There is valuable information in an article by Marsha Mercer for retirees struggling to pay their living expenses. Many didn’t save enough for retirement and some who did save and invest were driven from the stock market with heart-breaking losses during the financial crisis. Many of those didn’t get back in the market, which would have resulted in them recovering the losses. They probably instead put their money in “safe investments”, such as insured certificates of deposit (CDs). The Federal Reserve policies have driven those kinds of investments to paying interest rates that are below the rate of inflation. Putting money in a CD or similar relatively safe instruments at this moment in time is like saying to the banker, “Take my money and give me almost all of it back when the certificate matures.” The result is that many retirees are looking for ways to pay monthly expenses without the help of income from investments.

There have been a slew of ads on television targeting retirees.  The ads tell people they don’t have to wait to get their money from retirement programs or structured settlements.  Mercer’s article warns against jumping at those offers. It describes a retiree beset by bills that “…arranged to get a cash advance in exchange for signing over most of his $1,083 monthly pension for eight years.” He agreed to pay $1,070 a month in return for money up front. The cost for the $42,131 cash advance was $102,720. He was named the lead plaintiff in a suit against the company and the judge ordered all the people could stop making payments and that the retirees would be repaid nearly $3 million. The company declared bankruptcy and none of the victims were paid anything.

Pension advance companies “…fly under the legal and regulatory radar by insisting they are not banks and therefore are not subject to truth-in-lending or usury laws.” They claim the payments are advances and not loans, and the payments aren’t interest. Many people are still interested in getting money now regardless of the overall costs. One official of a “pension-buying company” says they receive 30 to 50 calls a day from people who want cash for their pensions. He claims he always tells them, “It’s expensive money…Don’t sell your pension unless you have a good plan for the money.” Deals requiring payments of over $100,000 for about $40,000 cash now don’t sound to be a good plan. Should we encourage retirees to take classes in economics?