Robert Ross is peddling his Yield Shark newsletter from Mauldin Economics, and he’s doing it with an all-too-familiar “enroll in this income stream” kind of idea… in his case, he calls it the “Social Security Catastrophe Plan” and implies that it can “Boost Your Retirement by $185,040 Today.”
Like most such offerings, there’s an undercurrent of truth… but it’s so swamped by the hype and obscured by the things that are carefully left out (like how much you need to invest, how long it takes, or what the risks are) that you can’t really blame someone for thinking that their $49 Yield Shark subscription gets them access to secrets that will save their retirement and send them tens of thousands of dollars.
After all, even though we know there’s no such thing as a free lunch… we persist in believing that somehow, someone out there is getting one. So if only we had the right connections or the right secrets… maybe next time it could be us?
As is pretty much always the case with these “save your retirement” pitches, there are images of happy folks on sailboats… talk of taking your grandkids on vacation… hints that maybe you could buy a new set of golf clubs. Sadly, no photos of red convertibles in this one… maybe next time.
So let me jump to one of the conclusions: Nope, sorry, you don’t get checks by just asking for them. There’s still no secret “system” you can enroll in that will send you giant checks to supplement your Social Security income.
What’s being teased here are investments — you buy a piece of an asset or a piece of a business, or lend money to a business, and you get a return on your investment (assuming all goes well).
And how big are the checks? Well, we’ll go over some examples that he drops hints about… but this is an important time to check in on another old saying: We already know “there’s no such thing as a free lunch” … but let’s also remind ourselves that that it takes money to make money. For almost everything in the investing world, the most important determining factor for how much you earn is how much you invest.
Don’t be swayed by impressive-sounding big numbers like $185,040 — I can easily set up a portfolio that makes you $185,040 in “checks” on a regular basis if you give me four or five million dollars. If you make me start with the average 401(k) balance of someone in their 50s (roughly $175,000), then the task becomes dramatically harder and the risk you’d take in trying to get those returns is probably more than you can (or should) stomach.
But anyway, does he drop any real hints along the way about what this “Catastrophe Plan” really is? Let’s do some sampling from the ad — this part is actually from the order form, delineating what they’re promising:
“How to easily ‘enroll’ in the ‘Catastrophe Plan’ and collect as much as $185,040 on top of your normal Social Security payments…
“Answers to any questions you might have about the plan, your payout schedule, or how much money you’ll collect from your next “check”…
“How to sign up your spouse and children to the plan BEFORE the next payment, so they can enjoy a $185,040 boost to their retirement savings, too…”
Sounds lovely, right? We get some specific examples of people who have, we’re told, also tried this “catastrophe plan”….
“Just like Marvin Henderson, a retired consultant from Chicago.
“His Social Security benefits were cut by 25% because he couldn’t wait until he turned 67 and needed the money right away.
“Of course, for a man desperately trying to cover his bills, getting a smaller check from Washington isn’t a good thing.
“So, he searched for a way he could boost his retirement income by thousands of dollars every month…
“And since then, he’s used the Social Security ‘Catastrophe Plan’ to collect $50,000 already.
“He now says he has… ‘more time to enjoy life and try new activities’…
“And that… ‘The excess income I generate permits me to travel […] and it also enables me to give my children and grandchildren better gifts than previously possible.'”
Sound so nice, right? I hear from folks in retirement all the time, and those are just the kinds of things they want — a little excess income to assuage their worries, some nice gifts for the grandkids, a little travel… so how does one get that?
The ad continues…
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“All you need to do is spend the next six minutes reading the information below, and you’ll discover how to tap into the Social Security ‘Catastrophe Plan’ and start collecting your automated paychecks….”
And they throw in some intrigue and Washington stuff, to help make it believable that maybe this is one of those ridiculous government programs that maybe could benefit you…
“Of course, don’t be surprised if you haven’t heard of it before. Like most secretive Washington schemes…
“This Little-Known Plan Began in a Dark, Smoke-Filled Room….
“… in a small building just 984 feet from Capitol Hill, these 39 members worked for months…
“And without the public knowing…
“To pass a secret bill that allows part of the private sector’s income to be paid out to individual citizens INSTEAD of collected by the IRS as taxes.
“It’s what we now call the Social Security ‘Catastrophe Plan.'”
So what is it? Well, as I mentioned above, it’s just a different way to invest. This “Catastrophe Plan” is “buy REITs!”
But maybe there’s more to it than that… let’s see a few other clues:
“This program is an incredible alternative that Social Security watchdog BenefitsPro declares the new ‘retiree’s income secret’…
“What Forbes calls ‘Terrific… for retirees and pre-retirees’…
“And what CNN says offers “hefty payouts”….
“In fact, according to Wilshire Funds Management, it could boost your retirement payouts by 40%!”
Yes, Wilshire Funds Management did publish a report that found increasing allocations to REITs would have helped to both increase income and returns and increase eventual portfolio balances over thirty years. Shockingly enough, this research was sponsored by the National Association of… wait for it… REITs.
That doesn’t mean it’s not true, of course, REITs have been a valuable addition to the toolbox for individual investors, and they have done extremely well, on average, particularly over the past 20-25 years or so… but a historical analysis of returns with lots of variables means you can tweak those variables lots of ways, and you will probably generally find that sponsors get the research outcome they prefer.
Sadly, Ross does not drop any hints about which specific REITs he’s recommending as this “Catastrophe Plan” — but Real Estate Investment Trusts have certainly had a great year, so as long as he’s not being foolish I imagine his REIT portfolio has done well recently.
What is a REIT, you ask? Sorry to have gotten ahead of things. REITs were in fact invented in 1960, in a tax law signed by President Eisenhower — the intent was to make real estate investment accessible to smaller investors, both for their benefit and to pool more capital to build offices and apartments and the like. They are basically tax pass-through investments for real estate — money is pooled into a REIT, often in the public markets (though there are private REITs that aren’t listed on the stock exchange, too), and that money is used to build or purchase real estate.
That real estate makes money from tenants, and as long as the REIT passes along 90% of its taxable income to shareholders, they don’t have to pay corporate income tax on that money. The tax burden, along with the cash, is passed through to shareholders, who then owe whatever their income tax obligation might be on that income.
In practice, almost no REITs even come close to failing to meet that 90% rule, because they get to deduct depreciation and amortization before they get to “taxable income,” so you’ll generally find th