Two decades ago, the concept seemed simple enough to Rosalind Davidson: Put all of your life savings into an account that will provide guaranteed returns.
But Davidson, now 97, found the deal was no bargain for her. When her family checked her finances, they discovered that except for small quarterly payments, her $80,000 was locked away until she turned 105 — even when a seizure left her in a wheelchair and in need of costly medical care.
Davidson placed her life savings into a fixed annuity, a kind of investment that can be far more complex than it might seem. She got her money back with help from The Atlanta Journal-Constitution and Channel 2 Action News when the news outlets sought answers from financial services company AIG. But Davidson, who until recent years has lived independently, now knows she should have sought help with her finances.
“I made a terrible error,” said Davidson, who lives in an assisted living facility for seniors in Johns Creek.
When it comes to annuities, it’s buyer beware. These insurance products are complicated by nature, and governed by intricate regulations that can impact everything from a senior’s access to affordable housing to Medicaid eligibility.
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They are a bad choice for many seniors, and experts almost never advise a retiree to invest an entire life savings in them.
Seniors often need easy access to cash for health care emergencies, said Michael Amoruso, president of the National Academy of Elder Law Attorneys.
“It may be wise for individuals — even if they have to pay a fee — to get help from a financial advisor,” Amoruso said.
Trusting the advice of a fixed annuities salesman is a mistake. A series of battles in federal court over financial protections struck down a legal requirement to put the buyer’s best interests ahead of their own financial gain.
Davidson’s son, Jerry Davidson, discovered problems with the annuity his mother bought from AIG during an annual income review by her former retirement home, which subsidized her rent because she lives off of a pension of less than $100 a month. The home’s income rules on annuities meant her monthly rent skyrocketed by $400.
Davidson had lost her annuity contract, forcing Jerry Davidson and his wife Marian Davidson to piece together what happened with what few records they had. The Davidsons asked AIG repeatedly for a copy of Davidson’s contract, which had gone missing, but never received it.
Davidson’s financial troubles turned into a full-blown disaster in May when she suffered a seizure and could not get up. She needed expensive round-the-clock care.
“It was her only safety net,” Jerry Davidson said of the savings locked up in the annuity. AIG told the Davidsons that there was nothing they could do. The Davidsons now perform some nursing home tasks themselves, such as dispensing medication, to lower the cost of Davidson’s care.
AIG officials told the AJC and Channel 2 that Davidson had purchased a fixed annuity in the 1990s that tied her money up in 10-year periods in exchange for a guaranteed return. Every 10 years, according to the company, AIG sent her a letter that said she had a choice: “surrender” the policy, and get her money back, or do nothing. If she did nothing, the money would be tied up for another 10 years.
Davidson is legally blind. When she received the letter in 2015 she could not read it. AIG said they received no notice of Davidson’s decision.
Davidson adds that she was never good at money matters.
“I can spend it, but I can’t understand it,” Davidson said.
Representatives for AIG said they protect seniors by barring sales of annuities to those over 90, but these guidelines did not apply to Davidson because she bought her policy when she was in her 70s. AIG does not review contracts at the end of each 10 year period to see if they are still suitable for the buyer.
In a written statement, AIG officials said their goal is to help their customers plan for their futures.
“Our priority is always to help our customers ensure they plan well for retirement and can enjoy financial security no matter how long they live,” AIG officials said. “We’re glad to have worked with Mrs. Davidson and her family to resolve their concerns.”