[00:00:31] Andrew Rafal: Welcome back to another episode of Your Wealth & Beyond. And today’s show, I’m super excited to introduce you to somebody that we’ve been following for a number of years. He’s looked on as the go-to expert for optimizing Social Security benefits. And he’s written the go-to book called Get What’s Yours, how to maximize your Social Security benefits. Yes, I had the privilege to speak with Larry Kotlikoff, who is a professor at Boston University, the founder and president of Maximize My Social Security software, and really the one expert that I look at on a daily basis to help make sure that each and every one of our clients maximize one of the most important assets that each of us have, which is Social Security. There’s so much misinformation out there and it’s such an important asset to build in to ensure that you don’t outlive not just your money but your lifestyle.

So today, we’re going to learn about why being patient is very important, understanding the different timing aspects of your benefit, and a lot of the nuances that most of you out there are questioning, and we’re going to help you decipher through. After today’s show, you’re going to have the ability for us to run a customized report to help you on your way, to help you maximize your benefit. So, without further ado, my episode with Larry Kotlikoff on how to optimize your Social Security benefit.

[INTERVIEW]

[00:02:10] Andrew Rafal: And welcome back, everybody, to a brand new episode of Your Wealth & Beyond and today, audience listeners, I am super excited and honored to have someone that I’ve been following and learning from all of these years to help you. Each of you get what’s yours in regards to one of the biggest assets that are out there for each of us Social Security. So, Larry Kotlikoff, welcome to the Your Wealth & Beyond Podcast. How are you today?

[00:02:36] Larry Kotlikoff: Very good. Thanks for having me. I’m delighted to be with you.

[00:02:39] Andrew Rafal: And I know today, Larry, we could talk in regards to the economy and taxes and the deficit in corona. But today we’re going to dig into a topic that I find very sexy, and that is social security and ways and tips and strategies and how to optimize your benefits. So, Larry, before we jump in, you have been looked on from our industry as one of the gurus of trying to help educate those out there on Social Security. So, what led you down this path years ago to learn the ins and outs of social and then ultimately to write the book, Get What’s Yours: The Secrets to Maxing Out Your Social Security?

[00:03:15] Larry Kotlikoff: Well, so I’m a Professor of Economics at Boston University, as I assume everybody now knows, and I worked on social security’s impact on the economy in graduate school for my thesis, my Ph.D. thesis in economics. So, I got interested early on in kind of the big macro picture about social security. But in order to understand that, you need to really delve into some of the details. And so over the years, I was writing different papers often about social security and the economy and keeping an eye on its finances. And then I decided at some point to develop financial planning software. Well, not at some point. It was like 1993, and I started a company and we developed a program called Maxify Planner that we also have a social security standalone program called Maximize Muscle Security. Anyway, in order to develop these programs, I really had to get into the details of social security in a very serious way.

And then I realized that my academic knowledge was just really surface and that I didn’t really know much at all about social security. So, I couldn’t really tell the software engineers what to do without really studying it very carefully. And so, for years, I was on the phone every other day, it seemed, with the actuaries at social security trying to understand the actual provisions of this incredibly complicated system. It has 2,728 rules in its handbook and has hundreds of thousands of rules about those 2,728 rules in its program operating manual system. So, after a couple of years of this, I really felt I understood things a whole lot better and we got that into our software. And then through time, we’ve just continued to improve our understanding and improve the software because It’s very, very complicated. And we’re still to this day, 27 years later, finding small little parts of social security’s provisions that we didn’t have 100% correct. So, it’s a really hopeless for the typical household to figure this stuff out on their own.

[00:05:15] Larry Kotlikoff: So, that’s why you need somebody to say what’s going on, what are these provisions really telling you to do? And you need to have smart software to help in very complicated cases figure out what’s best.

[00:05:27] Andrew Rafal: Yeah. I know CPAs may beg to differ but the Social Security system, the rules, seems like it’s more complicated than the tax code.

[00:05:35] Larry Kotlikoff: Well, we have one way to measure that. So, we have this Maxify Planner Software that’s full financial planning. It has a code for the federal income tax, and it has code for the social security system. The code for the Social Security system is significantly longer. In other words, the lines of software code that had been written to get social security right are longer than the lines of code that we had to write to get the federal income tax right. So, I think in that context, you can say that social security is more complicated than the personal federal income tax.

[00:06:08] Andrew Rafal: And you know we’re so passionate about optimizing Social Security. The is really the 401(k) came about in the late 70s, early 80s. What we’ve seen and most of you listeners, most of individuals don’t have pensions, right, Larry? So, ultimately, you know, 30 years ago, 80% would have a pension. Using that along with Social Security, they had this nice guaranteed income stream. So, without that, the individual is at the risk of having to invest on their own. So, the key component of having social security and some of the benefits that can have the continued income stream, the cost of living adjustments, which we’ll jump into, for individuals, Larry, you deal with this on a daily basis. Some of the biggest mistakes we see is just people making rash decisions, not looking at all of the options and the strategies that are available. So, why do you think that most individuals will rush and say, “Hey, I want what’s mine now. I got to get what’s my now,” and not have that patience of waiting and understanding how it fits in with all their other assets and how it fits in with longevity and things of that nature?

[00:07:13] Larry Kotlikoff: Right. And just as background to your question, if you’re patient and you wait until 70 to collect your retirement benefit, it’s going to be more than 70% higher in inflation-adjusted dollars than if you take the social security benefit at age 62. So, waiting until 70 gives you this enormous payoff. Yes, you give up eight years of benefits but then you get this check every month that’s 70% or more, could be up to 73% or 74% for some people, higher than would otherwise have been. So, your question is why do people will kind of jump to take their benefit really as soon as they retire? I think only about 2% of the households wait until 70 so almost everybody is taking the benefit by the point they reach full retirement age which is still 66 right now but you probably have 30%, 40% people taking it at 65 or before 65. So, what’s going on there?

Well, I think people are worried that they’re going to lose the benefit if they die and this is something that social security has actually reinforced this completely screwed up notion that you’re going to be in worse shape if you die having not taken your benefits. So, you walk into maybe the office at 62. Yes, the people there but you should do and they’re not supposed to give you advice but they said, “Well, look, better play it safe because if you don’t take your benefit and you die, let’s say next two years from now, you will have gotten nothing for all those years of contributions you have lost the money.” Well, that’s a really screwed up way of thinking because if you die two years from now, you’ll be in heaven and you won’t need any social security benefits. You’re going to be in heaven and by definition, heaven’s heavenly, and you’ll have all the money you need and everything else you need probably in whatever currency you like.

[00:09:09] Larry Kotlikoff: So, the real concern you have when you’re 62 is not dying early and kicking yourself in heaven for not having taken your benefit. The real concern is living to 100 and living on cat food. So, we’re concerned at a personal level with our own physical longevity and we’re very nervous about dying early. But from a financial perspective, dying early dying young is a terrific thing because the bills stop. The real danger financially speaking is dying late living to 98 like my mom did. We’re going to have 3 million people in about 30 years who were over 100. The number of centenarians people over 100 is going to be around 3 million in the middle of the century. So, the age group that’s growing most rapidly are people over 100 actually right now in the country. So, we have to be very concerned about making it over a very long time. We can’t ignore our future selves and just be selfish and say, “Well, my future self will take care of him or herself.” That’s not the case.

[00:10:16] Andrew Rafal: Yeah. Take one of your videos. You make a great point in just this reframing of it. And this is as advisors, we try to reframe it for the clients. And it’s not about, “Hey, I’m going to lose out on my benefits if I don’t take it early,” but it’s what about the possible gains that you’ll have if you delay? So, reframing that psychology of it helps them to understand that short-term, hey, I want it now versus wait a little bit in that long-term benefit. And that’s something that as planners, it’s hard to just explain it to them and that’s why we need the software and those type of things that can allow them to visualize it.

[00:10:55] Larry Kotlikoff: Absolutely. You can see at least in our software, what your living standard is if you take it early, your sustainable living standard, how much you can get to spend every year right through age 100. If you take it early, let’s say you think about taking your social security early and your 401(k) money later, maybe you’re starting at 72, that’s the age at which you have to at least take minimum distributions these days versus taking your retirement account money early and taking security starting in 70. You can see from our software in two seconds that the living standard is going to be dramatically higher if you reverse it, if you take social security second, your retirement account money earlier. And that’s something that a lot of people today with this COVID plague that’s, well, so many people losing their jobs, if you’re an early 60s and you have lost your job, you might be tempted to take social security right away rather than cash into your retirement account money.

But there’s no guarantee the stock market is going to continue to do well. It fell like 32% this year before it went back up of value. It is probably up about 20%, 25% from where it dropped. So, I think it’s just going to fall again another 50%. I think it’s going to end up below half of where it was at its peak, personally. So, I’d be very wary of being in the stock market. I’m certainly personally out of the stock market. So, to take a gamble to in effect take social security early in order to play the market when you’ve lost your job, that’s like double jeopardy. You really lost a good part of your security blanket from losing your job and now, you’re going to double down in ever social security while risk-taking a lower security benefit for the rest of your life in order to get a shot at more money in the market. That’s not a good idea. Just one other quick thing to tell you is that if people have taken their security benefit, before full retirement age, they do have the option and they’re still before full retirement age or even before age 70, they do have the option to suspend their benefit and start it up again at age 70 at a higher level.

