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Want A 50% Increase In Your Retirement Income? Financial Advisors' Daily Digest

Apr. 12, 2018 12:32 PM ET51 Comments
SA For FAs profile picture
SA For FAs


  • Prof. Laurence Kotlikoff helps seekers find a lot more alpha.
  • Jim Sloan discusses strategies for managing cash at this market juncture.
  • Mohamed El-Erian offers guidance on getting through the volatility.

A Boston University professor once shared with me that one of the cool fringe benefits his employer offered its employees was access to retirement software developed by BU professor Laurence Kotlikoff. (My informant was not Kotlikoff himself but one of his colleagues.)

Economics professors are really into “consumption smoothing” – finding ways of keeping one’s level of income even before and after retirement, which the Kotlikoff software surely does. But the profession isn’t opposed to increased consumption either, and the good professor’s nifty tool has allowed BU employees to alter assumptions about their length of employment and savings to see with just a few clicks how they might increase their standard of living while maintaining a floor for safety (another predilection of the profession).

Well, I am pleased to report that, in a virtual sense, at least, Seeking Alpha can make that benefit available to its readers, as we welcome Professor Kotlikoff to our webpages as a regular new contributor. His mission is to help investors find meaningful alpha through the everyday aspects of their lives that they directly control, without undertaking taking market risk. As Larry puts it in his debut article:

Wall Street is yielding only 1 percent real. Hence, seeking alpha in the financial market is a lost cause. Instead…all of us need to look in our backyards, where all our personal financial decisions are waiting to be optimized.”

He shows us how we can obtain this internal alpha via eight “tricks” that raise the retirement spending allowance of a fictional couple by just under 50%. The first trick – and the one that delivers the greatest bang for a hypothetical 50-year-old Pennsylvania couple – is deciding to delay taking retirement and Social Security benefits for four years. That alone adds over $21,000 a year to their currently projected $108,000 annual income.

This article was written by

SA For FAs profile picture
GIL WEINREICH - Author of "The Mentor," a unique parable for financial advisors and those who aspire to become one. I have worked in the FA arena since 1997, and during that time, the New York State Society of CPAs twice awarded its prestigious Excellence in Financial Journalism award to me for a monthly column I wrote on business ethics. Previously, I reported on international news for Voice of America (where I was awarded a newsroom writing award) and prior to that worked as an editorial assistant at U.S. News and World Report. I live with my wife and children amidst the verdant and vibrant hills and dales of Jerusalem.

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Comments (51)

If you NEED to take SS early, you need it.
My wife Wants to take it relatively early; I think I've convinced her to wait until at least 65.
Neither of us are great candidates for living into our 80's, but I consider SS to be longevity insurance.
If we do live into 90's (great-grandmother lived to 101) probably won't exhaust savings but would be nice to have as much guaranteed income at that point as possible (without making bad annuity decisions).
If govt starts seriously considering means testing social security, probably need to start SS and hope govt allows current recipients to be grandfathered in.
user anita profile picture
Unfortunately, those who need it early are going to need more later too. I understand that there are some people who need to retire early and have a lack of funds, so have no choice but to start SS early.

But if you have a choice, I'm not quite sure why people are so anxious to do so. To me it really boxes you in. If you earn much money, then you may end up paying tax on the SS etc, so it reduces the benefit of the SS you are receiving.

I do think the one concern is means testing. If the government seriously starts discussing that--I'll be first in line to sign up and get what I can!
allday1234 profile picture
I took SS and I did not need it!!! I took it to more than make up the difference by investing that money. Of course it is up to you but whatever you do make sure you consider for more reasons than I need it, or you may at sometime wish you had taken it.
If you die before you get it you get $250 to help with a funeral that costs if buried approximately $15,000 but of course you will not pay , because well you cannot.
allday1234 profile picture
I retired at 62, I am 73, my break even point is 74.5.
It is what it is
user anita profile picture
So often I see recommendations to take SS as soon as possible to get "the most back." First, it often isn't money you are getting back. Many run through the money they put into SS within a few years, and then are on the taxpayers' dime.

Second, so much depends on personal circumstances. I spoke with one person who retired at 60 because "no one could tell him you didn't get more SS by retiring early than waiting. So, he retired at 60 with literally no savings, and worked to supplement his income only up to the point where he wouldn't have to pay tax on the SS. So he was living on well under $40k a year. He said it was awful.

Would it not have been better for him to ignore the "retire as soon as possible to get the most money" advice, work another 5 or more years, try to save a few thousand dollars, and retire later with a little bit of savings and a higher income from SS, even if he didn't get as much money "back" overall?
LaughingTrader profile picture
This article, and most articles I see, recommend deferring SS to "get the most back". My point, made above, was that you might be better off taking SS early even if it means you won't ultimately collect as much. That way you supplement your income while you're still relatively young and healthy and more able to enjoy it.
13 Apr. 2018
This repetitive advice does not help those of us already retired for some time. If I were to sell my home which has tripled in value a big chunk of the profit would go to taxes. Given the cost of real estate in my area, I could not even afford a decent condo, and would be losing privacy and downgrading my quality of life.
I do sympathize with you as I too live in an area where one's home could have appreciated a lot in the last 20 to 30 years. If one sold it would be tough to stay in the area. Downgrading in terms of size is one thing, quality is another.

