The latest ad from Teeka Tiwari for the Palm Beach Letter is pushing the idea that you can somehow collect some incredible monthly income with an “off the books” retirement income source… here’s how it’s introduced:

“Now, For the First Time Ever, a Former Wall Street Hedge Fund Manager Reveals How You Can Unlock the Secret ‘Backdoor’ Into…

“Washington’s Private Pension Plan

“And collect up to $11,334 per month thanks to this “off-the-books” retirement income source that pays retired congressmen and government insiders millions each year…

“They’ve been praying you’d never find out about this…”

This digs into a rich source of discontent among folks who feel like they haven’t gotten a “fair shake” in life, who are angry that, as Tiwari puts it, “everybody knows our public officials rig the system in their favor.”

And he says there’s a special way that they “rig the system” that you can benefit from.

“… less than 1% of people realize how Washington D.C. has rigged retirement—and left you out in the cold….

“… it’s called an Application for Immediate Retirement—also known as SF 2801.

“This document grants D.C. insiders access to a lucrative Social Security alternative…

“A private pension system which almost no one has heard of, because it’s only open to members of the U.S. Government.

“I call it:

“The ‘Immediate Retirement Fund.'”

And he says of this “Immediate Retirement Fund” …

“… within 30 days, it can give you immediate access to all the income you’ll ever need for retirement, without working another day in your life….

“Recipients of this fund receive a huge benefit up to $11,334, every month… guaranteed.”

That’s all a reference to both Congressional/Presidential pensions and, further into the ad, public sector retirement pensions — like the pensions that local VA nurses or postal employees or government office workers earn. Some of these are Federal, some are state-based, and they’re all employment-based annuities.

You, obviously, can’t get one of those if haven’t served in Congress or worked as a government employee… and if you’re retired from a state job in New Jersey or Illinois or some other state that’s more bankrupt than the rest, you’re probably worried about the pension benefits you earned actually being paid.

Or maybe you’ve already got a pension from some private source — they’re rarer now and have been phased out at most companies, but there are still lots of retirees or near-retirees who depend on corporate pension plans for their future income.

A pension plan is just a defined benefit retirement plan — you sign up or are signed up by virtue of your employment, and your employer promises to pay you a certain amount of money each month or each year after you retire. Usually the amount is based on how many years you work, and what your average salary level is as you near retirement, and money is usually taken out of your paycheck to help cover the cost of that perpetual future income stream — as opposed to the “defined contribution” 401(k) plan that is far more popular among employers now because it puts the risk back on the employee to manage their future income.

This is not “free money,” it’s the retirement that was promised to those workers — you can argue about whether it’s justified or not (particularly the Congressional pensions, which have often been egregious), or whether it feels fair, but they played by the rules and, on average, they sacrificed salary (which is often higher in private sector employment) in order to get better benefits (like a pension) and a more stable work environment.

That’s a deal that many of us probably thought about at some point in our lives — do I take the risk of a harder job, or a more competitive job? Or do I take the stability of the government job with a pension? Do I stick with this job that I hate, with terrible coworkers, so that I don’t lose this pension? I’ve had a couple jobs where a pension was an option for me, but I opted out in order to get the “you can take it with you” 401(k) contribution instead, because I knew I wouldn’t be in that job for the 30 years that would make the pension worthwhile. Nothing is free, and people who have pensions are not, for the most part, scamming anybody — you can argue about the Congressional pensions for disgraced and jailed politicians or those who quietly voted in higher payouts for themselves and tried to keep it quiet, of course, but those are just the attention-getting crazy ones.

I’ve gotten off track a bit, though — why does Teeka Tiwari go on for so long in talking about these crazy “Immediate Retirement Fund” pension plans that sound so appealing? Because he’s got a secret deal to give you, just as soon as you pay for his Palm Beach Letter subscription. That’s what “free” means in this world, by the way — pay to subscribe to my newsletter, and then you get a “free” report.

So what’s the deal here? Another taste of the pitch:

“The ‘Immediate Retirement Fund’ is like Social Security… only on steroids.

“But there’s a problem. Because of a clause in this same document, you are FORBIDDEN from ever taking part in the government’s official program. By law.

“However… where there’s a law, there’s a loophole.

“I have just completed an investigation. And I’ve found a completely legal ‘backdoor’ into the ‘Immediate Retirement Fund.’

“And believe it or not, once you know what it is and how it works, you too can collect up to $11,334 in extra income every month.”

This is a good time to remind you, dear listeners, of one of the rules of investment newsletter teasers: If it’s in quotes, that means “I’m lying.”

So odds are pretty good that it’s not an “Immediate Retirement Fund” … and there isn’t a “backdoor.”

What other details do we get about this “backdoor?”

