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About two years ago Esther Hanstein of Scranton noticed her investment portfolio was looking anemic and decided it needed an overhaul.

At age 74, Hanstein had limited knowledge of investing. She had never done hands-on trading in stocks. Her experience had pretty much been limited to choosing mutual funds for her 401(k). But she did keep an eye on the global economy, and her then-broker had rolled over some of her funds into oil and gas and European bonds.

By 2014, with oil prices slipping and Greece teetering on the edge of default, Hanstein had the jitters.

As she shopped for advice, a friend recommended a local broker-dealer for Centaurus Financial, Christian J. Stoltz of Kingston. Hanstein gave Stoltz a call, and in the fall of 2014, she says, they met to discuss her financial objectives.

“I didn’t want income because I’m still working,” explains Hanstein, adding that her foremost goal was to preserve her principal and stay ahead of inflation.

By July 2015, after several meetings with Stoltz, Hanstein had put most of her cash in annuities.

Simply put, you buy an annuity by making either a single payment or a series of payments to an insurance company, and in return, the company makes payments to you, either immediately or in the future.

Annuities are attractive to retirees because they offer a predictable income stream over a period of time, sometimes for life. As investments, however, they can be dicey. So dicey, in fact, that in 2014 Allianz Life Insurance Co. of North America agreed to a $251 million settlement to end two racketeering class actions accusing the company of luring 230,000 seniors into buying low-performing deferred annuities with draconian surrender charges and ridiculous fees.

Apparently, however, that didn’t change the company’s practices.

Hanstein purchased an Allianz Vision Variable Annuity in November, 2014. The cost was $52,880. She later took a $2,400 withdrawal and left the rest to keep growing.

In December 2014, Hanstein purchased Athene’s Balanced Choice Indexed Annuity, paying $96,402. No withdrawals.

Then in August, 2015, she purchased another Balanced Choice Indexed Annuity, this time paying $245,000. She later withdrew about $10,000.

So Hanstein plunked down $394,000 — about 75 percent of her liquid assets, she says — for three annuities, and withdrew about $12,400.

That should have left her with about $381,600, right?

Wrong.

If Hanstein wanted to cash out today, she’d get back roughly $338,000.

How’s that for preserving principal?

That’s right. After a little more than a year, cashing out would cost her about $43K — and not because of the recent stock market crash, but because that’s how annuities are generally designed. Most are complex instruments that promise high returns — years down the road — but are also loaded with administrative fees, mortality and expense risk charges, rider fees, contract maintenance fees, sales charges and underlying sub-account expenses, and written in mind-bending language that hardly anyone can understand.

Hanstein wonders why Stoltz “put me into these three annuities that I can’t get out of.”

“I wasn’t aware of all the penalties and charges,” she said. “I am floundering here. I could see my money trickling away.”

Stoltz, who splits a sales commission of about 7 percent or more with Centaurus Financial, says the annuities offer Hanstein the best bang for her buck and insists she knew what she was getting into. Still, he’s going to try to help her out.

“I’m trying to talk to the investment companies to see if we can reverse things, even if it’s not warranted,” he said.

Chris Wang, a financial analyst at Runnymede Capital in New Jersey, studies and blogs about annuities, believes they’re primarily designed to enrich the people who sell them. Older folks in particular, he says, should not fall for their sales pitch.

“The majority of 70-year-old people should be conservatively invested,” he advised. “If they had a portfolio of 30 percent equities and 70 percent bonds, they would have been down just 7 percent in 2008. This would have been followed by returns of 12 percent, 9 percent, 6 percent, 8 percent and 8 percent for a cumulative return of 39 percent from 2007 to 2013.”

He says investors should avoid what they don’t understand.

“Reading these annuity contracts gives me a headache,” Wang said. “And I’m a professional.”

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Consumer Watchdog

Christine Young

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Christine Young is the Times Leader’s Consumer Watchdog. She can be reached at [email protected].. Her column appears weekly.