Financial Advisors Recommending Early Retirement Plans

Early retirement can be intriguing, but strategies for executing this type of plan can be susceptible to securities fraud. Further, even when a proposed early retirement strategy is not fraudulent, the risks are often significant. It can lead to the loss of retirement funds, which can seriously impair an individual’s ability to live in retirement comfortably.

Stockbrokers or other investment professionals may entice an individual to consider early retirement by describing a plan created by the financial advisor or stockbroker in which income can be significantly similar to the individual’s working years. However, this can be an unrealistic strategy because of the numerous variables that factor into retirement. For example, in order to successfully execute an early retirement plan, the individual must have saved enough money early on, make sound investment decisions during retirement, and avoid withdrawing too much money too fast, which will deplete savings.

Further, even if an individual plans well and makes good decisions, other factors out of the control of the individual affect retirement. This includes the return on the investments made and the length of the time the individual lives following retirement. In most cases, an individual’s nest egg must be several times higher than the amount they make in yearly earnings. The multiple variable which need to be factored in can be overwhelming and many challenges are difficult to predict.

Unfortunately, brokers may not disclose all of the risks involved with early retirement. Some indicators of a risky or fraudulent scheme include:

1. Explaining that everyone can retire early: this is simply not true because some individuals lack the resources to execute this strategy. Further, even for those individuals who have sufficient resources, a risk still exists that he or she will not have saved enough in the event that they have an extended retirement;
2. Promising that as much can be earned in retirement as working: this guarantee often relies on unrealistic projections of the rate of return on investments; and
3. Promises related to the amount the investor will be able to withdraw: many financial experts recommend withdrawing only 3-5 percent of retirement funds per year. Brokers or other professionals promising the ability to withdraw more than that are often engaging in misleading behavior because withdrawals may exceed realistic potential portfolio gains.

The following describes a scheme that was actually executed, which cost many individuals large amounts of their retirement savings. A free seminar was offered near a company’s offices, in which the broker encouraged individuals to:

1. Retire early than they had originally planned;
2. Cash out their 401(k) or take a lump-sum cash payment of their pension; and
3. Open a traditional Individual Retirement Account (IRA) at the broker’s firm and invest in securities.

The problem was that the broker guaranteed high return rates and recommended large withdrawals without really disclosing the risks associated with the strategy including the potential for substantial losses due to a market decline. The amount of withdrawals were described as being sustainable for 30 years, but based on unrealistic return rates. Further, the broker did not mention that there would be fees and expenses associated with investing through the firm. Unfortunately, the strategy proved unsustainable and many individuals suffered significant losses. However, some financial advisors have failed to offer retail investors honest assessment of their retirement options in hopes of securing new accounts which can generate substantial commissions.

Silver Law Group has represented multiple investors in claims against financial advisors, brokerage firms and others for unsuitable investment advice. Some of our cases have involved the sale of risky alternative investments, insurance products such as variable annuities and proprietary products created by Wall Street firms which fail to perform as designed or were substantially riskier than disclosed by the stockbroker or financial advisor.

If you have suffered losses as the result of a stockbroker or other investment professional’s misconduct, it may be possible for you to recover a damage award against the responsible individuals. For more information, contact an experienced securities law attorney today. At the Silver Law Group, we provide representation in securities arbitration proceedings, as well as state and federal court.