The following article comes from the U.S. News ebook, How to Live to 100, which is now available for purchase.
The Great Recession hammered investments across the board. But perhaps no one was more devastated by the economic downturn than retirees or those on the verge of retirement.
People who already retired were no longer working, so they had no chance to earn back the money lost. People close to retirement were left scrambling to regain losses quickly or delay retirement altogether.
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It's no coincidence that around this time, a new kind of scam emerged that targeted financially stressed retirees. These scams take many forms, but perhaps the most common is what is known as a "free lunch" scam. Here's how it works: An advertisement is placed in a newspaper or online promising a high-reward, low-risk investment that directly benefits retirees. It also promises a free lunch at a local restaurant, where a more expansive sales pitch can be made.
At the lunch, a polished broker promises market-beating returns. All the retiree has to do is roll over his or her 401(k) account into an account run by the broker's firm. There's some talk about risk and fees but with high returns, those fees would be nominal. Desperate to make up the money lost in the bear market, the retiree agrees.
Once that money is under the broker's control, it disappears. The retirees are told that unforeseen market fluctuations caused steep losses in their account. According to the broker, there's little to nothing left. The retirees are left broke; the broker most likely walks off with the money.
These scams have become so common that the American Association of Retired People (AARP) started a No Free Lunch campaign to increase awareness.
"We have people who are concerned about lack of credentials, high-pressured pitches, promises of high returns, and virtually no risk," says Sally Hurme, a lawyer and project manager with AARP education and outreach. "We want them to report their concerns back to us in an easy reporting form available at this site."
Wide range of scams. Free lunch scams are hardly the only ones that target seniors. In "mystery shopper" scams, people receive a large check from what appears to be a government agency with instructions to deposit the check into a checking account. There are also instructions to spend a portion of the money at a particular store, keep a bit in the account, and wire the rest overseas.
Sounds like easy money. But the check is bogus and the money being transferred out of the account belongs to the victim.
Then there's medical fraud, in which seniors are targeted for unneeded tests, and a relative-in-distress fraud, in which a person calls claiming to be a long-lost relative in need of money. There are also Ponzi schemes, made famous by Bernie Madoff. Money raised from new investors is used to pay old investors. Sooner or later, the scheme collapses and everyone loses their cash. Other fraudsters sell unregistered securities, like promissory notes or sales in microstocks.
According to Katherine Hutt, director of communications at the Council of Better Business Bureaus, these are just a sampling of the scams aimed at seniors. "During retirement specifically, there are so many different scams that targets seniors," she says. "There are a lot of scam artists that fly under the radar."