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Why maximizing your Social Security won’t bankrupt the system

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.

Editor’s Note: Boston University economist Larry Kotlikoff has spent every week, for over two years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.

Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours — the Secrets to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published in February by Simon & Schuster.

Below, Larry tells Paul how he and his wife could collect an extra $50,000 in benefits:

If you’re a reader of my PBS NewsHour Social Security columns, you’ll know I’ve written a book with Paul Solman and Phil Moeller (a long-time personal finance columnist) called “Get What’s Yours — the Secrets to Maxing Out Your Social Security.” Leaving out children’s coloring books, the book has been Amazon’s #1 best-seller for over a week.

It had a tough, month-long fight getting to the top. Its cover is green, not gray, features neither a whip nor handcuffs, and it had to squeeze past not one but three shady books of grey, as well as a magic book whose big trick is keeping your room clean, two toddlers’ books and a book about some girl on some train. It even passed (pre-orders of) Harper Lee’s new book and, Lord knows, the three of us are no Harper Lee.

Being a top-100 Amazon best-seller is every writer’s dream. But number one? That’s scary. Suddenly you start comparing yourself to William Faulkner and your friends start shaking their heads. Plus, your 95-year-old mom keeps calling every 10 minutes checking on your ranking.


Pose Your Questions to Larry Here

“Are you still #1?”

“Yes, mom.”

“Double check.”

“Do I have to, mom?”


Paul, Phil and I have been trying to figure out why the book’s taken off. So are our two publishers — Simon and Schuster, may they rest in peace. We’d long subscribed to the view that sex was sexier than money, but apparently not. Money talks, especially to the 10,000 baby boomers knocking off work for good each day. They either read or heard the book’s elevator pitch — that there are potentially tens of thousands of greenbacks available for the safe and legal taking just by applying for the right Social Security benefits at the right time.

It shouldn’t take a book, let alone a best-seller, for the public to figure out how to get the benefits they paid for. But the bureaucrats derive their power from writing rules for us to follow. The more obscure the rules, the greater the demand for their services.

There is surely a special place in hell for bureaucrats (yes, I’ve switched from Faulkner to Dante). My co-authors shrug and tell me, “Democracy is messy.” I’m not sure this has anything to do with democracy, but they are best-selling authors, so what do I know.

The thing that I find most amusing though is that today’s bureaucrats are victims of yesterday’s bureaucrats. The rules, at least when it comes to Social Security, are so crazy complex that many, if not most of the rule keepers at Social Security can’t keep them straight. This is why we say in the book that Social Security is the last place to ask about Social Security. In fact, as we also explain, you can’t even trust Social Security to correctly estimate your retirement benefits.

So maybe it’s the book’s open disdain for this man-made complexity underlying the Social Security system that struck a chord with readers. It’s bad enough to have to go back to school to get what’s yours. You should at least have teachers cursing along with you.

But not everyone is in our corner on this book. The Social Security 2014 Trustees’ Report (table VI.F1) shows the system is 33 percent under-financed. And a number of people have asked us why we are undermining the system’s already shaky finances by telling people how to collect the most money they can. (These critics, have, however, been sure to finish the book before getting angry about it.)

Here’s the thing. The vast majority of the extra benefits we tell people to collect don’t come out of the system’s pocket.

Come again?

Yes, it’s true: something of immense value that the government gives us can cost the government nothing.

Let me provide an example. Suppose we all own our own homes, but for some reason, a private homeowner’s insurance market just doesn’t exist. So we all face a huge personal risk that our houses will burn down and we’ll have no funds to rebuild them. Enter Uncle Sam. He organizes an insurance market on an actuarially fair basis. He collects premiums from each of us and pays them out each year to those of us whose houses burn down.

Since Sam pays out what he takes in, he breaks even. For Sam, providing homeowner’s insurance to the public is an actuarial wash. But it’s a huge benefit to each of us. Now we can all sleep at night and not have to worry about the worst-case scenario of our house burning to the ground.

The government’s administration of Social Security works the same way. Uncle Sam is organizing longevity insurance — insurance against life’s biggest risk.

Life’s biggest risk isn’t dying. No, life’s biggest risk is living — living to our maximum ages of life and, thereby, running out of money. We all need safe, reliable longevity insurance. Yet, for a variety of reasons, we either can’t buy this insurance in the market or simply don’t buy it because we’re sure we’re going to die right on time — at our life expectancy rather than when we reach our maximum age of life.

Economists, of which I am one, have ways to value Social Security’s provision of longevity insurance. Let me make this concrete. Suppose you are 62, retired, and were never married. Also assume that your maximum age of life is 100. If you wait until 70 to take your retirement benefit, rather than taking it now, it will start at a 76 percent higher level over and above the system’s adjustment for inflation. So giving up lower benefits for eight years represents the premium of buying 76 percent more purchasing power from age 70 through 100 if your house burns down (i.e., if you live to your maximum age of life).

For the government, your waiting to collect is a break even. Chances are you won’t make it to 100 or even to 90, and your loss will be the government’s gain. But for you personally, being insured against living to 100 is of enormous value. Indeed, it can be worth, based on standard methods of pricing annuities, several hundred thousand dollars even to those in the middle class.

These are the really big bucks “Get What’s Yours” has to offer. And your taking them doesn’t cost Uncle Sam a penny!

Yes, there are a slew of other benefits — spousal, divorcee spousal, child, child survivor, child-in-kind spousal, widow(er), divorcee widow(er), mother (father), divorcee mother (father), disability and parent benefits — we tell readers about in the book. (I’ve also been telling people about these benefits in this column, which I’ve written as a public service for what is now over two and a half years.)

I think the system’s finances must be shored up and that waiting to fix the system is generationally immoral. Personally, I think they should be shored up by adopting the Purple Social Security Plan.

But regardless of when the government sets its fiscal house in order and how it does so, my co-authors and I believe everyone should receive every penny of benefits they earned and also pay every penny of taxes they owe. Collecting your lawful benefits shouldn’t be a matter of chance — what you happen to know about the system’s truly insane rules. This is why we aren’t just telling people about the insurance value of their benefits, but about all the benefits they can collect and the pitfalls of trying to collect or being forced to collect two benefits at once.

So, please, get what’s yours and help your friends, colleagues and parents get what’s theirs. But also please pressure Congress and the president to secure the system’s finances before Social Security’s house of cards burns down.