Securities Regulators Warn Investors about Early Retirement Scams


Even in today’s turbulent economy, many people dream of retiring early and living off of their investments. On occasion, unscrupulous investment advisers have been known to take advantage of this wish by promoting deceptive early retirement schemes. This problem has become a big enough problem that the SEC and FINRA have started warning investors to beware.

The decision of when to retire is not simple or easy. For starters, it requires a detailed understanding of income needs, sources of income, and investment options, as well as the ability to analyze the inherent uncertainties of investment returns.

Despite the uncertainties and risks, early retirement scam artists are masters at persuading people that “everyone can retire early” and “make as much money in retirement as you can by continuing to work.” Those falsehoods have lured many into financial disaster.

Having seen the tragic outcomes of numerous early retirement scams, regulators at the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) released a publication earlier this year entitled “Early Retirement Seminars 101: Smart Tips for Spotting Retirement Scams.”

As the title suggests, the pitch is usually made at a “free lunch/dinner seminar.” The location is frequently at or near the workplace. It is not uncommon for the employer to be downsizing, which may explain the employer’s cooperation in lending their facilities and apparent backing to the scheme.

During the typical presentation, the audience is told: (i) that they can retire earlier than they thought, and (ii) to do that, they should roll over their 401(k) money or take a lump sum distribution from their pension plan and roll that over into an IRA with the scammer.

Audience members are assured that the pitched investments will produce returns sufficient to support them in the manner to which they have become accustomed. Withdrawal amounts of 7 to 9 percent are proposed. Annual returns of 11 to 14 percent are taken for granted.

As the regulators point out, those assumptions are completely unrealistic. The average stock market return over the past 80 years is less than 10 percent. It has been much worse than that more recently.

What often happens is that the recommended withdrawal rate of between 7 and 9 percent is maintained despite the inability of the investment performance to support it. The “return” that investors assume they are getting is, in large part, their own principal. By the time they discover what is really happening, a significant principal loss has occurred.

It can get even worse. Some scammers, who have actual custody of the investors’ money, divert it for their personal use and never invest it all. The supposed returns are paid with money from new investors. This is known as a ponzi scheme. Payments are regular and smooth until the house of cards inevitably collapses.

The SEC and FINRA advise, above all, be skeptical of everyone and everything having to do with your money. Reject those false promises that everyone can retire early and earn as much in retirement as they did while employed. Be on guard for promises of guaranteed investment returns, overly consistent returns that do not reflect the market’s ups and downs (a sign of a ponzi scheme), unusual or complex strategies, private investments that do not trade on exchanges, and sales pressure.

At a minimum, call your state securities regulator and check with FINRA to find out whether the firm and salesperson are registered to sell securities, whether they have a history of investor complaints or regulatory problems, and whether the investment itself (if it is not a publicly traded stock or bond) is registered. Unregistered sellers of unregistered private investments account for a significant percentage of securities fraud.

Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.