This ad has driven a lot of questions to the Gumshoe doorstep — the pitch is from Zachary Scheidt for his Lifetime Income Report, and it implies that we can get extra “benefits” by “piggybacking” on the Social Security plan of Canada.
Well, no. Not in the way you’re thinking. But if you have a very open interpretation of the word “piggybacking” and are willing to accept an imaginative turn of phrase, there is a little something to the ad. Let me explain.
For those who are new to Stock Gumshoe, this is what we do — we look at the ridiculous ads sent out by investment newsletters and others, the ads (like this one) that promise huge returns and use misleading language to imply that there’s a secret stock or strategy that will finally get you that yacht and Maserati in time for retirement… and we tell you what the ad is really hinting or teasing us about, explain what it is as best we can, and let you think for yourself and do your own research once you’ve got a bit of the reality and can understand the logic (or lack thereof) of the investment.
We do this most every day — sometimes we find great ideas hiding behind the terrible ads, sometimes we just defuse the greed impulse and save people from themselves… you can use the links a the top of the page to sign up for either a free or paid membership, or just submit your email here to get our free daily newsletter with new teaser solutions.
And here I should note that this ad was originally sent around in May of 2015, and that’s when we covered it. I have lightly updated a few things here today, but the following article is essentially unchanged since 5/13/15 (the ad being sent around today still has a May 2015 signature line on it, so that presumably hasn’t really been updated either).
The only real change in the ad is that the hook is now not just that there’s a way to “piggyback” on “Canadian Social Security” with Scheidt’s special piggybackretirement.com website … but that this secret “rattles the cages” in Washington, and Zach Scheidt got a threatening letter from a government agency because he sent this ad around (he doesn’t share the text of the letter, but I would guess that the content was more along the lines of “stop misleading consumers” than it was “stop revealing these important secrets”).
Back to Zach Scheidt’s ad… the headline is what really gets peoples’ attention, I think, that notion that somehow “piggybacking” Canada’s retirement plan is going to get you some “benefit” checks…
“Americans Now Legally Piggybacking ‘Canadian Social Security’… And Collecting Extra Monthly “Benefit” Checks From $400 to $4,700”
And no, you’re not going to get that. You can’t get benefits from the Canada Pension Plan (that’s what they call their social security system) unless you pay into it while you’re working in Canada — in broad strokes, it’s not too different from the US Social Security program.
But you can, kinda, copy them. If you want to.
That’s a big difference, no? Imitating someone, versus collecting checks from them? I’ll explain a bit more in a moment, but first I have to share with you just a bit more of the misleading teaser pitch — here’s the part about why you’d want to “piggyback” on Canada’s scheme:
“I recently heard some fascinating claims about a potential loophole in the Canada Pension Plan…
“A loophole that allows Americans of any location, age or income level to begin collecting ‘work-free’ income checks running from $400 to $4,700 per month.
“The Canada Pension Plan — in case you didn’t already know — is the Canadian equivalent of the Social Security system we have here in the States…
“…except for a few key differences.
“Unlike American Social Security (which is run by overpaid government bureaucrats), the Canadian variety is managed by a highly skilled team of professional investors.
“Also, unlike American Social Security (which you and I both know is a system that’s running on fumes), the Canadians have managed to more than DOUBLE their reserves since 2004.
“In fact, from the projections I’ve seen… reserves for the Canada Pension Plan are set to QUADRUPLE by 2040 (which, ironically, is the same time when most experts believe American Social Security will be completely bankrupt).”
All that is pretty much true — the Canada Pension Plan does really include a distinct account, and it is managed as an investment account like most private sector pension funds, buying up equities and bonds and valuable assets around the world in order to meet their future income obligations. Canadians don’t get more retirement income when the pension plan does better, their benefits are set by law and regulatory guidelines in much the same way that US Social Security benefits are set, but they do enjoy a bit more security, perhaps, because they have what I consider a much more viable system.
The Canada Pension Plan has probably about a 75-year horizon of reasonably being able to pay expected benefits based on the current contributions and the value of (and returns from) the investment fund, so it’s not just a pay-as-you-go benefit like Social Security (though the fund only represents a small portion, 20-30%, of future liabilities, the rest is like Social Security and dependent on future contributions), and the government hasn’t been using all the cash flow from Canada Pension Plan contributions for other things — the Canada Pension Plan, unlike Social Security, is partly in a “lockbox”, at least for now, and it’s not just an IOU from the government.