[00:13:05] Larry Kotlikoff: So, 8% a year for every year that you suspend. So, you can try and recoup a higher benefit if you have started early. If you’re still below age 70, there’s still an option to undo some of the damage.

[00:13:18] Andrew Rafal: And a lot of times when we’re sitting with a new client, they’ve taken Social Security before their full retirement age, and it’s within that one year. And we map out a game plan for income and showing them the potential benefit of delaying. As long as they’re within that one year, they have that ability to still do the one-time do-over. So, listeners, what that means is that you can actually pay back all your benefits withdrawn, and then it’s like it never happened. So, we’ve done that multiple times when somebody’s coming in and ultimately, made a decision that they were looking at saying, “Hey, I may regret this.” So, you do have that option before that magic age of your full retirement.

[00:13:59] Larry Kotlikoff: Yeah. Well, you have an option. Even if you started your benefit, I think at any age you started, you’re maybe 60, 70 and you start your benefit, within the year you can withdraw the benefit by paying back what you receive just as you said. But then this other thing I was talking about is suspending your benefit, which is, I suppose I took my benefit of 62, I’ve now reached full retirement age as let’s say 66 and some number of months. And here I am. Do I have any options? Like I could withdraw my benefit but then I have to pay back, basically, four years of benefits, which is a large amount of money and start from scratch. But another thing you could do is just suspend your benefit, which is different from withdrawing your benefits called suspension, and you’ll then get delayed retirement credits, which amount to 8% a year. So, you’ll have this benefit that you took at 62 and it was reduced because you took it early. So, you’re going to have this your early retirement benefit but you’re going to be able to raise it 8% a year for four years between 66 and 70 by suspending it, and then starting it at 70.

[00:15:09] Andrew Rafal: Yeah. And that’s that magic age of knowing when your full retirement is. And for most of you, listeners, it’s between 66 and 67. And I know it’s probably not ideal but once you hit full retirement, is there any limit on how many times you can start and suspend your benefit?

[00:15:24] Larry Kotlikoff: You can certainly do at least twice. I don’t know that there is any real limit. For example, you might have started your benefit and now because you were laid off, and then a job comes in, and then you suspend it and then you get, you know, we work for a year or so. You get laid off again, you take your benefit, and then you get another job, suspended again. So, I’m not sure people need to suspend them more than twice but, of course, people’s cash flow comes into play here. So, I’ve been talking as if your listeners have enough resources either in the form of a 401(k) or some other assets to get by until age 70 and start taking their retirement benefit at that point. And by the way, even if you’re not cash-constrained, it’s not always optimal to wait until 70. If you have, for example, a disabled child, you may want to take your benefit early in order to get that disabled child benefit, social security benefit rolling.

You need to be collecting your retirement benefit for your child to collect on your account or to get a spouse who’s doesn’t have a significant earnings record who’s waiting to collect a spousal benefit on your account. So, there are reasons to take benefits before 70, your retirement benefits. But if you don’t have the wherewithal to wait until 70, then you’re kind of in a jam. You really have to take your benefit early or maybe you can borrow on your house or get some relative to lend you some money, friend, because the return on this thing is absolutely certain and it’s enormously high. So, if you can borrow at a decent rate from a brother or a sister, or child and get by for a few years, then you’ll have the wherewithal from the higher social security check to repay the loan.

[00:17:11] Andrew Rafal: Yep. We try to have a client visualize, you know, an income-producing asset, take away the name Social Security, and indicate if you have something that’s going to continue to grow 8% a year up until age 70. When you get the income, you get a cost of living adjustment, which we’ll talk about, which is very important with regard to keeping up with inflation. When you do take it out, it’s taxed differently than your retirement accounts where some of the worst-case scenarios only up to 85% of it is taxable. And then upon passing, it’s a potential asset or income-producing asset that will go to your spouse. So, it’s a longevity play, not just for you but for your spouse. So, when you take it in that context, they look and say, “Oh, yeah, you’re right. This is a pretty good asset to think about.” And it’s again, just reframing it.

