Dr. Laurence Kotlikoff Shows You How to Max Out Your Social Security Before It’s Too Late!

Episode: 162
Originally Aired: February 13, 2016
Topic: Dr. Laurence Kotlikoff Shows You How to Max Out Your Social Security Before It’s Too Late!

The Lange Money Hour - Where Smart Money Talks

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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  1. Guest Introduction:  Dr. Laurence “Larry” Kotlikoff
  2. New Legislation:  The End of ‘Apply and Suspend’
  3. Candidates and the Economy
  4. Social Security and When to Take It

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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.

1. Guest Introduction:  Dr. Laurence “Larry” Kotlikoff

Dan Weinberg:  And welcome to The Lange Money Hour.  I’m Dan Weinberg, along with CPA and attorney Jim Lange.  Tonight, we’re going to talk Social Security, particularly some of the big changes that are coming in 2016.  To help us with that task, we’re thrilled to have Dr. Laurence Kotlikoff back on the program.  Prof. Kotlikoff is a renowned professor of economics at Boston University.  He served as a consultant to the World Bank, the IMF, and Fortune 500 companies.  He’s also provided expert testimony to numerous congressional committees, and just last year, Dr. Kotlikoff was named by the Economist magazine as one of the world’s twenty-five most influential economists.  He’s also the author or co-author of seventeen books, including his latest from 2015, Get What’s Yours: The Secrets to Maxing Out Your Social Security, which, earlier this year, hit number one on the Amazon bestseller list.  So, over the next hour, we’ll be talking about how to navigate your path through Social Security given the upcoming disappearance of two huge Social Security maximization strategies.  To have your investing or Social Security question answered by our two experts, give us a call here in the studio at (412) 333-9385.  Now, let’s say hello to Jim Lange and Dr. Laurence Kotlikoff.

Jim Lange:  Welcome, Larry.

Larry Kotlikoff:  Nice to be with you, Jim.

Jim Lange:  Well, this is a treat to have you on the show.  I think that the content that you provide is fabulous, and you wrote what I’m sure is the best, and certainly most popular, Social Security book.  It’s called Get What’s Yours: The Secret to Maxing Out Your Social Security.  The other book that is my favorite of, let’s say, the seventeen that you’ve written, is Spend ‘Til the End: The Revolutionary Guide to Raising Your Living Standard–Today and When You Retire, and by the way, I will tell the listeners, these are great books.  You shouldn’t even think about it.  If you are in the Social Security decision area, you should buy the Social Security book.  Again, it’s Get What’s Yours: The Secret to Maxing Out Your Social Security, and Larry’s other book, which is a great financial book, Spend ‘Til the End: The Revolutionary Guide to Raising Your Living Standard–Today and When You Retire.  Larry, if you were one of our listeners and you wanted to buy those books, would you go to Amazon, or would you go to your website, or where would you recommend that our listeners go?

Larry Kotlikoff:  Well, certainly Amazon will have the books, but Get What’s Yours should be in the local bookstore.  I’m not a big fan of Amazon.  I think they’ve just put people out of business and haven’t made any real money for themselves, and now the same thing with Walmart and all these big box stores that, you know, it’s helped some people but it’s made a mess of America.  So, I like to push people to buy books from local bookstores.

Jim Lange:  All right!  We have the first political statement of the evening that came pretty early!  Maybe after we get some Social Security information (which we did promise people), I can ask you a few political questions regarding some of the candidates and their economic policies.

Larry Kotlikoff:  Yeah, sure.  Yeah, no problem.

Jim Lange:  And I do want to get to the Social Security and the meat of the show, and I know that, Larry, I’m going to bore you for one minute, but I do want to tell a two-minute story.  You were on one of my shows before, and literally on the air, you gave me the great idea, and this was back in the days when you were allowed to give Social Security back, and if you gave your Social Security back, you got a tax deduction, and I came up with the idea of the year that you give it back, make a big Roth IRA conversion.  You’ll have an offset with the tax deduction from the Social Security give back, and you’ll be way ahead, and I was very excited about it, and I wrote it up in my book, and before I sent it out for publication, I thought, “You know, I really ought to have somebody who really knows what they’re doing check to see if I really had this right,” and I sent it to you and you were good enough to review it, and not only did you review it, but you added an entire section, which was just terrific.  And at the time, my mother was alive and she was a journalism professor, and she was my editor, and if you look at the parts that I wrote, there was red all over it and she just had a million corrections, and then the section that you wrote, Larry, not one red mark, and at the end, she wrote “Very good!”  So, you not only have excellent content, but you survived…

Larry Kotlikoff:  Your mom!