But can you piggyback on it? What the heck does that even mean? Scheidt goes through several examples of readers he has talked to who have, or at least so he implies, somehow invested in the “Canada Pension Plan” … here’s one example:
“As Anne explained, she first discovered about the Canada Pension Plan while living with her husband in Nashua, New Hampshire.
“Her house was, as she put it, ‘just a stone’s throw from the Canadian border’ … and her backyard actually ended at the provincial boundary.
“But make no mistake about it… Anne has never lived or worked in Canada. She barely even visited our “neighbor to the north.”
“So how was she able to piggyback the system?
“Well, according to Anne, it all has to do with a major change that took place with the Canada Pension Plan back in 1997.”
I guess “a stone’s throw” is a nice colloquialism you can use for any distance, but Nashua, NH is just about a Boston suburb — it’s about as far south as you can get and still be in New Hampshire, so it’s about a three hour interstate drive to the Canadian border. And apparently Anne has a helluva big yard.
But that’s not the real point, of course. Yes, 1997 was when Canada reformed the Pension Plan to make it more sustainable — basically, they increased the contribution rate by 50% and created that investment fund. The fund is indeed managed with some independence, it is overseen by the semi-independent CPP Investment Board, and it is basically a huge institutional investment fund with about $250 billion under management in the CPP Reserve Fund.
I admire the Canadians for doing this, it was an abrupt but probably much healthier solution than simply scooching out the retirement age and increasing contributions and adding taxes here and there as we’ve done in the US — as is typical, US politicians did what voters consistently tell them we want them to do: Put a coat of paint on the problem, and don’t make any hard choices. That’s probably not completely fair — we did increase Social Security taxes as part of the tax reform program in the early 1980s (not as dramatically as Canada did a decade later), and again very slightly in 1989… but that’s about it.
But that’s not the point, either — other than that Zach Scheidt certainly knows that talking about Social Security will get retirees hot and bothered, and getting people hot and bothered is a good way to get them to read your ad, and oh, by the way, the average person who subscribes to an investment newsletter is roughly 60 years old, exactly the person who gets most anxious about Social Security. And nothing about Canada’s Pension reform of 1997 had anything at all directly to do with this “Anne” person unless she was a Canadian citizen.
So what’s the real story? More from the ad:
“I began hearing wild rumors about a savvy group of Americans who’ve figured out a way to legally piggyback the Canada Pension Plan…
“And collect an additional $400 to $4,700 per month as a result.
“From what I could gather, these folks were able to do this without living… working… or even traveling to Canada.”
This, really, is the problem with the ad — folks are likely to read that and see words like “collect” and “benefit,” but a far more accurate word would be “earn.” Because all Scheidt is really talking about here is collecting dividends.
They don’t even have to be Canadian dividends, frankly. And probably most of them aren’t from Canadian companies.
The woman he uses as an example, Anne, provides a few more clues about exactly what’s going on underneath this charade of “Canadian Social Security Benefits”….
“Anne didn’t invent the loophole, or even discover it for herself. She simply heard about it from a close friend (sort of like how I’m telling you today).
“And since it seemed relatively risk-free and only required a few hundred dollars (and a couple hours of her time) to get started, she figured it was something worth trying.
“Anne continued to make ‘contributions’ to the account… which can be done in some cases for what amounts to as little as 50 cents per day. Less than the price of a cheap cup of coffee at the store.
“She didn’t have to ‘renounce’ her citizenship… or visit a Canadian embassy …or do anything drastic.
“Today, she collects enough in ‘benefits’ to do all the extra things she wants… without putting any additional strain on her budget.
“And the $407 she collects every month from ‘piggybacking’ — barring any unforeseen disaster — should continue to ‘roll in’ for the rest of her life.”
Whenever a word or phrase appears in quotes in these kinds of teaser ads, like “Canadian Social Security” or “Contributions” or “Benefits,” you can pretty much assume that the quotes mean, “look out, I’m making stuff up here.”
What Anne really did, in all likelihood, was set up either a simple brokerage account or a direct stock investment plan (DSPP or DRIP are usually the terms used now, and their primary benefit is that they allow small monthly investments in individual stocks and free dividend reinvestment — something that used to be almost impossible before discount brokerages took over a couple decades ago). She either collected the dividends or reinvested them, and she kept buying a bit each month, and she reports those dividends on her taxes just like anyone else, and they provide a nice supplemental bit of income to add to her pension and her (US) Social Security checks. Scheidt says that she reports this “Canada Pension Plan” benefit on line 9a of her 1040, which is, of course, right where you report your dividend income.