“Start now, and your first ‘Immediate Retirement payout’ could be deposited in your bank account within days. And the money will continue to arrive every month…

“For the rest of your life.

“And it won’t affect your Social Security benefits. You won’t lose a dime.

“Quite simply, ‘Immediate Retirement payouts’ come from a special source in the private sector. Meaning this extra income is ON TOP of any benefits you currently receive.”

Sounds perfect, right? How do we get these payouts? Where does this money come from? It sounds like it’s free! Wooohooo! My retirement is saved, all I needed was this $99 Palm Beach subscription!

Oops, sorry, got ahead of myself there. More hints about what this “immediate retirement payout” is?

“You scroll through a special website. You fill out a form with your basic information. And you click a few buttons.

“That’s it.

“Instantly, you’ll be presented with a full run down of every ‘Immediate Retirement Fund’ available… including how much it will pay you every month, down to the penny.”

That’s it? It’s like a dream come true, how do I sign up for these funds? Where does the money come from?

“Take one ‘Immediate Retirement Fund’ headquartered in Philadelphia. It’s been in business since 1905.

“And starting next month, and every month after that, it could pay you $3,701.15.

“In fact, it wants to pay you.

“Its business depends on it.

“Understand, these particular funds are in a simple business… the business of acquiring valuable income-producing assets. And then dispersing that income to people like you.

“The first ‘Immediate Retirement Fund’ you can apply for, as you’ll see in The Black Book, is an absolute treasure trove.

“It’s owned 21 major radio stations and television channels… broadcasting Carolina Panthers games, hugely popular Nascar races, and ACC college basketball to living rooms across the country.”

Ah… OK, I’m a little less excited now.

Maybe it’s not really just a free pile of money that I can get because I’m friendly with Teeka Tiwari?

Yes, I’m afraid it’s true… this is not magic. That “Immediate Retirement Fund” headquartered in Philadelphia is Lincoln Financial… an insurance company.

And “Immediate Retirement Funds” are, as you may have surmised, annuities.

Not that there’s anything wrong with that, but if you scroll through the ad I don’t think you’ll find mention of the fact that you have to “buy in” to get an annuity… just like you have to work for the government to earn a government pension.

So yes, though you can get your share of these “immediate retirement funds” … it’ll cost you. I assume that what Tiwari is referring to here are probably fixed deferred annuities, which are a reasonable way of making your future income more secure in exchange for an up front payment.

There are a gazillion different kinds of annuities, some of which are sketchy and terrible and all of which are very hard to compare apples-to-apples, so it’s a sector of the financial services world that is very sales-driven: Most people buy annuities from insurance agents and financial planners, and those folks are paid commissions. That’s not evil, everyone deserves to be paid for their work, but it’s not always terribly transparent, either, so it behooves individuals to learn a lot before they jump in and commit their money.

At its heart, these kinds of income annuities are a way to take your lump sum of money, sometimes from a retirement account like a 401(k), and turn it into income. Some people use these to make sure they have a base level of income from the day they retire until forever, some use it as “longevity insurance” in case you beat the odds and live well into your 90s or 100s.

So, for example, if you’re 65 years old and have $100,000 to pay for an annuity, you could probably get about $800 a month in income in perpetuity starting at age 70… or $500 a month if you want the income to start right away (that would be a “Single Premium Immediate Annuity”). Or, if you’re just preparing for the possibility that you’ll live a lot longer, and you want to have some income secured, you can get a promised $3,500 a month in income starting at age 85. There are lots of variables, including whether or not you want a “cash refund” for your heirs if you don’t live long enough to earn back that $100,000… or if you want the income for life to include both your life and the life of your spouse, for example (both of those would reduce the monthly income, of course).

What scares people about immediate or deferred fixed annuities like this is that you give up the money, so you lose control and have to count on the insurance company to be financially stable enough to keep paying you (like Lincoln Financial, New York Life, MassMutual, etc., a lot of these companies have certainly stood the test of time), though there are also state guarantee funds that back up these annuities to some degree (I don’t know how much confidence that should provide, I’ve never researched them).

And there are also plenty of other things to think about even if you do have enough capital to commit to this kind of an insurance/annuity investment — including inflation protection (which is expensive), and how it fits in with your other retirement savings or assets. I pulled those example amounts from ImmediateAnnuities.com, which will give a basic esetimated quote without any personal information, but I’m sure there are lots of others. Vanguard and TIAA-CREF both sell annuities, too, and both provide pretty good education information, and I’ve also spent some time exploring the offerings of a new startup called Blueprint Income, which facilitates deferred annuities that you can buy in smaller monthly bites (they call this a “personal pension,” and it has some appeal for younger folks who can’t imagine accumulating $100,000, but might put in $100 a month to supplement their retirement income).

