What’s “Social Security Insurance” — can you really “Act Before 9/28/2016 and lock in $43,543 for life?

What's Nathan Slaughter teasing in ads for High-Yield Investing?

By Travis Johnson, Stock Gumshoe, September 14, 2016

This ad caught my eye, because Nathan Slaughter (or his ad copywriter) is doing the same thing a lot of newsletter pundits do: Comparing apples to oranges in trying to give the impression that there’s some “secret” alternative to social security that save your retirement.

(There is the old “secret” alternative, of course, it’s called “save lots of money and invest well enough that it grows” … but that’s not all that fun, and if you’re already 60 years old it’s a bit late for compounding to help you very much).

So what is the story? Well, the ad for High-Yield Investing starts with the tale you probably already know quite well, the one about Social Security being in dire straits… here’s a taste:

“If you’re relying on Social Security for retirement, you better start working on Plan B.

“Because there is absolutely no way that the current system can make all the payouts it has promised.

“Look, everyone knows that Social Security is broke. That’s old news.

“But most people DON’T realize just how bad the situation is.

“Social Security has paid out more in benefits than it received in payroll taxes for eight straight years.

“The system is hemorrhaging $253 million per day. That comes to $7 billion a month… and $84 billion a year.

“The only way Social Security is still making payments is by ‘borrowing’ from a trust fund that was set up for future beneficiaries.”

OK, so no surprise there — Social Security has had a cash flow problem (more going out than in) for quite a while, and folks have been talking about that not just since the tide turned and started going out, but for 20+ years before that as the very clear and actuarial math became quite predictable. The solutions are as obvious as the problems — in order to make social security sustainable either payroll tax income has to go up, or benefit payouts, mostly for retirees, have to go down.

There are lots of potential ways to do that, including removing the social security payroll cap and increasing the age for benefit (or full benefit) eligibility), but there hasn’t been any real decisionmaking for 30+ years, ever since politicians started to realize that the only people who reliably vote in large numbers are senior citizens.

Slaughter does say there have been “cutbacks” already, citing the various initiatives from the Social Security Administration last year that certainly felt like cutbacks if you were relying on those provisions in the law — though it was also described as “closing loopholes” and getting rid of some of the complexity that let folks use different filing types and dates to increase their benefits (that’s mostly about spousal benefits and maximizing the “credits” you get for filing for benefits later, there’s a pretty good Kiplinger’s article about that here from late last year).

The end game for the next phase of Social Security reform is not at all clear, of course, Slaughter picks a few points from Trump and Clinton about their plans which add some kind of means testing or new taxes on social security benefits, or increase social security payroll taxes by lifting the $118,500 “cap” to some higher number or removing it entirely, and it’s a bipartisan issue in the worst way: Both parties are trying desperately to look like they’re solving the problem without making any taxpayers mad — cue my favorite cartoon here from Western Massachusetts’ favorite son, Dr. Seuss.

So, naturally, if you’re 40 or 50 or 60 years old, you’re probably a bit worried about Social Security being sustainable and about whether or not you can really count on those benefits that get calculated in the letter you get right around your birthday every year (or punched into your financial advisor’s algorithms to help you figure out if you’ll outlive your money). Which makes you a great candidate for a promise about a strategy that will get you “$43,543 a year FOR LIFE.” And if you’re in your 50s or 60s or 70s, particularly if you’re a man and are at least at a “middle class” income level, well, you’re also a member of every publisher’s favorite demographic: People most likely to subscribe to investment newsletters.

Where does that $43,543 come from? Let’s cull a few more clues from the ad: