Get What's Yours - Revised & Updated: The Secrets to Maxing Out Your Social Security (The Get What's Yours Series) - Hardcover

Laurence J. Kotlikoff is a professor of economics at Boston University and president of Economic Security Planning, Inc. His company websites are ESPlanner.com and MaximizeMySocialSecurity.com. To learn more, visit GetWhatsYours.org.

Journalist Philip Moeller writes about retirement for Money and authors the Ask Phil Medicare column for PBS. He also is a Research Fellow at the Center on Aging & Work at Boston College and the founder of Insure.com, a leading site for insurance information.

Paul Solman is the business and economics correspondent for the PBS NewsHour and is a Brady-Johnson Distinguished Practitioner in Grand Strategy at the International Security Studies department at Yale University.

Get What’s Yours 1

WHY WE BOTHERED

The first version of this book began with a catchy true story of a simple Social Security strategy: how, during a break in the exercise coauthors Larry and Paul refer to as “tennis,” Larry made a completely legitimate $48,000 for Paul in less than two minutes by instructing him on how to get his. The rest of the book guided readers through the various steps and strategies necessary to get theirs as well, using other real-life stories, plausible hypotheticals, and humor, to the limited extent we could make Social Security amusing.

The book’s deep purposes were broad: to make our fellow Americans aware of how little they knew about the country’s most important retirement program; to make them aware of how critical it was to their own financial future to understand the system’s basic contours, as well as its nooks and crannies; and finally, to demystify Social Security’s paralyzing complexity so that literally anyone could navigate it.

But when it comes to getting what’s yours, our main objective was to convey—no, to beat you over the head with—one strategy above all others: patience, and the huge potential dollar return from waiting to collect massively larger benefits starting at older ages, regardless of your age, marital status, or earnings history.
A VIVID EXAMPLE OF THE PATIENCE PAYOFF

Consider a 62-year-old couple who both stop working at that age, each having earned above Social Security taxable FICA limit—the maximum taxable amount—from age 22 on. They would jointly receive about $50,000 a year if they both began taking benefits at 62 (the earliest age at which you can collect). To generate the same amount of annual income from investments, assuming a return of 2 percent a year above inflation, they would need a nest egg of over $1.3 million—more than many upper-middle-income retirees have saved by retirement age. (The net worth of a typical household headed by someone aged 65 to 69 is only a fifth of this amount and much of it is in the value of their home.)1

Of course, $1.3 million is a lot of money. But—and here’s the key takeaway—it’s much smaller than what the couple can get by maximizing their Social Security benefits. Because, if they make the right decisions, they can increase the value of their lifetime Social Security “asset” to more than $1.7 million!

All the couple must do is wait until age 70 to start collecting their retirement benefits. If they do, Social Security will pay them benefits that are a whopping 76 percent higher than their age 62 benefits. And yet, according to the latest data, less than 2 percent of Americans wait until 70 to collect. (In Chapter 2, we will note some important exceptions to our Patience Rule. But we will also demolish the arguments of those who think they know better than to wait.)
AN UNFORTUNATE EVENT

Less than nine months after the first edition of Get What’s Yours was published, the government decided to rewrite Social Security rules. On November 2, President Obama signed into law the “Bipartisan Budget Act of 2015.” Under the arguably disingenuous heading “Protecting Social Security Benefits,” the new law modifies several former provisions, most prominent among them the simple “file-and-suspend” strategy Larry had shared with Paul across the net. After six months from the signing of the bill, the “file-and-suspend” strategy would be severely restricted. This book will tell you all about the new provisions and help you understand the extent to which they will or won’t affect you.

Thanks to the new law, the 62-year-old couple we mentioned can no longer collect one full spousal benefit between full retirement age and age 70 while waiting until 70, as Larry had advised Paul over tennis. Still, many married couples and divorcees remain eligible over the next 4 years to follow Paul’s strategy.

But here’s the good news, and a key reason we felt compelled to rewrite and present this revised edition of Get What’s Yours: the strategy that earned Paul and his wife $48,000 may still work for many couples and divorced individuals both of whom were 62 or older by January 1, 2016, but not yet 70, and who are not the same age. There are, by our rough reckoning, millions of you out there, millions of Americans who will be “grandparented in” and therefore still able to employ the strategy Larry advised Paul to adopt. And while our 62-year-old couple, who turned 62 too late, will lose roughly $60,000 because of the new law, they will still gain about $400,000 from maximizing strategies still in effect.

