Thoughts from our recent podcast interview with Laurence Kotlikoff, which can be listened to in full on the Newshour podcast page here or on iTunes here.
Laurence Kotlikoff, Boston University Professor and author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” criticizes recent modifications to Social Security law that are the most sweeping since 1983. Included among the changes is the end of the “file and suspend” strategy used by many couples in their 60s to increase overall benefits. Kotlikoff maintained that politicians have mischaracterized laws like file and suspend as loopholes for the rich, and he chided the secretive nature of the legislation as “the antithesis of democracy.”
The recent Bipartisan Budget Act of 2015—which passed the House with 266 votes and with a nearly two thirds majority of the Senate—was signed into law on November 2nd by President Obama. Beginning in May 2016, the bill will prevent a husband or wife from receiving a spousal benefit while the primary beneficiary waits for their benefit to grow until age 70. (Those fortunate enough to turn age 66 by next May are still eligible to use the file and suspend strategy, however.)
While some have characterized strategies like “file and suspend” as expensive loopholes mainly used by those in upper income brackets, Kotlikoff pointed to the case of his own secretary, Norma, who is lower-middle class, works two jobs, and is the primary breadwinner since her husband needs to stay at home with a disabled child. Norma was planning on filing and suspending at 66 so that her husband (and disabled son) could receive a benefit while she allowed her own Social Security payout to grow until age 70. Norma had also planned on quitting her second job based on the Social Security check going to her husband. Now, she needs to continue working two jobs, 80 hours a week until age 70—or for as long as she can—in the hopes of increasing her pension.
Kotlikoff continued that there “are a lot of nasty things in this bill,” and gives the example of a single father with a disabled son who under this new legislation will not be able to receive the disabled child benefit if the father suspends to try to get a higher payout at age 70. This is another example of people who are not wealthy or particularly privileged being hurt by an effort to close loopholes.
Kotlikoff laments the misguided attitude of many politicians who don’t really understand the challenges facing average baby-boomers. “We are lowering income for boomers at the exact same time when we should be doing the opposite,” Kotlikoff says. “We should try to get everyone to wait until 70 to file for Social Security,” since with increasing life-spans being able to wait for as long as possible will increase one’s overall payout from the system.
Kotlikoff also had harsh words for the AARP, whom he claimed got “bribed into endorsing this legislation.” But as an organization that is supposedly dedicated to fighting for seniors, the fact that AARP did nothing to stop these benefit cuts should not be ignored by anyone facing retirement. “There should be a march on Washington picketing AARP,” says Kotlikoff, “they are part of the problem, not part of the solution.”
At the very least, Kotlikoff hopes to better inform the public about harmful legislation and takes credit for alerting the Social Security Administration to badly worded language in an earlier version of the bill that might have cut some people’s checks right now. But the damage to future retirees has been done with the bill that passed. Kotlikoff hopes that voters will punish the politicians behind these cuts when it comes time to vote next year. “If I were losing 50 to 60 thousand dollars which was going to be important for my family without having public discussion of it, out of the blue a couple of years before it was collected, and I made plans based on it…I wouldn’t vote for the guy again.”
Listen to this full broadcast by clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.