The simplest annuities, and the easiest to compare across companies, are those “SPIA” lump-sump payments that buy you immediate and perpetual lifetime income… though the actual income level you’re quoted each day will probably fluctuate some based on prevailing interest rates (insurance companies use lots of investments to backstop their commitments, but the bulk of their money is usually in corporate bonds… so when interest rates are higher, thei models let them promise higher future income payments in exchange for that lump sum payment you make.

But there is plenty of variation across providers, still, so be prepared to talk to a couple agents (services like immediateannuities.com are, really, just agents too, and there are probably a few agents you might trust in your home town if you prefer to research it in person).

What all of them have in common, of course, is that you put up the lump sum in order to get that promised monthly income. There’s no magic, it’s just a combination of insurance and investment income, managed by insurance companies, that turns your capital into guaranteed income. It’s a great thing if that’s what you need, and that guarantee can remove a lot of cash-flow worry for those who are retired or near retirement, but the ads are, of course, quite disingenuous because you’re not “signing up” for income… you’re buying income.

And the ad also hints at some of the other “secrets” for generating income that are in their “Big Black Book of Income Secrets” … including the “770 Accounts” that were the core of Palm Beach’s marketing push when they first launched about five years ago (we covered those 770 accounts several times, including this article — that’s just a reference to high-cash-value whole life insurance policies, often called “bank on yourself” policies).

As with pensions or immediate or deferred annuities, there’s no free lunch — yes, you can let your money compound tax-free in a life insurance plan, and even borrow money from it, and it should earn more than a bank account… but it’s still an insurance plan, you’re still paying for it and it’s your money that’s being put to work, not some magical source of free money.

And it refers to another secret, “Instant Cash On Demand” deals that Tiwari calls “I.C.O.D. Transactions’ … and that’s just a reference to selling put options for income.

Which, yes, does also lead to income — you promise to buy a stock if it falls through a certain price, and you’re paid for that promise… though you also have to have the cash in your account (or the borrowing power, at least) to back up that promise. You’re earning money by taking the risk off of someone else’s plate, so in that way it’s kind of like you’re selling stock insurance… which is great, unless there happens to be a hurricane in the market.

Using the example they allude to of Apple (AAPL) shares, you could collect “ICOD” money immediately by selling a put option on AAPL — for example (they don’t get into specifics), you could sell the AAPL June $160 puts for $4 a share, and that would commit you to buying AAPL shares at $160 whenever the buyer of that put wants to sell them to you, anytime up to the expiration of the put contract on June 15. These go in 100-share increments, so for each option contract you’re actually collecting $400, and your broker will make sure that you have $16,000 available in either cash or margin in your account to make good on that promise. If the stock falls below $160, you’ll have the shares “put” to you and the $16,000 taken out of your account, and you’ll own 100 shares of AAPL that you paid $160 or and which are worth whatever the market says they’re worth that day. If the shares never dip below $160, the puts won’t be exercised and you’ll just have earned that $400.

Put selling is getting a little more lucrative now that risk has returned to the market — that “volatility” number you always hear referenced in the financial press is really just based on how much investors are willing to pay for downside protection… so when the VIX is high, that means investors are willing to pay more for put options, which means you can earn more by selling put options.

But, of course, that only happens when everyone is worried about stocks going down — which probably means you’ll be worried about it, too, so maybe you’ll be too worried to take the other side of that trade — it takes a certain amount of contrariness to make money selling options without driving yourself crazy, partly because these are generally trades that have both a high probability of success but also a very skewed up/down dollar number. If Apple falls to $120 in the next month or two for some crazy reason, for example, then you’re out $4,000 just because you were trying to shave $400 in income out of the market… the “wins” tend to be steady, but one big “loss” can sometimes wipe out a year or two worth of “income.”

So… I’m afraid that’s it. I regret to inform you that there remains no free lunch, no magical check in the mail that you can just “sign up” to receive, and no supernatural way to sneak in the “backdoor” and suddenly earn yourself a Congressional pension.

If you’ve got savings, you can turn it into income by buying an annuity of some sort — that’s what many retirees do, and it’s nice to have enough savings that you can allocate some of it to a “guaranteed” income stream that supplements Social Security or your other retirement savings, but it still takes money to start, and research and careful thinking to make sure you don’t commit those savings to something you don’t want or need.

That’s about all the wisdom I have for you on annuities, though I’m sure a great many of you have researched that topic much more deeply… and we’ve got quite a few financial planners in the group here, so there are probably plenty of you who’ve recommended (or rejected) annuities for different folks in different situations. If you’ve got any thoughts to share on these “Immediate Retirement Funds” and “Private Pension Plans” being pitched by Palm Beach Letter, well, feel free to chime in in with a comment below… thanks for reading!