Moreover, the rest of the book’s suggestions and strategies remain true and invaluable: be patient; become aware of and then learn how to take all the benefits to which you’re entitled (and may never have heard of); time your various benefits to make the most of them; and overall, understand Social Security’s rules well enough to make the best decisions for you and your family, since you really can’t rely on Social Security to do it for you.

Social Security’s unreliability was something we knew about when writing Get What’s Yours, but we have had it impressed upon us time and time again since publication as plaintive readers write to us to complain of having been given bum advice. One reader even gave us a single star on Amazon for having given her “wrong advice,” because her local Social Security office assured her we were wrong. We weren’t, and Larry got the review removed and, we hope, straightened out the reader’s benefits. In defense of Amazon reviewers, however, another one said he had learned a great deal from our book—and identified himself as a Social Security representative.

But since the strategy Larry shared with Paul—and that coauthor Phil Moeller and his wife, Cheryl, are using—still applies to millions of Americans for the next four years, what exactly is it? Here’s the original story.
BAD TENNIS, GOOD STRATEGY

Back in 2010, as Larry and Paul had taken a break from what they optimistically call tennis, Larry launched into a harangue, as he often does; this one was about Social Security’s maddening complexity. Paul listened with his skeptical journalist’s ear. Or, maybe, since it was a Larry harangue, just half-listened.

Then Larry popped the question: how old were Paul and his wife and when did they plan 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 earlier at 66, his “full”—but not “maximum”—retirement age, which was in fact just around the corner. Paul had for years been reading and filing away those annual greenish statements from the Social Security Administration with their “Estimated Benefits.” He’d been reading his wife’s, too.

How old are you and Jan? Larry asked.

Paul’s wife would soon turn 67; he, 66.

Here’s 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 now, since she is already 66, but then “suspend” it. That is, she makes herself eligible for the benefit by officially registering with Social Security, on the phone or in person at her local office. But Jan then tells Social Security she is not taking her benefit right away but suspending it until some time in the future. In other words, she “files and suspends.”

Then, said Larry, when you (Paul) turn 66, you also call or visit Social Security and register with the system. But you apply not for your own benefit, but for a spousal benefit. A spousal benefit is fully 50 percent of what Jan is entitled to at her full retirement age—66, in Jan’s case.

Paul was confused but intrigued.

Spousal benefits? Paul had vaguely heard of them. He had, however, never imagined he or his wife was eligible for any, though had you asked him why not, he couldn’t have told you. Was he entitled to them?

Yes, said Larry, so long as you’re not yet taking your own benefit. Then, Larry continued, when Jan hits 70, she does as originally planned—she calls or visits Social Security again and says she now wants to take her retirement benefit, at which point it will start at its highest possible value.

And what do I do at 70? Paul asked.

Just what you planned to do originally, said Larry. You contact Social Security and tell them you’re switching from the spousal benefit to your own benefit.

And where’s the extra money? Paul asked.

Well, said Larry, during the four years you wait, you would earn about $12,000 a year—half of Jan’s full retirement benefit. Meanwhile, your own benefit would have grown by 8 percent a year, for a total of 32 percent (reaching the amount Paul’s greenish statements had estimated if he waited until 70).

Spousal benefits for four years. That should indeed be almost $50,000, just as Larry had quickly estimated. And importantly, it would give Paul and Jan a cushion as they waited until 70. Suppose they faced sudden, unforeseen expenses?

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 Security’s insolvency. Advising people like Paul to take extra benefits from the system while himself decrying the system’s funding shortfall was not what Paul expected to hear (more on that in Chapter 17). But Larry believed it wasn’t fair that some beneficiaries got more than others simply because they knew the system’s rules while so many others didn’t. (And Paul and Phil agreed with him. Which is why we wrote Get What’s Yours.)

Fast-forward. Jan filed and suspended—by phone. The person she talked to couldn’t have been nicer. Paul turned 66. He filed for a spousal benefit. The Social Security representative on the phone had never heard of file-and-suspend, checked with her supervisor, and came back on the line to thank him for enlightening her about a strategy she could now share with everyone who called thereafter.

We are dedicated to getting you every dollar to which you’re entitled, she said, or words to that effect.

