This article was originally published on January 18, 2017. It has NOT been updated or revised since that date, the new versions of the ad we’re now seeing have dropped the “Retirement Blackout” pitch about April 10, since that fiduciary rule change was delayed in Washington, but otherwise the “26(f)” pitch appears unchanged.
This ad is so ridiculous that I couldn’t convince myself to write about it when it first started running… but the questions are piling up, so it’s time to dig in.
Here’s the fear mongering that they start with:
“On April 10 2017, the Department of Labor will execute a controversial plan.
“It’s one that few knew was within their power.
“And they’re using an obscure clause buried in Title 29 of the US Labor Code to pull it off.
“CNBC warns this ‘will force major change’ on American retirement planning.
“The Wall Street Journal is reporting it ‘could cost American savers $80 billion.’
“And time is running out to prepare for the aftermath.”
Keith Fitz-Gerald says that a “unique class of investments” called “26(f) Programs” are “caught in the crosshairs” … so what does he mean by that? That’s what most of the questions I’ve been getting are about, our readers are asking what a 26f program is and how they can invest in these miraculous-sounding things. Here’s what Fitz-Gerald says these “programs” are:
“They Rose to Prominence During the Great Depression, Thanks to President Roosevelt’s Team That Also Created the FDIC and Social Security.
“26(f) Programs allow people to ‘enroll’ with one small investment stake.
“And they give investors the opportunity to earn aggressive monthly income combined with huge lump-sum payouts.
“You can potentially:
- Get paid $2,000… $5,000… even more… every month for the rest of your life.
- Then still grab six figures in one shot.
“And on top of that, there are 26(f) Programs that can operate as 100% legal tax havens.”
Then the ad runs through several stories that sound miraculous, but are really just success stories of people who saved for decades and were able to build up a next egg and pay for a reasonable standard of living in retirement.
Most of these are pulled from public news stories, I expect — I tracked down one example just to confirm that. Here’s how Fitz-Gerald pitched this person’s story:
“Roy Nair used to work for a natural gas distributor in Missouri.
“But today, he’s retired a millionaire.
“Like Darrow, Roy had his savings and a diversified investment portfolio.
“He also went BIG on 26(f) Programs.
“But he didn’t have to invest BIG to do so.Are you getting our free Daily Update
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“He was only kicking in $300 a month.
“Yet it was key to his now seven-figure net worth.
“And the income he’s receiving from 26(f) Programs has helped give him complete financial freedom.
“Roy likes to live frugally, so he only needs about $50,000 a year.
“But he also likes to splurge on at least four trips a year to places like Chile and Jamaica.”
That’s a hyped version of the story of Roy Nash, which was covered in a “dream retirement” story by CNN a couple years ago. These stories run all the time in financial magazines, it’s kind of the worried midlifer’s version of pornography — you can see pretty pictures of happy families who are living well in retirement, and it gives you the idea that such a dream is not so crazy for you.
As with most of these stories, though, the key is lots of saving and steady investment in the stock market through fairly mainstream vehicles — these people don’t achieve “retirement dreams” by betting big on some secret kind of investment you’ve never heard of, it’s far more common for them to achieve these dreams by betting small on something very ordinary like an index fund, and doing so with as much as they can afford every week or every month. Compounded investment returns add up, but it all starts with saving and letting your money be at risk in the stock and bond markets instead of fearfully hiding your funds in a bank account (or worse, under your mattress).
The actual story of Roy Nash is that he retired at 55 with about $800,000 saved, grew it to a million over the next six years, and lives that travel and thrifty spending lifestyle — he taught himself investing when he was young, in his early 20s, and he put 10-15% of his income into a 401(k) every year… and also, as teased, put another $300 a month into other investing accounts, investing in a variety of dividend stocks and mutual funds, including closed-end and index funds, and reinvesting his gains into more stocks and funds. You can see it here, but I promise: There’s no secret.
The trick as I see it… if you insist on calling it a trick or a “secret”… is in saving consistently at a relatively high level, and not speculating too much on dumb things that have a high likelihood of going to zero (recovering from 100% losses that are gone forever is far harder than recovering from 20% drops in a normal “bad” stock or fund pick), and let time, dividend and capital gain compounding, and the general rising tendency of the stock market and the economy, grow your wealth.
After a few stories of folks like that, Fitz-Gerald jumps back into fear mongering:
“These People Are All Living Their Dreams…
“Yet, Come April 10, 2017, the Department of Labor Is Going to Make it Very Hard For Others to Join Them.
“This is when the Federal government will implement their retirement blackout.
“And there’s no way to stop it….
“But There Is Some Very Good News. You Can Make an Absolute Fortune from 26(f) Programs For the Rest of Your Life!
“And There Is Nothing Uncle Sam Can Do to Stop You!
“By taking one simple action today, you can get into 26(f) Programs before the blackout.
“And you could set yourself up to make $68,870 or more…
“Every single year…
“While also becoming able to earn an aggressive monthly income to help you live the retirement of your dreams.R