[00:17:58] Larry Kotlikoff: Oh, you just talked about if you have a spouse who has a lower earnings history than yours, when you pass away, if you wait until 70, that spouse will get a higher what’s called excess widow’s benefit or widower benefit depending whether it’s the spouse is male or female, based on the fact that you’re getting a higher retirement benefit. So, we’ll get their own retirement benefit plus the difference between your check and their check. So, in effect, they’ll get your entire check. And if you wait until 70, they’ll get a bigger check as a widow or widower than if you take your money at your social security at 68 or 66 or 62 for sure. So, absolutely, there’s a payoff to you in terms of your own benefit but then there’s also a payoff to a lower-earning spouse and also to children that you might have. You might have young children or disabled children. Well, actually, the disabled child benefit is connected to your full retirement benefit, not to your actual benefit.

[00:19:09] Andrew Rafal: But if you are married and you have a spouse that’s significantly younger and you have younger children, one thing, listeners, to really make sure you understand the rules with when your benefit is turned on, how there may be a potential benefit for the younger children. And potentially if the spouse isn’t working, they get a look at the earnings limit there but there’s a way to potentially maximize your benefit. And that may mean taking it a little bit earlier than 70 when you play with all those numbers there. So, again, that’s not for everybody that we could dig in for a whole show just on that. Again, make sure that when you’re looking at your situation, that you’re speaking with somebody that understands this. And that’s I think, Larry, part of the issue is most advisors don’t really spend the time to know, to research, to understand how to properly use social security for their clients. And we just looked at it as it’s a huge asset if we think about it. You know, we paid into it but then the average 200 couple, if they turn it on in their mid-60s and lived to their 90s, I mean, we’re talking 600, 700, 800, if not millions of dollars. And if you make a wrong decision, as you’d like to say, you’re leaving tens if not hundreds of thousands of dollars on the table.

[00:20:14] Larry Kotlikoff: Yeah. And that translates into, I mean, if you have to look the liquidity, waiting just means you can spend more right now because you know you’re going to have more money coming in later. But if you take your social security early, now you’re on a lifetime basis, wears off, and therefore, your annual spending has to be lower. So, there’s no real sacrifice necessarily occurring here by being patient.

[00:20:42] Andrew Rafal: Now, on the spousal benefit, so this is one where there’s a lot of confusion in regards to how it ultimately works. Again, a lot of nuances, a lot of rules, but where a lot of times what we’ll try to do, especially now that the rules have changed and as you know, a few years ago can be a lot more creative with filing, suspending, and taking advantage of what the laws were at that time. Some say loopholes, we say these were the laws but that’s changed. So, there’s a new norm now but in the scope of spousal benefits, one of the areas that we see a lot of time money left on the table is if you’ve got the higher-earning spouse that’s going to wait until 70. And the spouse that earned less maybe he or she took their benefit a little bit early, their own benefit, there may be the potential that when the higher earner files that the spouse may be able to get a little bit of a jump up with that excess spousal benefit. Is that correct in my assumption there?

[00:21:38] Larry Kotlikoff: Well, yeah. Let’s say you have a spouse who has a low earnings record. They can’t collect your spousal benefit based on your record until you actually start collecting your own retirement benefit. So, that was kind of one of the cases I was talking about where it might behoove you to take your retirement benefit earlier than 70 because there’s a trade-off. If you wait until 70, your own benefit is higher but your wife or husband is going to have to wait that much longer to start getting this spousal benefit, excess spouse benefit based on your record. So, that’s where a very careful software can help you decide exactly what’s best in terms of your lifetime benefits. So, our software in those cases might say, well, the husband if he’s the higher earner should take and let’s say he’s older, he should take his benefit at 68 or wife should start taking her retirement.

Maybe when she’s 68, she’s reached full retirement age and so she collects on her own retirement benefit with no reduction and then she collects this excess spousal benefit that’s also not reduced. And she can do it because he started to collect his retirement benefit or she can collect her own retirement benefit for a few years, maybe starting at 64. And when he’s 68, and she’s 60, full retirement age, then she collects this extra piece, which is the excess spouse benefit. So, it is complicated.

[00:23:05] Andrew Rafal: And the thing is in that example you just gave us, the Social Security Department, they’re not going to send you a letter saying, “Hey, now you qualify for a little bit more because you hit full retirement age.” So, that’s the important caveat there is that you got to know what your rights are. And then when that happens, then you actually go in, and you have to ask for it. And this is where I think millions and millions of dollars are left on the table in just this one aspect of being able to potentially jump up to get a higher benefit, even if you took it early once you hit full retirement because of that excess spousal. And it may only be $50 more a month but that’s real money and then you tie that into the inflation side of it but the associate department isn’t going to knock on your door and give you a check.