Jim Lange:  …let’s say, the deadly red pen of my mother.

Larry Kotlikoff:  Well, that’s an achievement, for sure.  Tell her I’m very proud.

Jim Lange:  Well, if she was still here, I would.  Unfortunately, she passed in 2012.

Larry Kotlikoff:  Oh, I’m sorry.

Jim Lange:  But anyway, by the way, if people are looking for some basic Social Security information, we’ll actually refer you to an audio and a transcript that I did, or, very frankly, you can go to some of the prior shows that Larry has been on when he’s just done a wonderful job, but I thought, well, instead of going over the basics of Social Security, I thought that I would try to concentrate on the most current issues, and on November 2nd, President Obama signed some very important legislation that impacts married and divorced Social Security participants.  What I was hoping that we could do, Larry, is to go through some of those changes, and perhaps starting with the change to the ‘apply and suspend’ rules.

2. New Legislation:  The End of ‘Apply and Suspend’

Larry Kotlikoff:  Sure.  It was November 2nd, Jim, that the budget bill of 2015 was signed into law, and there’s some grandfathering provisions, but it’s basically eliminating the ability in the future of, in the case of a married couple, having one spouse do something called ‘file and suspend.’  They file for the benefit at their full retirement age and suspend it in order to let their other spouse file just for their spousal benefit, and they both wait until seventy to take their retirement benefit at its highest possible value.  Your retirement benefit is 76% higher after inflation than if you take it at sixty-two, if you take it at seventy.  So, the idea was, you know, take one benefit, let your other benefit grow, and in the case of divorcees, each spouse could collect on the other.  In the case of a couple, it was only one spouse who could collect, not both, the way it was set up.  Now, there are still people, millions of people, that will be able to do this because of the grandfathering provisions, but you have to kind of satisfy a couple conditions.  First of all, if we’re talking about married couples, one of the spouses has to reach sixty-six by or on April 29th of next year, and they have to file and suspend, or if they’ve already filed, they have to suspend by that date, and then the other spouse has to reach sixty-two by January 1st of next year, and then that second spouse can collect just a spousal benefit and engage in this file and suspend strategy.  If you don’t fit into those two clauses, you know, if you don’t have that combination, then you’re going to be out of luck in pursuing that strategy.  Now, divorcees are in a somewhat different boat because they don’t need to have their former spouse file and suspend for them in order to collect on their former spouse.  It’s just assumed that the former spouse has filed and suspended.  So, if you’re sixty-two by this coming January 1st, then you can collect on your…actually, if you were married for ten or more years, you can file just for a divorcee spousal benefit when you reach full retirement age, which is currently sixty-six, and then wait until seventy to take your retirement benefit.

Jim Lange:  Is that true even if your ex-spouse is suspending himself?

Larry Kotlikoff:  Well, there is something a little bit ambiguous in the law that suggests that an ex-spouse can go after his former partner and stop that former partner from getting divorcee spousal benefits just by suspending his benefit.

Jim Lange:  Right.  That’s what I was referring to.

Larry Kotlikoff:  Yeah.  My guess is that Social Security won’t enforce the law that way.  That would be pretty nasty and probably get changed by Congress pretty quickly because there would be some examples coming up in the press right away.  Now, here’s a strategy that a married couple could pursue where neither of the two are going to be sixty-six by April 29th.  Let’s suppose they’re both sixty-two already, or they will be by the end of this year, basically.  So, when they reach sixty-four, what they could do is get divorced.  They’re married right now.  They could get divorced at sixty-four, and then, at sixty-six, they could both file for divorcee spousal benefits, and at seventy, they could then take the retirement benefit, each of them, and essentially, if they’re high income people, they might pick up together, over this four-year period, $120,000.  So, this new law has put into place an incentive to get divorced, and I think it’s perfectly legal: you can get divorced, live in sin, and six years later, get remarried and pick up $120,000.  So, that’s worth considering.

Jim Lange:  By the way, as an attorney, I’m going to give our listeners one little caveat: that’s Larry’s opinion.  I fear that that might be a fraud on the court.  So, as an attorney, I’m going to have a little reservation with Larry’s recommendation.

Larry Kotlikoff:  Well, no, it’s not a recommendation.  It’s a question whether…I don’t know whether it’s legal or not, and I’m not really recommending it or advising it.  I’m just saying it seems legal.  I’ve talked to people who are former technical experts with Social Security and they say you can get divorced and get remarried, and Social Security doesn’t know what you’re doing.

