purchase of deferred annuities.

• Friends and Family. Ask trusted friends or family members for advice on finding a reputable person to assist with your financial or investment needs. Take a trusted friend or family member with you when meeting a broker or agent.
• Avoid Solicitations. Be on guard against telemarketers who “cold-call” you with “investment tips” or send unsolicited mailings.
• Be Careful of Seminars. Some unscrupulous agents advertise estate planning or wealth management “seminars,” when their goal is not to provide unbiased financial advice, but to sell seniors deferred annuities which may be inappropriate for their financial circumstances.
• Review the Terms. Review any annuity contract with a family member or trusted independent advisor (other than the person who is trying to sell you the annuity) before you decide to buy an annuity. Terms and conditions of each annuity will vary. A legitimate professional selling you an appropriate investment will understand that you want to take your time in making the right decision.
• Avoid High-pressure Sales Pitches. Beware of agents who contact you repeatedly, offer you a “limited time offer,” show up at your home without an appointment, or won’t meet you if family members are present. Trust your instincts. If an agent makes you uncomfortable, trust your instincts and steer clear!
• Beware of Bonuses. Some companies offer bonuses to entice investors. Often, however, these bonuses are not what they seem. The benefits may be offset by high fees and restrictions. For example, in some cases, if a senior surrenders their policy or takes a cash payout, the senior will lose the entire bonus. Remember, if it sounds too good to be true, it probably is!
• Long-term Consequences. Be sure to understand the long-term consequences of any annuity purchase. How long must you keep the money in the annuity before you are paid income on it? Will the annuity allow you to gain access to the money when you need it? What “surrender charges” or penalties apply if you need access to your money early?
  
  Deferred annuities may severely limit seniors’ access to their funds. Getting out of a deferred annuity early can mean taking a substantial loss. A senior must hold the deferred annuity until its maturity date (which may be as long as five to ten years). Once the annuity has matured, the senior must often elect to have the annuity payments spread out over another lengthy period (which may be as long as ten years). Seniors generally may only withdraw a small portion of their money without penalty during the deferral period.
• Fees and Surrender Charges. Deferred annuities are some of the most profitable annuities for insurance companies, and sales agents can earn large commissions for selling deferred annuities. Many deferred annuities also carry high fees. The most significant fee associated with deferred annuities is often the surrender charge. This is the percentage that a consumer is charged if they withdraw their funds early. For example, if a senior withdraws $20,000 from a deferred annuity in the fifth year and the annuity carries a 12% surrender charge for withdrawals before the eighth year, the senior would lose $2,400.
• Equity-Indexed Annuities. One type of deferred annuity is an “equity-indexed annuity.” The returns of equity-indexed annuities fluctuate with the stock market. In an equity-indexed annuity, the rate of return is correlated to a stock market index such as the Standard & Poor’s 500 Index. This rate typically is capped at a certain percentage return and often has a guaranteed minimum rate of return. The formulas used to calculate the rate of return for equity-index annuities can be complicated. Make sure you understand how the rate of return is determined before purchasing an equity-index annuity.

If you feel you’ve been mislead about an annuity product, contact the Citizen’s Assistance Line of the Minnesota Attorney General’s Office at (651) 296-3353 or 1-800-657-3787.