[00:23:45] Larry Kotlikoff: Right. The Social Security administration is not our friend. You know, they’re going to encourage us to take benefits at the wrong ages. They’re not going to tell us about all the benefits to which we’re eligible. They don’t have the right software to figure out what’s the right strategy for a couple. I’ll give you an example of where they can engage in complete malfeasance. And even their Inspector-General has written up kind of a report talking about this, and the social security administration has done nothing about it but over the years, they either induce people who are widows or widowers to take their retirement benefit and their widows benefit at the same time or they did it just automatically for the people. And consequently, they deprived a lot of people from the option which a widow or widower has of taking your widow benefit, your survivor benefit first, let’s say starting at age 60 and waiting until 70 to take your retirement benefit at a much higher level.

So, suppose that your spouse has died. You come to age 60. You just turned age 60 and your widow’s benefit, maybe you’re the higher earner, is let’s say $1,000, maybe $1,500 a year. And well, actually, let me make the example of this at year 62. So, here comes the day you’re 62 and you can take your own retirement benefits starting at 62 but now your spouse has died so you’re 62. You don’t have social security, and they sign you up for both benefits. And let’s say both benefits were both about $1,500. Well, now you’re going to get $1,500 for the rest of your life adjusted for inflation. But had you just taken your widow’s benefit, you get $1,500 a month, right up through age 70.

[00:25:45] Larry Kotlikoff: But then, at age 70, you’d be getting your retirement benefit, which would be the $1,500 times basically 1.7, 70% more due to the fact that it was not reduced because you didn’t take it early and because of the delay retirement credits that you would get put on that retirement benefit between full retirement age and 70. So, this can amount to literally $100,000 in present value that social security’s clerks or staff just by either purposefully or unintentionally or maliciously having you apply for both benefits at once, they’ve deprived thousands of people, widows, and widowers, of tons of money over the years and they’ve done nothing to correct this. They’ve done nothing to go back and say, “Well, we should not have allowed you to sign up when we should not have signed you up for two benefits at the same time because you only could get the larger of the two benefits.

And so, if the widow’s benefit was like $1,500 and the retirement benefit was $1,499, you’re just going to get the widow’s benefit your whole life whereas had you not taken them or been forced to take the social security benefit, retirement benefit, you would have started at 70 getting that $1,499 times 1.7. So, this is one place where, again, smart software can keep you safe from yourself and from Social Security.

[00:27:10] Andrew Rafal: Yep. It’s that seven-letter word, deeming, which listeners, we’ll get into but just by saying that wrong, one or two wrong words. And on that note there, I mean, there’s been multiple times over the last decade that I’ve actually, you know, we’ve gone through the plan using the software and we said this is what you need to do. This is what you need to say. And I’ll say, “If anything goes wrong, call me.” And I’ve had situations where they’re in the office, social security office, and they’re telling them they can’t do something that they can do. I’ve actually literally had to get on the phone with the social security person and they had to get a manager. And we had to explain to them that this is the rule. And it’s just something that individuals that are out there they, like you said, don’t take the advice of Social Security. It’s almost like that reverse psychology that they’re going to push you into it but just know your rights. Know what your rules are in many situations, especially with survivor benefits. You think about it, an individual loses their spouse, they’re already dealing with the emotion of that and then they just jump in and they end up deeming and they taking both benefits.

So, just know what the rights are and sometimes it’s taking your benefit early and then jumping onto the survivor benefit later at full retirement or vice versa. Many times for our clients, it’s let’s get the survivor benefit a little bit early, get it at a discounted amount, reduced amount, and then grow theirs to age 70. Usually, the software will show that it’s going to be tens of thousands of dollars more in their pocket if they live a long life.

[00:28:35] Larry Kotlikoff: Yeah. I’ve also had experiences talking to staff from Social Security, somebody using our software goes to Social Security four times and they keep doing calls them up and they keep being told they can’t do something they can do. And in one case, they went into the office they said, “Look, when you get to the office, put the lady or man from social security on the phone. Call me and have them talk to me.” So, this happened once and the lady at social security started yelling at me. She went on for about a half an hour and I said, well, at the end of this because I could not get a word in edgewise, I said, “Please, let me just make sure I understand what your name is and what office you’re working at because I write columns for Forbes just to make sure I include all this information in the column I’m about to write. It’s going to be posted in about a half an hour, indicating you got this completely 100% wrong but it’s good talking to you.” And she more or less slammed down the phone and then five minutes later, she said she went to talk to her manager and I was right, and called back to apologize. And I didn’t write the column for Forbes.

That’s the arrogance of people and the staff are not well paid. They’re overworked, undertrained, and that’s what you get when you don’t treat people well, and you push them too hard. It’s far too complicated for the staff and they don’t have the proper software at their disposal to figure out what to do. They’re not supposed to give anybody advice but to give people the wrong answer, the wrong advice or say you can’t get this benefit that you’re due.