Jim Lange:  I think that might be fine.  The only thing that I would be concerned about is that I think there are certain things that you have to sign, and I think one of the things that you have to sign is to say that the marriage is irretrievably broken.  I’m not an expert in that area.  But anyway, we do have a question.  Larry, could we take a question?

Larry Kotlikoff:  Sure, absolutely.

Jim Lange:  All right.  We have Elaine, who is on line two.

Elaine:  Hello.

Jim Lange:  Good evening, Elaine.  And Elaine is calling from West Chester, NY.  So, that’s closer to your territory, Larry.

Elaine:  The last time that I called into a radio station, I was a teenager calling in my top tunes.

Dan Weinberg:  What can we play for you tonight, Elaine?

Elaine:  All right, fast forward: my husband is already sixty-five and I am sixty-one, and I will not turn sixty-two until March of next year.  Is there any strategy or any paperwork I should be doing between now and next May to avail ourselves of anything that is expiring? Because I am not sixty-two by the end of this year.

Jim Lange:  Okay, to repeat: we have a husband who’s sixty-five years old.  We have a wife who is sixty-one years old.  I’m going to assume that the goal is to make sure that they are both financially comfortable for the rest of their lives, and I’ll ask Larry what he thinks that they ought to do.

Larry Kotlikoff:  Yeah.  Unfortunately, neither of you are grandfathered under either of these provisions.  So, the best thing for you to do, for both of you to do, if you could live to a ripe old age of, let’s say, one-hundred or ninety or some pretty significant maximum age of life, is to wait until seventy to take your retirement benefits if you’ve both had an earnings history…if one of you has earned a lot more than the other, for example, suppose your husband was a much higher earner…

Elaine:  My question was really only specifically as to the new law.  I know about waiting until seventy and all those benefits.  I was just concerned about the losing of the file and suspend thing.

Larry Kotlikoff:  Yeah, there’s no way that I can see, because when you reach sixty-six, when you reach full retirement age, if you try and take a spousal benefit, you’ll be forced to take your retirement benefit.  In which case, you’ll get the larger of the two benefits, and I presume, if you have an earnings history that’s been pretty decent, it would be the retirement benefit.  In which case, you’d just get a lower retirement benefit than had you waited until seventy.  So, in your case, probably the only thing to do is really to wait until seventy.  Now, when I say “the only thing to do,” let me just give you an example of why this is so important to be patient.  If you take a sixty-year old couple that earns a maximum taxable amount from age, let’s say, twenty-two until now, they’re going to have lifetime present value benefits of about $1.2 million if they take the retirement benefits at sixty-two.  Now, if they take them at seventy, the benefits go up to about $1.55 million.  So, they make about $350,000 by just being patient.  We have a software program called MaximizeMySocialSecurity.com.  I have a little company on the side.  I’m basically a full-time professor, but I have a software company, and you can run a case like that in our software and you’ll see there’s a huge increase in lifetime benefits from just being patient.  Now, the loss from not being able to file and get a full spousal benefit for a couple like that is about $50,000.  So, they’re getting $350,000 rather than $400,000.  That’s about a thirteen percent loss in their optimal lifetime benefits that they’ve suffered because of the new law, but the majority of the gains from optimization come from patience, not from the spousal benefit.

Elaine:  So, there’s nothing to rush to do in the next couple of months?  You know, we keep reading about April 16th or May 1st.  There’s nothing we need to rush to do?

Larry Kotlikoff:  No, you’re too young and your husband’s too young, and, you know, what you could do is quit AARP because they endorsed all this, and I don’t think it’s really very fair to…you know, I think Social Security needs to be fixed fundamentally, but I don’t think we should be changing some provisions and hurting some people without their having any warning, and it was all done in the dead of night in two minutes by Congress with nobody having a chance to…no public hearings about these provisions.  I’ll just give you an example that I think it’s important for people to understand that what President Obama thinks was a loophole here, and some other people, because he really pushed for these changes, it’s not necessarily hurting just the rich.  Take my secretary.  She’s sixty-four.  Her husband has not worked because their son is disabled, and the son needs to be taken care of all day long.  So, she had hoped to go from working eighty hours a week to forty hours a week at full retirement age, and she was going to be able to afford that by, at full retirement age, filing and suspending, having her husband get a full spousal benefit on her record, and then she would wait until seventy to collect her own retirement benefit.  She can’t do that.  So now, this couple that has a child, three people living on one modest income, they’re really low income, and they’ve been very, very hurt by this because she’s going to be now forced to take her retirement benefit at full retirement age rather than at seventy, and so they’re going to be subjected to a lifetime of lower income and lower spending than would otherwise have been the case because some supposed do-gooder or some progressive or some guy who thought he was hurting just the rich did this, wrote these new provisions without knowing what the heck he was doing, I think.