What is she earning that dividend income from? That I can’t tell you, Scheidt doesn’t hint at all about which income investments he suggests, or which ones Anne bought, or what might be the best buys now — line 9a is actually for ordinary dividends, not qualified dividends, so it might even be that he’s suggesting slightly more traditional income investments like real estate investment trusts (REITs) or bonds, or funds that invest in such assets and which pay fully taxable dividends (as opposed to the qualified dividends that are paid by most “normal” corporations that aren’t tax-advantaged entities).
Scheidt does go on to get a little bit more clear about this, after talking about the huge asset base managed by the Canada Pension Plan, including investments in hundreds of companies and funds around the world — here’s how he gets us back to reality — at least, for the few intrepid souls who could stand to read this far in the ad:
“… they strategically invest in companies that are highly profitable… companies that gush large amounts of cash.
“Like one of my favorite businesses… a company you’ve probably never heard of before… a company called Realty Income Corp.
“Realty Income Corp. specializes in commercial real estate. It owns 4,300 properties in 49 states and rents out these properties to businesses like Walgreens, Taco Bell and Fed-Ex.
“And here’s why I like it so much: Its main goal is to make ever-increasing dividend payments to shareholders.
“In fact, its mission statement reads, “Since 1969 our mission has been the same… to generate dependable monthly dividends.”
“And that’s the key: dependable monthly dividends.
“It’s now paid out 535 consecutive monthly dividends. And it’s increased those payments 79 times.
“And when you begin piggybacking the Canada Pension Plan — in the way I’ll show you in just a minute — you essentially become a part-owner in incredible income-producing assets like Realty Income Corp.”
So yes, “piggybacking on the Canada Pension Plan” really just means “buy good, income-producing stocks.”
You actually have to buy them. And wait for your dividends to come in, and to compound over time. And you don’t get free money from the Canadian government.
This is terribly disappointing. But, of course, reality often disappoints — especially when it comes to investing.
Do you really want to “piggyback” on the Canada Pension Plan? Their goal is 4% annual real returns (after inflation), which is the number they need to hit to pull their weight in backing pension benefits for the next 75 years. To do that, they keep costs low and have lots of investments in real estate, private equity, and public equities — you can review their website and see some of the specifics about what they own if you like, but other than a few overweight positions in Canadian banks and assorted other international investments it’s going to end up looking a lot like the performance of a global stock market index. They own 2,500 individual equities, and their largest weighting is less than 0.5% in any one stock. A conservative, extremely diversified equity portfolio.
And yes, they do have a mandate to invest with an eye on future inflation prospects, and to try to get some “alpha” by investing with other private equity and hedge fund managers, and buying individual income-producing assets like office buildings — but that’s really no different from any big pension fund or insurance company. There’s nothing magical about the Canada Pension Fund, and it certainly doesn’t have shockingly magical returns — just like there’s nothing magical about buying a bunch of dividend-producing stocks, investing continuously into those stocks, letting your dividends compound, and creating a big of a supplemental income stream from those dividends over a lifetime of investing.
That’s really pretty much all she wrote — or all he wrote, in this case. Scheidt says he has a private website that will help with some future income planning, and help you “piggyback” on the Canada Pension Plan, but I would imagine that probably what he’s really doing is picking a couple dozen income stocks, probably including REITs like Realty Income (O), which was the only individual idea he mentioned or hinted at in the ad, and throwing in a few personal finance calculators so you can see how much you have to invest in these kinds of stocks in order to earn some future hypothetical “piggyback” income.
He does also briefly mention “juicing” those dividends, which means he’s very likely also suggesting some options income — selling covered calls or cash-covered puts along the way on your stock holdings to improve the returns (with some significant tax consequences sometimes, so be careful), but that’s about it as far as this ad goes.
Anticlimactic, no? Well, at least I warned you up front — no, the Canadians aren’t going to send you a benefit check unless you earned it, and you can’t “buy in” to the Canada Pension Plan (nor would you probably want to, since you’re probably aiming for returns of more than 4% — or can get similar returns with either a large basket of dividend stocks or a few index funds), and unfortunately I can’t tell you which specific investments Scheidt is suggesting for income because he doesn’t hint at those at all. If you’ve suggestions for income stocks you think are worth consideration, whether they’re Canadian banks or REITs or “blue chips” or whatever else, please feel free to toss ’em on the pile with a comment below.