[00:30:04] Andrew Rafal: Can’t imagine somebody yelling at you. You seemed very amicable. So, it must have been somebody that must have been having a very bad day. It’s over there. So, let’s touch on, you mentioned it earlier, and this is another huge benefit of waiting is this cost of living adjustment that, again, there’s no guarantees that it’s going to be there in the future. But from looking backwards that averages between 2% and 3% a year but how does that help somebody if they can get their benefit to the highest amount, that cost of living adjustment that can help them keep up with inflation. You know, where have you seen that as a benefit and where do you see that as a long term of helping somebody make sure they don’t outlive their money or their lifestyle?

[00:30:41] Larry Kotlikoff: Well, I think it’s really important to have this security blanket in real terms, inflation-adjusted terms in this income, the secure inflation-protected income coming into your bank account every month because the Federal Reserve right now is pumping huge amounts of money into the economy. I’m just literally thinking about this as just the government printing green pieces of paper dollar bills that they’re just flooding the market with right now. We’ve had over a 50%, probably 60%, 70% increase in the money supply and the amount of piece of green dollar bills of floating around in this economy just over the last year because of the way the Fed has intervened in this crisis. Now, eventually, that’s likely to lead to inflation. We’ve had countries experience both depressions and inflations at the same time. You can look at the Myanmar Republic and look at Venezuela today or it’s Zimbabwe.

There’s countries that get into really bad trouble economically, and the government starts printing money. Argentina, they have hyperinflation. At the same time, they have a crappy economy. Lots of unemployment. So, I think we have to worry about inflation taking off. Most people can’t remember inflation because they’re too young but in the 70s, we had inflation rates, even if I guess it got up to about 10% for a couple of years. And the 10%, if you’re social security check was let’s say $2,000, but it was just dollars, it would be eroded by 10%. Every year, if the inflation was 10% a year for 10 years, that’s not going to cut your benefits dramatically. In real terms, it’s going to water down the payment that you get. So, that’s not the case, fortunately, because social security is indexed to inflation and therefore it’s protected.

[00:32:38] Larry Kotlikoff: The other thing you kind of referenced was the fact that social security is fiscally broke. It’s in a very bad long-term shape and the benefit might be cut in the future. There might cut benefits but I’ve done simulations with our software because our software allows you to specify, hey, the benefit is my benefits going to be cut by X percent starting in this year in the future. And it’s the game from being patient is so large that even if the benefits are cut significantly, it’s still better to wait to be patient. But again, one can run this in the software and see for yourself what I’m saying.

[00:33:16] Andrew Rafal: Yeah. You look back to the late 70s, early 80s, stagflation froze. So, I know there’s probably not a lot of Gen Zs that are listening to today’s show. But those of you that are out there that are getting close to retirement or are retired, I mean, you think about your mortgages that you had back in those times. You think about CD rates, and in 1980, the cost of living adjustment for Social Security was 14.3%. Now, like you said, Larry, it doesn’t mean you had more money in your pocket. It just helped to make sure that you could maintain the cost of living daily. And so, that’s the power, obviously, these last 10, 12 years since the Great Recession. It’s been pretty muted but at some point, we’re going to have to pay for the stimulus that’s just recent $2 trillion to $3 trillion. I have a 14-year-old daughter, Larry. I’m afraid for her and her generation. You know, just here, kick the can down the road. So, we can’t guarantee anything and you brought up a good point like a lot of people will think and I’m going to take it early because it’s not going to be there for me or the system’s flawed. And that’s something that we can’t guarantee where it will be. But you know, there are things that they can do.

They could change the cost of living, they could keep increasing, and I feel that they will, the full retirement age. So, for my daughter, it may be 72, then the taxes right now I think it’s what about $130,000, $140,000 that you pay on Social Security. So, if they keep increasing that or increase it like Medicare, where you pay it on the full amount, these are all ways in how they can keep the system going. But we can’t live in fear right now.

[00:34:39] Andrew Rafal: Yeah. I mean, we are imposing huge, bankrupting burdens on our children because we have a fiscal system that’s not sustainable. I could scare people very seriously if we really got into this discussion because the official government debt which is likely to end up at around 110% of GDP from about 70% of GDP, where it was maybe five years ago, not maybe, it was about 70% of GDP when President Obama left office. It’ll probably be, you know, it’s not going to be as high as Italy but going from 70% to 110% of GDP, just on your official debt, that’s huge. But then, if you look at the other unfunded liabilities of our system, social security’s $53 trillion unfunded liability. The Medicare or Medicaid programs have huge uncovered liabilities out there.