Jim Lange:  Okay, well, thank you, Elaine.  Quick question, Larry.  Now, I hate to be a hard guy and I hate to tell a sixty-six year old woman who’s been working her you-know-what off, being underpaid by Boston University, to wait until seventy, or even work until seventy, but don’t you think that that might be a little bit safer, just in the event that one…?

Larry Kotlikoff:  No, she’s going to work until seventy.  The thing is, she’s now working two jobs.  She wants to go from working eighty hours a week to forty hours a week.

Jim Lange:  Oh, okay.

Larry Kotlikoff:  And she can’t take it, okay?  And then also cook and take care of the kid when she comes home.  She’s exhausted.  Now, I’m all for everybody working until they drop, basically, because you can’t trust anybody.  The government, your corporation, nobody’s your friend here, and the country’s basically broke.  Not basically, it is broke, fiscally speaking, and you see the pension funds are broke.  You see the teamsters are now taking massive pension benefit cuts, and other unions who are in collective pensions, so a group employer of pension programs.  So, there’s been basically malfeasance left, right and center in the financing of Social Security and the financing of state and local pensions and the financing of multi-employer pension plans and the financing of corporate pensions, and we have all these corporate pensions that have been shut down because the corporations decided they would just work over the workers, because they got them to work for less pay, dangling a high pension benefit when they retired, and then mid-career, they freeze the pension system and any more accrual under the old system and put them into a cash value plan or some kind of a defined contribution plan.  IBM was the first company to start this, and every other…not every other major corporation, but plenty of them, most of them, have gone the same route.  So, you cannot trust corporate America, you can’t trust local government, you can’t trust the courts and you can’t trust the federal government.

Jim Lange:  I actually like hearing that because we’ve heard something similar by John Bogle.  But at the risk of sounding like a crass capitalist, I do want to put in a plug for your software because I think that you really have some great stuff, and you mentioned the one, I believe you said MaximizeMySocialSecurity.com, and the one that we like is…we call it ‘number crunching,’ and you have a variety of options, one with Monte Carlo, one without Monte Carlo, I think you call that the professional version, and then you have another one.  Can you tell our listeners about your software, and then we’ll go back to a few other issues?

Larry Kotlikoff:  Yeah, the company’s main website is economicsecurityplanning.com, and we have different services, but the main lifetime financial planning software is called ESPlanner (Economic Security Planner), and we sell that at esplanner.com, and that helps you figure out exactly how much you should spend through time so that you can maintain your living standard, and it helps you figure out safe ways to raise your living standard.  I’ll give you some examples.  Optimizing on Social Security is one thing that you can do by plugging in the recommendations from Maximize My Social Security right into the program (it’s got the same underlying code), into the ESPlanner software.  You can think about working longer.  You can think about doing a Roth conversion, as Jim, you like to think about.  You can think about when you should take your retirement accounts so as to minimize your taxes, whether you should take your Roth money first or your non-Roth money first.  Should you contribute more to your accounts?  Should you downsize your home in retirement?  Should you move to Texas where the taxes are lower?  Should you switch jobs?  Will that give you a higher spending power, a higher living standard?  The thing about the software is, it’s a living standard machine because it comes up with your living standard.  Year after year, it shows you, and no other program does that.  So, you can look very quickly, within a second or two, what if I do this?  Will that raise my living standard?  If it does, it’s being done safely.  Taking your Social Security benefits at this age versus that age is not a risky proposition.  It’s not like gambling on the stock market.  It’s just deciding when to walk into the office and apply for something, or moving to a state where there’s no income tax.  There’s no risk involved here.  So, we can typically take a household and raise their living standard ten to twenty percent, if not much higher, by just looking at all these different margins of choice.

Jim Lange:  Well, your software has won all kinds of awards, and could you give people the website one more time?  But I do have to say one thing that I didn’t like about what I just heard, which was one of the choices, which is move to Texas, because I think I’d rather do most anything, at the risk of offending a few people.

Larry Kotlikoff:  Okay!

Jim Lange:  But what is the website again?