I'm curious how much your house is worth and what your basis is. I ask because, to my surprise, many people are still not aware that the first 250K/500K (single/married) gain is tax free. They are still under the belief you have to reinvest your full proceeds in a just as expensive residence to avoid taxes. And yes, if your gain is significantly more than the 250K/500K you will pay taxes on the additional gain.
My wife and I are in our early 60’s and downsized 2 years ago from a 3 bedroom, 2 bath home into a 2/2 apartment with garage. I figure we are saving $16,000 per year after all costs are considered. Our electricity bill alone dropped over 60% and homeowners/renters insurance dropped from $1200 per year to less than $100.

No software required.
Thoughts on this situation which I never see presented.

Both spouses are the same age, will retire at the same time and ss benefits will be the same.
They decide to retire, say at 66, decide not to collect ss until 70 for the greater benefit. They draw on their IRAs for the next 4 years. At 70 they start collecting ss and take only their RMD to supplement their spending needs. One spouse dies at 72 and that spouses ss goes away. In the meantime, the couples IRA have been spent down (assume no growth from investments). Are they better off from having delayed?
Dividend Pro profile picture
I learned all I needed to know about when to take retirement money since I was 5 years old......"A bird in the hand is worth 2 in the bush."
Remember old movies with a kid hawking an extra newspaper edition?
This article makes me picture such a scenario with kid shouting,
"Extra! Extra! Breaking News!"
You buy the paper only to read that their breaking news is that
the real breaking news is available in some other newspaper.
daytonturner profile picture
Seems obvious that this is not a one-size fits all plan.
Have a blogger doing RMD decisions, timing, what fund(s), handling taxes with RMD or estimated quarterly for all tax liability. Where to invest it if not spending it.
This debate resurfaces periodically. There is a widespread misconception that delaying benefits always results in more benefits over time. We have a close friend who was given this advise from a broker at one of the traditional brokerage firms. When I attempted to explain the fact that total $ received from SS are equal if you live to life expectancy she chose to trust in her adviser. She was unwilling to do the work of crunching the numbers for her situation.

As Eric ably explained, the numbers say that opting to collect SS early will almost always result with +$ over the long term if one has a sizable portfolio. This likely describes most folks who frequent SA. Add to that the possibility of an early demise and/or a change in benefits from govt and it's pretty much case closed.....

UNLESS one does not have financial assets sufficient to fund the desired standard of living in retirement. In that situation, delaying retirement (and SS) as long as possible usually makes sense.

It seems to me that the Professors ideas would be of great value and be applicable to people who have not accumulated retirement assets as great as they need to fund their desired standard of living and have not done any detailed retirement financial planning. If we believe what we hear, many baby boomers fall into this category.

Many SA folks probably do not fit that type of scenario.
Trick #1 - Trade time for money
I will take my SS at 65 and preserve my portfolio. IMHO if you are taking out money from your portfolio to obtain an increase in SS in later years you are taking a risk. In addition, many folks are forced into a higher tax bracket at 70 1/2 due to RMDs thus negating some of the SS gain.

Everyone is different of course, but when you include the taxes in your cash flow projections, the increase SS benefit due to waiting is not as great.
If you're 66 and your wife just turned 66 she can draw a spousal benefit under your SS and defer hers. My wife did that. I recv ss and she receives another 1050 a mos. I worked to 76 and just now retired. Sold my house in Ca. for a very nice profit and its all tax free. SS and dividend income gives me a comfortable life style. Working as long as one can is a great defense ag running out of ones money.
Lorem Ipsum DSA profile picture
The first trick to increase retirement income is... Not to retire (for a while). Brilliant. That's like saying the first trick to having more food is not to eat for a while. But does it get even better?

Yes. Last trick? Downsizing. Pharmaceutical-grade, unadulterated wisdom. Because, wouldn't you know, people live in large houses they do not need, with entirely too much space. They probably have too much land as well. To paraphrase Marie Antoinette, to get more food, stop with all the unnecessary cake, filet mignon and escargot and just eat meat, veggies and potatoes.

I wish I saw the remaining 6 tricks, but seeing as they're unavailable, I've come up with my own.

1. Move in with your kids and eat their food; pay them back by doing chores.
2. Move to Panama, Chile or Costa Rica for lower cost of living (wait, that could actually be sensible...)
3. Ask a restaurant for leftovers at the end of the day. Bonus: resell these leftovers.
4. Buy a basket of highly-leveraged REITs and/or BDCs that trade very cheaply when you ignore debt. Bonus: subscribe to a service that recommends such securities.
5. Move to warm climate and live in a tent - very eco-friendly and budget-friendly.
6. Start flipping houses.
TAS profile picture
Since I am on a government defined benefit pension and DID NOT QUALIFY for Social Security during this period of employment, my SS earnings fore and aft of this period are minimal. I figured I lost about $250,000 of SS contributions (not counting what I could have earned putting it into, say, an IRA) from my consulting work during my voided period. I took my benefit at age 65 and it covers my Medicare bill.

