Seems that economics professor Laurence J. Kotlikoff spilled a few too many secrets in the No.1 bestseller he published last year about getting the most out of Social Security.
Upshot? Deeming it a boondoggle for the rich, the government killed off one of the most gainful claiming strategies he spelled out — a “secret” that was hiding in plain sight among Social Security’s whopping 2,728 rules.
The Bipartisan Budget Act of 2015, in fact, changed or did away with several strategies that, implemented correctly, could boost Social Security claimants’ benefits. Kotlikoff, a professor at Boston University who has consulted to the U.S. Department of Labor, Merrill Lynch and Fidelity Investments, discussed the new law and its ramifications in a recent interview with ThinkAdvisor.
The most significant change eviscerated the file-and-suspend strategy, which lets an earner collect benefits based on the work record of a spouse who has deferred receiving their own growing benefits until a future date.
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But the new law hasn’t stopped Kotlikoff, who has also served as a consultant to the International Monetary Fund and the World Bank, from letting out even more “secrets”: He’s published a new edition of his New York Times bestseller, “Get What’s Yours – Revised and Updated: The Secrets to Maxing Out Your Social Security” (Simon & Schuster), again co-authored with Philip Moeller, who writes about retirement for Money magazine, and Paul Solman, a PBS NewsHour business and economics correspondent. Moeller is author of the upcoming “Get What’s Yours for Medicare: Maximize Your Coverage; Minimize Your Costs.”
In the Social Security update, Kotlikoff, president of financial planning software company Economic Security Planning – run as a philanthropy — teases out more useful strategies from the thousands of rules the U.S. government has set forth in complex, obfuscating prose, examples of which he presents verbatim, such as: “The regulations that require a notice for an initial determination contemplate sending a correct notice. We consider that an initial determination is correct even if we send an incorrect notice.”
According to Kotlikoff, Social Security is a broke, deeply flawed system with vile traps, concealed penalties and “gotchas” galore. To make matters even more wretched, he says, Social Security personnel supply erroneous information to earners seeking help in negotiating the intricate maze.
Kotlikoff, who made a fleeting third-party bid for the U.S. presidency in 2012, bemoans the new law, which, he says, hurts middle-class and poor people who could have increased their benefits had, for example, file-and-suspend remained an option.
ThinkAdvisor talked with the professor — whose company, Maximize My Social Security, helps consumers and advisors make Social Security decisions — about the new law’s consequences. He stressed that the most significant gains still come from waiting till age 70 to begin collecting benefits. Here are highlights of our conversation:
What’s the worst part of the new law?
It gutted the file-and-suspend strategy for spousal benefits. Now family benefits can’t be paid on your work record while your retirement benefits are suspended and growing. Nor will you be able to get retroactive benefits if you want to take all your suspended benefits in a lump sum. To what extent have the wealthy been using file-and-suspend? In a ThinkAdvisor interview with me in March of last year, you stressed that higher income earners stand to be the biggest winners from learning about Social Security strategies.
They don’t give a damn. The rich are taking their money early and trying to make a killing in the stock market. For them, this is penny-ante money.
But the administration chiefly painted the new law as eliminating strategies for the rich that were wasting government money, especially file-and-suspend.
The idea that it was a big game for billionaires, and everybody else was unable to take advantage of it — and therefore let’s shut it down — is a fantasy. Even if the rich – a small fraction of the population – had been using it slightly more than others, that doesn’t mean you should take away a lot of money from middle-class and lower-income people. [To be fair], you’d want to limit it for the rich but not wipe it out for the poor. But in the long run, the file-and-suspend strategy, per se, won’t be around.
The deadline to implement file-and-suspend was April 29, 2016. Is there a grace period?
I think there’s a strong legal case that the actual deadline is four months after April 29. So people might be able to take this to court and pursue it all the way to a federal judge – and they’d probably win.
What were the conditions to be met, under the new law, to use that strategy?
You had to be 66 to suspend, and your spouse had to be 62 by Jan. 1 of this year. So, if [she or he] were born a nanosecond too late, forget about it – they’re out as much as $50,000. That was an extremely unfair aspect.
Do you think anyone running for president of the U.S. is aware of the new Social Security law and its repercussions?
I think they have no knowledge of it. The two Democratic candidates have gone on record saying that Social Security benefits are too low and should be raised. [At the same time], this law from a Democratic administration was viewed as [nothing more than] giving the rich a ride.
You write that the Social Security Administration told you that your book last year prompted Congress to kill file-and-suspend and make other changes in benefits, and that a column you wrote after reading a draft of the bill changing Social Security rules caused Congress to amend it by adding two grandparenting clauses. Originally, checks would have stopped for those already employing file-and-suspend.
Right. Our intention with the book was to help people, but it backfired: it was so popular that do-gooders felt they had to undo what we were trying to help provide people with.
What’s your reaction to having such sway with the government?
I was shocked. I’m not particularly proud of it. An academic shouldn’t have much influence over policymaking. Congress should understand what the hell they’re doing. If the Social Security system is that complicated to understand, there’s a big problem.