Larry Kotlikoff:  Well, the main website is economicsecurityplanning.com, and then we have maximizemysocialsecurity.com, and esplanner.com, and you’ll see, if you go to our main website, that we also provide divorce settlement analysis services.  We do some services where we directly do some planning for people with our software, and we’re going to be bringing out new tools all the time.

Jim Lange:  All right, and by the way, for everybody listening, you’re talking about one of the top economists in the country who really gets it, a true number cruncher, and has spent probably thousands of hours with some of the best help to come up with these programs, and I think the most expensive, even the professional version, is two hundred dollars.  So, I would take that seriously.

Dan Weinberg:  CPA/attorney Jim Lange is talking about Social Security: the changes ahead in 2016 as well as maximization strategies.  Our guest is Social Security expert, Boston University economics professor, Laurence Kotlikoff.

Jim Lange:  He’s the author of the number one book in the country on Social Security, that you can find at your local bookstore, Get What’s Yours: The Secrets to Maxing Out Your Social Security, and then, it might not be in the bookstore, and at the risk of enriching Amazon, I’m still going to recommend another book that Larry wrote, which is called Spend ‘Til the End: The Revolutionary Guide to Raising Your Living Standard–Today and When You Retire.  So, Larry, I can’t help but pick up on a little bit of your, let’s call it, anger or concern about our economy, and you had mentioned some of the problems with the government and agency, and one of my big things is the assumed rate of interest return on the pension plans and going broke.  And so, here we are in the middle of political season.  I know that you have run for office yourself.  Do you have any comments or opinions on some of the candidates and who you think might do a better job, or a more sound job, on the economy?  Or is that not a fair question?

3. Candidates and the Economy

Larry Kotlikoff:  Well, I think that of all the candidates out there, John Kasich is the only grownup, as far as I can tell, and I mean that on so many dimensions.  You know, you can’t decide that everybody who’s of one religion is going to be throwing bombs and shooting up the country.  We have I don’t know how many millions of Muslims in this country who have been here for years, longer than many people from other countries have been here, and practicing their faith, and haven’t been going outdoors every day shooting up people.  I mean, the idea that we should ban all Muslims from coming to this country, you know, this is a throwback to the 1930s to the worst things that we saw in Europe and to McCarthyism in the U.S., fearmongering.  It’s not really doing what needs to be done.  You know, in the case of 9/11, what we should have done is lock those doors to the cockpits ahead of time and not invaded Iraq the next day after we hadn’t locked the doors.  You know, we should’ve been thinking a little more carefully about what we were up to.  Instead, we killed and maimed, who knows?  It could be a million Iraqis.  I don’t know what number of civilian casualties there were, many of whom have relatives who are now very, very angry at us, and we also killed and injured for life many of our service people.  So, we have to think more deeply.

We can’t have children running our government, and Donald Trump is basically a child.  I think Jeb Bush is more of a grownup and can probably do a sound job, but I don’t know that he’s got enough…you know, I think we’d be in safe hands, but we’ve had two Bushes already.  I don’t really believe in dynasties.  I think Hillary Clinton is another dynasty situation.  I think that’s very bad for the country.  It’s just a throwback to the kings and queens.  People need to earn their credentials on their own, not from their relatives.  I think he’s a solid guy.  Hillary, I can’t figure out what she’s done of great merit on her own, except been around the block a few times, and there are a lot of scandals that she’s been somewhat associated with.  Whether or not they were true or not is just, to me, you don’t start using a private server to start corresponding when you’re the Secretary of State with anybody.  You just know instinctively that that’s not a grownup thing to do, and I don’t care what excuses she has about that.  If you look at Bernie Sanders, I think he has a great big heart and he’s concerned about poor people.  So am I, but is he really recognizing the country’s fiscal situation?  Does he have anything realistic to recommend that we need to do?  Does he have a really good tax reform that’s going to fix the terrible tax system?  Does he have a way to fix the Social Security system that’s 32% underfinanced?  Does he have a way to really reform the healthcare system that isn’t putting us into the British-type system, which is very bureaucratic?  And if anybody’s used that, which I have had the displeasure of using, it’s not the greatest.

