Kotlikoff Laurence J. - Get whats yours: the secrets to maxing out your social security

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ALSO BY LAURENCE J. KOTLIKOFF

Spend Til the End: Raising Your Living Standard in Todays Economy and When You Retire

(with Scott Burns)

The Coming Generational Storm: What You Need to Know about Americas Economic Future

(with Scott Burns)

Jimmy Stewart Is Dead: Ending the Worlds Ongoing Financial Plague with Limited Purpose Banking

ALSO BY PHILIP MOELLER

How to Live to 100: Be Healthy, Be Happy, and Afford It

(with Lindsay Lyon and Kimberly Palmer)

ALSO BY PAUL SOLMAN

Life and Death on the Corporate Battlefield: How Companies Win, Lose, Survive

(with Thomas Friedman)

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Copyright 2015 by Laurence Kotlikoff, Philip Moeller, and Paul Solman

All rights reserved, including the right to reproduce this book or portions thereof in any form whatsoever. For information address Simon & Schuster Subsidiary Rights Department, 1230 Avenue of the Americas, New York, NY 10020.

First Simon & Schuster trade paperback edition February 2015

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Interior design by Ruth Lee-Mui

Cover design by Christopher Lin

Cover photograph by Roel Smart/Getty Images

Library of Congress Cataloging-in-Publication Data

Kotlikoff, Laurence J.

Get whats yours : the secrets to maxing out your social security / Laurence J. Kotlikoff, Philip Moeller, Paul Solman.

pages cm

Includes bibliographical references and index.

1. Social securityUnited States. 2. Retirement incomeUnited States. I. Moeller, Philip. II. Solman, Paul. III. Title.

HD7125.K68 2015

368.4'300973dc23

2014034384

ISBN 978-1-4767-7229-5

ISBN 978-1-4767-7231-8 (ebook)

I dedicate this book to the flower of my lifeBridget Jourgensen.

LAURENCE KOTLIKOFF

To Cheryl and the joy of seeing you every day.

PHILIP MOELLER

To my grandchildren: Bella, Joe, Will, Finn, Bridget, Anderson, and Hadley.

PAUL SOLMAN

This book was born of a simple questionHow old are Paul and his wife?

Larry and Paul were taking a break from what they call tennis, shooting the breeze, since talking is easier than running after errant shots. Larry launched into a harangue, as he often does; this one was about Social Securitys impossible complexity. Paul was listening, as usual, with his skeptical journalists ear. Or, maybe, since it was Larry, just half-listening.

Then Larry asked, How old were Paul and his wife and when were they planning to take their Social Security benefits?

Proudly, Paul told Larry not to worry: he and his wife had it all figured out. They would both wait until 70, when Paul would get something like $40,000 a year instead of the $30,000 or so if he took his benefits at 66, his full but not maximum retirement age, which was coming right up. Paul had been reading and saving those annual green statements from the Social Security Administration for years with their Estimated Benefits. Hed been reading his wifes, too. As the familys financial planner, he knew just how much they were entitled to.

But how old are you and Jan? Larry asked.

What difference does it make? said Paul. Like I say, were both waiting until 70.

It makes a big difference, said Larry.

Okay, Pauls wife would soon turn 66; he, 65.

Heres what you do, said Larry, never at a loss when it comes to speaking in the imperative. Jan should apply for her Social Security retirement benefit when she turned 66, but then suspend it. That is, she would make herself eligible for the benefit but wouldnt take it.

Then, said Larry, when you (Paul) turn 66, you apply just for a spousal benefit. When you each hit 70, you do as originally plannedyou each take your own retirement benefits, at which point they will start at their highest possible values.

Or, Larry continued, clearly thinking aloud, you apply and suspend at 66 and Jan begins taking the spousal benefit, since you earned more than she did, didnt you?

Paul can be quite dismissive of what he considers Larrys flights of fantasy, Larry being the epitome of often overstated, but never in doubt. Yet Paul had begun to pay close attention. Having reported on business and economics on public television for decades, Paul understood the intricacies of business, finance, and economics better than most Americans (though admittedly, that may not be saying much). The exceptions, however, were the professional economists hed befriended in the course of his career. Larry was one of them, and among the most deeply versed in financial planning.

Spousal benefits? Paul had vaguely heard of them. He had, however, never imagined he or his wife were eligible for any, though, had you asked him why not, he couldnt have told you.

Spousal benefits for four years. That should be almost $50,000, Larry quickly estimated.

An aside is in order here. Larry is a world-famous scold or, he will tell you, a dead-on Cassandra, with respect to Social Securitys insolvency. Advising people like Paul to take extra benefits from the system while himself decrying the systems funding shortfall was not what Paul expected to hear. (More on that in Chapter 18.) But Larry believes its not fair that some beneficiaries get more than others simply because they know the systems rules. And Paul and Phil agree with him.

Fifty thousand dollars? Explain, Paul said.

Well, if Jans Social Security full retirement benefit were, say, $24,000, youd be eligible to get half that as a spousal benefit: about $12,000 a year. And if you get $12,000 a year from age 66 to age 70, thats $48,000. If, on the other hand, Jan takes the spousal benefit on your Social Security earnings record, shell get more per year but for only three years instead of four, because shell be 67 by the time you become eligible, only three years from 70. But still, that would mean... etc.

However number-laden the trees, the forest was plain to see: there seemed to be an unambiguous strategy for maximizing benefits that Paul and Jan were eligible to collect, having contributed for decades, but had been entirely unaware of.

If this is true, said Paul, Im buying you dinner. Anywhere in the world.

Boston will do, said Larry, who also lives there. But there are dozens of really important details like this one. What we should really do (were compressing here) is write a book. And we should include Phil Moeller, a retirement expert whos already spoken with me about such a project. Hes been a financial journalist for years, and has written article after article for U.S. News & World Report and Money about retirees who collectively leave tens of billions of dollars in Social Security benefits on the table by failing to claim everything to which they are entitled. Plus, Phil loves the Red Sox (although not as much as the Baltimore Orioles) and the New England Patriots.