So, putting everything together, we have an enormous fiscal gap, that we’re just leaving, dumping into the laps of our children without any even discussion, public discussion by either party of what’s going on. In other countries, they have adults running the show. I was in a cab in New Zealand. I went to New Zealand a few years back and to give a lecture, some lectures at the Bank of New Zealand. I’m in the taxicab going from the airport to the bank. I started hearing this commentator say how trouble it was that their trust fund for their longevity, their social security system had what amounted to a really minor deficit. And that was a big issue of debate. People were very upset. Well, our system is basically a third underwater our social security system in the sense that you have to raise taxes by one-third permanently starting today to pay for all the benefits that are projected or you have to cut benefits, sorry, all benefits starting immediately by about a quarter.

[00:36:44] Larry Kotlikoff: So, that gives you an idea of the degree to which our system is in bad shape. But I don’t see benefit cuts is what’s going to happen. I think we’ll have tax increases eventually or very, very high inflation. I don’t know. I think it looks like a train wreck so it’s hard to say but I think social security is going to be the last thing that will be cut because politically, it’s so difficult. You have all older people that are getting these benefits that are so dependent on it, the benefit, and they also vote. When it comes to election day, they have nothing better to do than to vote. They’re not working. So, it’s very hard for politicians to cut that benefit.

[00:37:21] Andrew Rafal: Yep. And in times like this where the market is so volatile, having that steady income especially if you don’t have a pension was a lifesaver for a lot of people. So, one more area I want to touch on before we end is, again, the column that you mentioned, this will all be in the show notes. It’s almost I think, religiously that you update it and it’s great, listeners, because it’s the questions that we can’t dig into today, the specific questions and that’s where these 2,700 rules and all of these things where Larry will go in and have a situation and be able to spell it out. So, I mean, I think you’ve been doing that and then back from the PVS days and then maximize my Social Security so there’s just a plethora of situations that Larry hits upon that is going to be, somehow, it’s going to be beneficial for you. But as much as I’m a romantic I know that 50% of marriages end in divorces. And so, for divorces that just a lot of rules and stipulations but what are some of the mistakes that you see are the questions that you get for those that have been married and are now divorced and knowing what their benefits and their rights are, both while this ex is living, if the ex gets remarried, and then, ultimately, where we see a lot of people not knowing is if their ex dies, do they qualify for a higher benefit? And a lot of times the answer is yes.

[00:38:36] Larry Kotlikoff: Yeah. You have to keep track of whether your ex is still alive. And if certainly if it’s a higher earning ex and you were married for 10 or more years to that person, you want to be very cognizant of whether they’re alive or dead because you may have a lot of benefits coming your way. If they died after your benefit is going to be based on their full retirement benefit. So, you want to understand what was happening with them for sure and you also may be eligible for a divorce spousal benefit. So, those are two important benefits that you want to keep track of, no question about it.

[00:39:13] Andrew Rafal: Yeah. We had an example just so listeners so we had a client of mine who was divorced, she was a stay-at-home mom so she didn’t have any earnings for Social Security to base the 35 years off of. So, when she hit full retirement, even though she was not married, they were married longer than 10 years, she was able to get half his benefit, which was later about like $1,200 or something of that nature. And the ex had waited until 70 to collect his. So, ultimately, when he passed away, she was not married again so because like you said, she kept tabs on him, she was able then to go and collect in a sense of the survivor benefit for the ex-spouse. So, she then jumped up to what his retirement benefit was, which was, as you can imagine, Larry, a huge increase for her and it was a game-changer for her. And, listeners, it didn’t matter that he was already remarried. That had nothing to do with it. So, all these rules doesn’t matter if your ex is married or not, there are certain rules. So, you just have to know what those are.

And like we said earlier, you’re not going to just magically get a check in the mail for that increase. You have to let Social Security know. You have to prove you were married for that period of time. So, you just have to know what the rights are and that’s where you got to work with an advisor, you have to know the software, you have to work with somebody that can help lead you to the right answer.

[00:40:31] Larry Kotlikoff: Yeah, absolutely. And the rules are different for, as you’re indicating, for divorcee spouse benefits versus divorcee survivor benefits and you have to be 60 to get benefits from your ex. If you’re remarried, you have to wait until you’re 60 to remarry. So, you don’t want to be remarrying at 59 because that could cost you benefits. And by the way, if you do remarry after 60 and you’re collecting on let’s say your current husband’s account and then your ex dies, you can start collecting on the ex’s account. And then if your current husband dies, you can start collecting what is the benefit on that husband’s account. So, there’s basically two independent benefits that you can collect the larger of the two, depending on which is the larger. You need to understand everything about your ex’s situation, whether he’s alive and ultimately what his earnings history was, and also about your current spouse’s situation. Also, don’t get remarried too early. Or if you do get married before age 60, understand what you might be giving up in terms of benefits from the ex.