I think we need to have fundamental banking reform, tax reform, Social Security reform, healthcare reform.  We have to have strong controls on carbon emissions, whether it’s a tax or a cap and trade, and take that very seriously, and we have to fix the education system in some fundamental manner to equalize educational opportunity in the country.  So, there’s a lot we have to do, and I don’t see any really mature voice out there except for John Kasich.  Now, I’ve gotta say upfront that I’m a friend of his and I’ve spent some time with him, so I guess, personally, you can’t say that I’m completely unbiased, but Marco Rubio seems a little bit wet under the collar.  Ted Cruz seems like a bit of a mad dog at times, just does not seem to be a balanced personality.  Trump we already talked about.  Carly Fiorina also seems to be unhinged.  Who else do we have?  We’ve got…

Dan Weinberg:  Ben Carson.

Larry Kotlikoff:  Ben Carson?  Well, I think he’s got problems recalling exactly…you know, some of the stories he’s been telling haven’t been all that well confirmed, and I don’t know what he’s there for, except that he is apparently a very good brain surgeon.  But what his qualifications are for running the country, what his plans are, having a ten percent tax and it’s not progressive, that’s not going to fly in this country.  Hillary’s coming forward and saying that her worst enemies are the Republicans.  That’s just a prescription for gridlock if she’s elected.  That’s just going to be political war.  Nothing really will get fixed.  So, she’s really a nonstarter.  Bernie Sanders, I think, is a nonstarter.  So, we got the Democrats with nobody.  We got the Republicans with people in the lead who, I must have missed somebody.  The governor of New Jersey, right?

Dan Weinberg/Jim Lange:  Chris Christie.

Larry Kotlikoff:  Chris Christie, okay.  So, I think he thinks that King Hussein is still alive.  I think King Hussein died a while ago.  He thinks the Russians just came to Syria, when they there when he was nine years old according to the newspaper this morning.  So, we need to have people that have actually been around the world and have some sense of history and really have some clear direction about what to do, not just throw out, you know, lashing out against…did I miss any of the Republicans?

Jim Lange:  You got the major ones.  There’s a few other ones.  Of course, the local guy here in Pennsylvania is Rick Santorum.

Larry Kotlikoff:  I think we saw enough of him the last time around.

Jim Lange:  I would agree with that!  But I’ll tell you what I’m probably more interested in, then we’ll go back to Social Security, but I just did sense a certain frustration.  Some of these things that you had talked about, like the prohibition against Muslim immigration, etc. are, let’s say, Constitutional issues, social issues, and a lot of our listeners will agree, a lot of our listeners will disagree, but arguably, where you really have the greatest degree of expertise is the handling of the economy, and who do you think would do the best job just from an economic standpoint?

Larry Kotlikoff:  Well, I think that, on that, what we really need is radical reform, and we have to have somebody with a little fire in their belly and who knows the depths of the problem, and John Kasich was the chairman of the house budget committee.  He had me testify about our long-term fiscal policy problems.  He understands exactly what kind of a deep hole we’re in, I think far beyond anything that Jeb Bush, for example, understands.  I think Jeb Bush would be someone who would want to go along to get along and to get reelected.  What we don’t need is somebody who gets into office to try and get reelected.  We want somebody who gets into office to not get fired, to actually break some glass, to actually fix some things, because this country’s in bad need of fixing.  We have a fiscal gap.  If you look at all the spending commitments and you value them in the present, you compare them with all the taxes and you value in the present, the fiscal gap, the gap between these two numbers, with present spending projections and tax projections, as made by the congressional budget office just this last July, is $199 trillion.  That’s what we’re in the red.  So, we’re focused on this official debt number, which is $13 trillion, but most of our liabilities have been put off the books by Congress by a fancy choice of bookkeeping.  And so, we’re actually really incredibly under the water, totally insolvent from that perspective, and that’s what economists think we should be measuring, the fiscal gap, and it’s not just a handful of economists.  The entire economics profession more or less has endorsed fiscal gap accounting.  If you go to theinformact.org, you will see an endorsement of fiscal gap accounting by over 1,200 economists from every top university in the country and other places.  You know, college lists are well known.  But also seventeen Nobel Prize winners in economics have endorsed this bill that would require the CBO to do fiscal gap accounting.

So, you’ve got the economics profession saying that we’ve got a fiscal time bomb that we’re planting under our children’s legs, and they’re saying this publicly and nobody’s paying any attention, with one exception of Ben Carson who has actually talked on the trail about the magnitude of our fiscal gap.  But also, I know that Kasich knows about it, but I do want to give Carson some credit for actually raising the issue in some of his campaign stops.  So, we need to get out from under this hole.  The country can’t spend money right now because members of Congress realize that we don’t have it to spend.  We don’t have money to spend on things like basic science.  We’re cutting back on that.  We’re cutting education.  We don’t have any great initiatives to do anything in this country because the country’s broke, and the baby boomers are retiring, and everybody knew that was going to happen for a long, long time, and we made no provision, and now where’s the money to pay for their benefits?