When they hit 70, both Paul and his wife called again, were again reprocessed—graciously, competently, and within minutes, though his wife was nonplussed when asked if she’d ever been a nun.
ANOTHER COAUTHOR AND SPOUSE WILL STILL GET WHAT’S THEIRS

The tennis court strategy is what Congress is doing away with. But fortunately our third coauthor, financial journalist Phil Moeller, was born in 1946, and his wife, Cheryl Magazine, is four years his junior. Lucky for them both because, by a stroke of pure chronological circumstance, Cheryl was born before the clock ran out on 1950, meaning she was safely beyond 62 before the ball dropped in Times Square and rang in the year 2016. Beating the ball meant Cheryl was grandparented in. To her, the old rules still apply.

And what about Phil? Happily for him, he had gone a-courtin’ as roughly a third of American men appear to have done, looking at data from the Census Bureau, and married a woman at least four years younger than himself. (The median difference in the United States is a man two years older than his wife.) Phil, of course, was dutifully waiting until 70 to collect his own maximum Social Security benefit, 32 percent higher than had he begun taking his benefit at age 66. (As coauthor of a book whose main advice is to wait as long as possible before taking Social Security, he would have run the risk of public censure—and coauthor abuse—had he done otherwise.) So just as Phil turns 70 and begins collecting his maximum benefit, Cheryl turns 66, files a restricted application, and begins collecting just her spousal benefit: half of Phil’s “full retirement benefit,” the amount he was eligible to collect when he turned 66, and just what Paul had done when he began collecting on Jan’s record.

Phil and Cheryl are the perfect couple—at the very least for spousal benefit eligibility under the new rules. The four-year spread in age means that Cheryl can begin taking spousal benefits just as cradle-robbing Phil turns 70, and she can receive them for the full four years until she herself reaches that lofty level. Crucially, for readers of Get What’s Yours, the same holds true for any spouse four or more years younger than the person to whom they’re married—think college senior marrying high school senior—but remember: the younger spouse has to have been at least 62 before January 2, 2016, to be eligible under the old rules.

Phil and Cheryl are also the perfect couple because, were she only three years younger—a freshwoman when he was a senior, for example—she would already be 67 when Phil turned 70 and thus get only three years’ worth of spousal benefits; if a sophomore to his senior, two years; just a junior, well, you do the math. The reason they are allowed to do this is that Cheryl made the age-62 cutoff. Under the new law, older spouses who file and suspend can’t provide their spouse or any other dependents with benefits while their retirement benefit is in suspension. Admittedly, the estimate you’re about to read is a rough one, but of the nearly 30 million or so Americans born between 1946 and 1953, there figure to be millions of couples in a situation analogous to Phil’s and Cheryl’s and others grandfathered differently under the new law. Someone you know is surely among them.



SOCIAL SECURITY VERBATIM

YOU’RE RIGHT THERE (AND WE’RE RIGHT HERE)

“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.”

ALL QUOTES FROM OFFICIAL SOCIAL SECURITY RULES

A PERVERSE TWIST THAT THE NEW LAW ENCOURAGES

The new law encourages divorce, as we’ll explain in Chapter 11. It’s true that Paul and Jan would have benefited had they gotten divorced, because each could have taken spousal benefits on the other’s record. But the way the law reads now, the only way for same-aged couples who were 62 by January 1, 2016, to do what Paul did (collect a full spousal benefit while waiting till 70 to take his retirement benefit) is to get divorced two years before they reach full retirement age—an amicable divorce (amicable to the point of intimate, even). Then, after six years of equally amicable cohabitation, they can reunite, maybe even throw a new wedding to celebrate. Want to guess how much they could afford to spend on the event just from having collected spousal benefits on each other for the four years between full retirement age (66) and age 70? If both were top earners, $128,000 in 2016 dollars. If they were not top earners, but getting only the average benefit these days—$15,000 a year—they would still have collected $60,000 over the four years.
WHY WE SO DISLIKE THE NEW RULES

Even though we’re coauthors and friends, we disagree about many things. We even disagree about many things with respect to Social Security, as Chapter 17 makes vividly clear. And we disagree about the new rules, as Chapter 4 will make apparent. But we do not disagree about the process that led to them; we think it was too fast, too opaque, and, therefore, unsurprisingly, ill-considered, at least with respect to the detai...