Pensions are the primary means of support for about one-half of Americans of retirement age or older. This income—set aside throughout the course of a lifetime of employment and work—is often supplemented by social security, or other retirement investing. However, America’s seniors are not usually living in the lap of luxury, bringing in an average of $1,500 per month from all sources, or about $18,000 per year. This can lead to periods of financial instability when unexpected medical bills, housing changes, and other events occur. How do American senior citizens get the money they need? All too often, it comes from exploitative moneylenders, borrowing against future pension income.
What is promised vs. the fine print
Even workers with good income sometimes encounter unexpected bills. For retirees on fixed incomes, these unanticipated costs can be devastating, particularly when it becomes a choice between needed healthcare and accepting unfavorable terms. Also known as “pension sales,” “pension buyouts,” or “pension loans,” pension advance scams all promise the same thing: money now, based on promised repayment from future pension income.
The danger lies in the fact that the terms for the loans tend to be quite long—five to ten years—and often at exorbitant rates of interest with fees. The effective annual percentage can be over 100%. The lender then takes out a monthly sum from the pension payment, leaving the recipient with even less monthly income to cope with any future unexpected costs. This often leads to a painful cycle of repeated loans, each one taking a bigger and bigger chunk out of the monthly pension payment, reducing the senior’s quality of life dramatically. Another nasty surprise that often awaits recipients of pension advances comes at tax time, when the lump sum can be considered taxable income.
Safer alternatives and suggestions
The Federal Trade Commission (FTC) issued warnings about this type of fraud as early as 2014. Due to the prevalence and nature of this immoral enterprise, the FTC also offered more secure suggestions:
- Securing a loan through a credit union. Credit unions are more regulated in regard to the amount of interest and term lengths they can offer.
- Working with a reputable loan company. When all fees, interest, and terms are considered, even a for-profit loan company (presuming it has a strong financial rating) may be a less expensive alternative to a pension advance.
- Speaking to loan officers at a bank. Particularly when a customer has been loyal for many years, banks are able to offer short-term loans, with reasonable rates.
- Exploring credit counseling. These low or no-cost programs are available in every state to help seniors, or anyone in need of help to work out debt-repayment plans or budgeting.
Make no mistake—pension advance scams are fraud. The Frankowski Firm has years of experience representing investors who have lost money as the result of investment fraud. If you or someone you know has lost money as a result of such a scheme, contact The Frankowski Firm today. We can be reached at 888-741-7503, or by completing our contact form.