We have Congress in the dead of night cutting the benefits without telling people.  That’s one response that we’re seeing happening in front of us.  We’ve got the Federal Reserve printing $3 trillion since…over $3 trillion…it increased the basic money supply that printed by a factor of four since 2007.  They’re also, at the same time, bribing banks not to let the money out into the economy by paying interest on reserves that the banks hold with the Federal Reserve.  So, you have the potential here.  If the banks start lending the money, and if interest rates go up because people start to realize how much money’s been printed to pay for the government’s bills, then they will start to expect inflation.  That will make money move much more rapidly.  So, faster money’s like having more money.  You will then have the basis for a hyperinflation.  If we got back to the monetary conditions that we had in 2007, our price level today would be three times higher than it is today.  So, that’s 300% inflation that could happen very quickly, and if that did happen very quickly, that would be called hyperinflation.  So, that’s what Ben Bernanke called quantitative easing.  He’s a friend of mine and I think he did some very good things, but I think he did some pretty bad things and left us in this very tough situation.  He called this quantitative easing, but he was just keeping Congress from having to do its job, which is to pay our bills with taxes.  So, that’s a big danger too.

Jim Lange:  And Larry is the author of the book that I highly recommend in the Social Security area, called Get What’s Yours: The Secrets to Maxing Out Your Social Security, and that can be found at your local bookstore or at Amazon.  I think Larry would prefer you buy it at the local bookstore, and the other one that likely will not be at the local bookstore, but I would recommend anyway, is Spend ‘Til the End: The Revolutionary Guide to Raising Your Living Standard–Today and When You Retire.  Larry, can I just ask you to do one more plug, because I think that your software is excellent?  Do you have one website that would have access to all your different software?

Larry Kotlikoff:  Yeah, yeah.  It’s called economicsecurityplanning.com.  That’s our company’s name, and it’ll show you all the products and all the services and we’ll have more products through time that we’re developing, and I think we have the most accurate and powerful Social Security software and the most accurate and powerful lifetime financial planning software, and it’s also the cheapest on the market for financial planners and for households.  So, I strongly urge people to go and get it.  I just want to say, Jim, that I’m a professor of economics at Boston University and I’m well paid by BU, and I don’t make a living off of my company.  So, when I recommend it, it’s not because I’m making money.  I actually don’t take a salary from my company, and haven’t since I started it back in 1993.  So, this is a charitable endeavor on my part and we try to keep the prices really low to help people, and that’s why we get really dedicated employees, engineers and other customer support people, because they actually care more about who they’re helping than about how much money they’re making.

Jim Lange:  Well, I think that that sounds like it’s always what you’ve been about.  So, Larry, we heard your little rant, which, frankly, made a lot of sense I think to a lot of people.  Let me ask you this: could a listener be saying, “Well gee, if that’s the case, we’re going to go broke.  Why don’t I grab my Social Security now instead of holding off?  Even if Larry’s right, and under normal conditions, I’d be better off waiting until seventy and doing some techniques.”  Techniques that I have, by the way, in the paper.  And I’ll also mention that the commercials that we are running were actually not for anything for sale.  I actually did, let’s say, a one-hour analysis of the new law of Social Security and what you should do, and I have a transcript of it and people can go to my website, www.paytaxeslater.com, and you can get it even if you never use any of our services.  But do you think that it is legitimate for somebody to say, “Well gee, if Larry’s right and our country’s going in the crapper, I should just grab my money now.”?  Or do you think that that’s too shortsighted?

4. Social Security and When to Take It

Larry Kotlikoff:  Well, I think for people that are pretty close to retirement, or people that are currently collecting, it’s almost impossible to think that they’re going to really cut back much more on these benefits because the American Association of Retired Persons (AARP) will eventually wake up.  I mean, they fully endorsed this new budget bill that took away money from my secretary and from all kinds of people and because of that, I think, people should actually boycott the AARP and certainly not buy any of their products from them.  That’s my view, and I’ve called for that publicly because I think when this kind of a thing happens, the elderly are looking to the AARP to represent them and not to send e-mails to the elderly members that they should thank their congressman for passing this new law.  But anyway, do I think that the benefits could be cut?  It could happen, and our software allows you to specify benefit cuts in the future so that you can think through when exactly you should take your benefit and which benefit to take first and so forth.  But I think it’s not too likely, politically, to see any more cuts in Social Security, because what they cut was…you know, they came up with some justification.  It wasn’t really true that this was just a boondoggle for the rich.  So, you had the Democrats wanting to cut Social Security.  The Republicans seem to always want to cut Social Security.  So, the two forces together conspired in the middle of the night to make that happen, and frankly, had I not written my column for PBS News Hour the next morning…I heard this from a top Social Security official that without my column, they would not have put in the grandfathering clauses, because I wrote immediately that this was going to cut people’s checks starting in six months the way they had drafted it initially.  So, it was clear to me that whoever did the drafting of the new law really didn’t understand what they were doing and who they were hurting, and it was just somebody that went after Social Security with a hatchet.

