401(k) advisors know (or should know) about the importance of coordinating Social Security with the 401(k) portfolio. They should also know that last December’s budget deal in Congress gutted two claiming strategies, file-and-suspend and restricted application, making it harder for advisors to help clients optimize Social Security to ensure retirement assets last.
Larry Kotlikoff isn’t happy about it. The outspoken professor of economics at Boston University and proprietor of Social Security optimization software “Maximize My Social Security” is calling out anyone he feels is responsible for discouraging Americans from reaping the rewards that come with delaying the start of benefits.
“The bill passed, and yeah, it’s nasty,” Kotlikoff bluntly states.
He has especially pointed criticism for popular retirement income pundit Alicia Munnell, director of the Center for Retirement Research at Boston College.
“She wrote this article about how file-and-suspend is this massive giveaway to the rich, even though she took advantage of it,” he claims. “They changed the law based on one person, Munnell. She took it and then felt guilty after the fact. Now no one else can take it. How does that strike you? ‘Do for me but not for thee’.”
Arguing that Munnell, the AARP (who supported the plan) and the politicians who took a “butcher’s knife to the program” should be ashamed of themselves, Kotlikoff concedes the program benefited the rich, but also the poor and middle class.
“My secretary could hardly be considered rich,” he relates. “She was planning to take advantage of file-and-suspend next year at age 66 and she’ll no longer be able. She either has to retire early and take a reduced amount or work 80 hours a week to make up the difference. It’s a big deal for people who are not rich. Of course, the agents at Social Security Administration have no idea how the law works. I have a woman who has asked twice be told she will not be grandfathered in and will therefore not be able to collect off of her husband’s work record, but everything about her case points in the opposite direction. You could not find a less user-friendly program than Social Security. It’s a mess.”
All of this, of course, means a greater reliance on the 401(k), as well as a need to ensure Social Security benefits are optimized and the maximum amount is received.
“The main benefit from Social Security optimization was to illustrate the results that can happen from being patient and waiting to collect. It was something with which file-and-suspend and restricted application aided. Yes, it helped the rich, but it also helped the poor and middle class.”
Advisors who assist clients in maximizing Social Security say the recent changes mean it’s even more important to optimize benefits, and see opportunity now that Congress has made it more difficult to do so.
“It’s a way to get in front of people,” says Lloyd Domingos, director of business development with Littleton, Colorado-based Tucker Advisors, who uses Kotlikoff’s optimization software. “There is an almost infinite number of possible claiming strategies, but we look to take care of the income need with guaranteed products and strategies, any kind of pension they might have, Social Security and then fill in the gaps by coordinating with the 401(k).”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
This is scary stuff for people like me. Defenitley makes me realize that it is impairative to begin investing for sake of my future!