[00:41:43] Andrew Rafal: At workshops I actually had somebody ask this question. They had been married three times, and four years, three years and three years and she asked if she could add them all together and be able to use that 10-year rule. Of course, that’s not the case. It’s got to 10 years to the same person. So, that’s a very important component. And also, for some that are partners that have been together forever, we have sometimes they just never tied the knot. For some, it makes sense to actually get married for monetary reasons and some of that’s down to beyond IRAs and situations where they can roll over to their own but Social Security could potentially provide them a much higher benefit if they’re married, not to say she get married just for the money reasons but sometimes you should.

[00:42:31] Larry Kotlikoff: Absolutely. Now, that we have gay marriage rights, very important for gay couples to think through whether or not they should get married because there may be a big social security incentive to doing that if only for the survivor benefit. You’ve got two spouses and the lower-earning spouse may be dependent on the higher-earning, well, two people in the higher-earning. The lower-earning person may be dependent on the higher-earning person’s social security check and then that person dies. Well, if they’ve been married for nine months, the lower-earning person would be receiving the deceased’s check starting right away. So, this is a very important form of life insurance that one spouse can provide to the other spouse, that one person could provide the other person through getting married.

[00:43:24] Andrew Rafal: 100%. You and I, we could probably spend another three hours digging in. So, listeners, this is just kind of the tip of the iceberg. In the show notes, there’ll be links to not just the Forbes articles that you write in the question and answers, a link to the Get What’s Yours and, Larry, I use that book and all my advisors do and we use it. We bring it to workshops, and even though some of it is outdated, I’ll always pull back in there and find something. And I appreciate everything that you do on this end. I know you do a lot of things with the economy and the work that you’re doing on many other levels. But this is great, you know, and listeners, really the three rules the book breaks down just as we’ve touched on as, Larry, you indicate and this kind of the magic formula. Be patient, get all what’s yours, and get the timing right. Easier said than done but have the right guidance, right?

[00:44:16] Larry Kotlikoff: Absolutely. Yeah. This is a too big of a deal to kind of do this on your own. You really need to have expert advice, double, triple checking that you’ve got it 100% correct.

[00:44:26] Andrew Rafal: And, listeners, this is one piece of the retirement puzzle. It’s a huge piece but if you do have other assets to help bridge the gap, it’s just coordinating it. It’s working with a trusted team. It’s understanding taxes where we are right now in this low tax environment where taxes are going to be in the future. I think, Larry, you and I both can agree that taxes are going to be higher. So, potentially, utilizing all of those assets in today’s terms, maximizing what a benefit could be like in social security. And that can position you to weather lots of storms especially the risk of living long, right? There’s a risk of living long and that’s where social security can be a big piece. So, Larry, thank you so much for joining us. Listeners, there’ll also be a link to the Maximize My Social Security website. And for each of you out there that are listening to the show, you’ll be able to reach out to us and we’ll be able to run kind of a high level of a strategy for you to make sure that you’re maximizing or optimizing your benefits. So, we’re here for you. Education is power. Probably within 15 minutes, we can at least guide you to see if you’re on the right track. And, Larry, continue doing what you’re doing because we need it out there. Individuals need it.

[00:45:35] Larry Kotlikoff: Okay. Thanks for having me. I really appreciate it.

[00:45:38] Andrew Rafal: Okay. Wonderful.

[00:45:39] Larry Kotlikoff: Thanks again. It was a good interaction.

[00:45:41] Andrew Rafal: Awesome. Thanks, Larry. And listeners, stay tuned for a brand new episode of Your Wealth & Beyond later this month. Happy planning, everybody, and stay healthy.

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[00:45:53] Andrew Rafal: Thank you for joining me for today’s episode of Your Wealth & Beyond. To get access to all the resources mentioned during today’s podcast, please visit Bayntree.com/Podcast, and be sure to tune in later this month for another episode of Your Wealth & Beyond.

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Investment advice is offered through Bayntree Wealth Advisors, LLC, a registered investment advisor. Insurance and annuity products are offered separately through Bayntree Planning Group, LLC. Bayntree is not permitted to offer and no statement made during the show shall constitute legal or tax advice. You should talk to a qualified professional before making any decisions about your personal situation.