Jim Lange:  Well, let me give you a hard time for a minute, Larry, because I heard that your book emphasized some of the benefits of apply and suspend, and claim now, claim more later, and that was what really brought it to public attention.

Larry Kotlikoff:  Yeah, the guy from Social Security said, “Your book led to the change in the law, and your column led to the amendments to the law.”  And I don’t know if he’s telling the truth or not, but I have every reason to believe he was.  He’s a very senior guy in Social Security.  But, you know, to believe that I have that much influence, you know, it shouldn’t be that the Social Security system, which is the main savings system for the entire country, should be influenced by one book or one economist’s column.

Jim Lange:  Right.

Larry Kotlikoff:  There should be public debate, public hearings, full-fledged discussion about what you’re doing, who’s going to get hurt, some data analysis, some calculations being done.  There was none of that.  So, yeah, what we were saying is look, people are paying taxes of 12.4% of their pay, they’re buying all kinds of benefits for their taxes, and they just don’t know about them, and why shouldn’t they know about them?  It’s fair that they pay their taxes, but also fair that they get what they’re owed.  So, we’re just trying to help people figure it out so it’s not that some people get much higher benefits than others because they happen to run into me over the tennis court.

I mean, the way the book started was, I made my friend Paul Solomon, one of my co-authors on the book, $50,000 in about a minute or two in the middle of a tennis game.  So, we just stopped to take a break and I told him what to do and he got $50,000 more in spousal benefits just like that.  Now, we both decided that wasn’t right that he should get $50,000 and somebody across the street who knows nothing about the rules (they’re so complicated) should not.  So, we thought it was fair to write this book and get everybody on the same page, and it may well be that that book led to…it was a New York Times bestseller for six months and a New York Times number one bestseller for a couple weeks, and it may have gotten people upset down in Washington because they thought it was just gimmicks for the rich, but my secretary’s not rich.  And, you know, there are a lot of husbands who want to wait until seventy, who are the higher earners and have low earning wives who are going to collect spousal benefits off of their work records because they didn’t earn that much on their own because they stayed home and watched the kids and helped their husband’s career.  If that husband doesn’t take his retirement benefit early, if they’re the same age, that wife has to wait until she’s seventy-two to get a check, and under the old law, she could start getting a check at sixty-six, and in some households, who gets the check determines who gets to spend the money and what gets spent and what gets purchased.  So, there’s some deep women’s issues here associated with the way this law was changed, which haven’t really been discussed, including, I think, the big incentive for divorce, which we discussed.  Now, you may think, Jim, it’s illegal, but how does Social Security know whether or not you have irreconcilable differences or not?  You can say you do, and then get divorced and maybe pick up, in the extreme, $120,000 and then get remarried later.  And this stuff just wasn’t thought out, is what I’m saying.

Jim Lange:  Larry, you have given us some tremendous information tonight.  It was not the show that I planned.  For anybody who feels a little bit cheated that you didn’t get as much Social Security information as you wanted, and you want good, free information, I would recommend going to my website, www.paytaxeslater.com, where there is a one-hour audio and a transcript.  The best book on the market by far is Larry Kotlikoff’s Get What’s Yours: The Secrets to Maxing Out Your Social Security.  That can be found in a local bookstore.  The other book that he wrote that I love is Spend ‘Til the End: The Revolutionary Guide to Raising Your Living Standard–Today and When You Retire, and his software is available at maximizemysocialsecurity.com.

Dan Weinberg:  All right.  Thank you, Larry.  Thank you, Jim.  And a reminder that all of The Lange Money Hour episodes are archived at paytaxeslater.com.  I’m Dan Weinberg.  For Jim Lange, thanks so much for joining us and we’ll see you next time on The Lange Money Hour, Where Smart Money Talks.