Out Come the Freaks

It's that time of year again. We're getting close to June 30th; retirements peak then with schoolteachers and administrators getting out at the end of their contracts, and with new fiscal years beginning on July 1. It is at this time every year that I start getting questions, seeing questions and hearing stories about various "investment people" who are fomenting fear, uncertainty and doubt, on naive public employees. The common ploy is advising people to opt for the "double lump sum" option - equivalent to cashing out your entire PERS account plus the employer match - and rolling the balance into some investment vehicle that the "investment people" can make a boatload of commissions from. While I do not mean to tarnish the reputations of respectable financial advisors, I'm afraid you're outnumbered and outgunned; those looking out for the PERS member's self-interest are few and far between. Investment advisors make their money in one (or more) of several ways: commissions on investment or insurance products they convince you to buy; from management fees that they receive as a percentage of the money you invest with them; from being paid a straight fee to provide you with objective advice. If you need financial advice, try to find someone whose money comes from "fee for service". If a financial advisor makes his money off products you buy, how in the world do you think you're getting objective advice? If this type of advisor had the option of selling you two products, one that pays him/her a small commission or one that pays a large commission, which one do you think you'll be steered toward?

Before you take a double lump sum option, get advice from two or three different financial advisors and stay clear of someone who gives you advice for "free". There is no such thing as a free lunch, and the "free" advice you get may end up being the most costly mistake you can possibly make.