My wife will take her at age 70 after 47 years of employment to max her benefit.

If two qualify for SS, the lesser of the two should take SS at 65 and the other at 70.
Buyandhold 2012 profile picture
Do I want a 50% increase in my retirement income?

Is that a trick question? Of course I do.

But I once asked myself if I could only have one of the following 6 wishes granted, which one would it be?

1) A 50% increase in my retirement income.

2) Living to age 100 without ever suffering any serious illness.

3) Suddenly being 21 again.

4) Discovering a cure for cancer.

5) Writing the Great American Novel.

6) Spending my time in heaven with 100 beautiful virgins.

I picked wish number 4. Having lived for 62 years, I realize that money isn't everything. But it couldn't hurt.
mrmedusa profile picture
I contemplated all these things, then took my SS at 62. I was healthy (still am) and decided I would rather scrimp here and there and enjoy my retirement than have someone wipe the drool off my chin with linen instead of kleenex. I paid off all my debt and downsized while I was still working full time, and when the day hit I was ready and knew what was coming. I am almost 66, and have not regretted this decision. Still work enough (PT) to make the mad money, and the IRA is still untouched and growing.
There should be more to the decision than just how much money your Social Security will be.
Pennywise The Dancing Clown profile picture
Keep in mind that it might have been advantageous to withdraw or convert traditional IRA assets to avoid being locked into RMDs when you turn 70.5 - otherwise, I think you're a good example of why there isn't really any "one-size-fits-all" financial advice besides spend less than you earn.
LaughingTrader profile picture
Actually your situation and mine sound similar. We have also paid off all of our debt and are in the process of building a house which is half the size of our current house. We will be moving in mid summer. My target retirement date is next February. I will be 63 at that time. I might continue to work another year however, depending on how I feel, and how my portfolio does between now and then. If I wait the extra year I will then wait another 9 months until I am 65 to take SS. But if I do retire early next year, I am thinking I will take the SS immediately.
mrmedusa profile picture
In your planning, don't forget about health care for the gap between retirement and Medicare. It can be really costly, but it might also qualify you for an HSA- you can't contribute after age 65.
"It wouldn't shock me, especially if the left wing gains significant ground, if a means test was introduced." Remind me, which party is it again that seeks to reduce/remove SS & medicare benefits for a large population of US residents and just unilaterally passed a law greatly reducing tax rates for the top 1% ? Or perhaps that's what you refer to as a 'means test'. I believe the current Speaker of the House is a big proponent of those same tests.
LaughingTrader profile picture
Yes, there was talk from the Republicans about means testing. It is inconceivable to me that the Democrats would push back on that if a bill was filed. I just think it is much more likely for the left wingers to make changes in the name of "fairness". The Republican proposal was with respect to trying to make SS solvent. Regardless of the reason for changing the rules, the net result would be the same -- my wife and I would be penalized for saving. Maybe we should have taken some vacations between 2005 and now instead of aggressively working and saving?
It's a TOP profile picture
So you have a problem with the left doing something in "fairness". But, you explain away the right doing something to make social security solvent. Both would accomplish the same thing, but your more forgiving in what name it's done?

You do hear the double standard in your argument?
It's a TOP profile picture
Let's not forget it was Republicans that started taxing social security to pay for their Reagen tax cuts.


152 Republicans voted yes and 76 Democrats voted yes. Seems like Republicans will raid Social Security to pay for weapons and less taxes on the rich.
Eric @ SERVO profile picture
Laughing Trader,

Taking social security or not, if you need the income, isn't as black and white as some of the SS optimizers make it out to be. Money is money, whether it comes from SS benefits or your portfolio. If you take social security early you lose the growth in payouts (but get more money earlier) but preserve part of your investment portfolio's principal and potential growth. If you defer social security and sell financial assets instead, you subject yourself to an opportunity cost regarding the lost returns on those assets.

Now, you may well lose money over a five-year period on an investment portfolio, but it's not likely. Over all rolling five-year periods since 1973, a diversified 60/40 portfolio* averaged +11.5% per year. That is far higher compound growth than the growth of social security payments by deferring social security.

But that's not guaranteed, and it's an average. So we must deal with probabilities so everyone can make a decision that is right for them. After all, most of us choose to fly and go on vacation despite the risk of death from a plane crash -- the rewards outweigh the small but non-zero risks. Some people, on the other hand, never leave the house as they deem any risk as too great. It is up to everyone to decide what is best for them.

The first question you would ask is -- having left my money in my 60/40 portfolio and taken social security, what is the frequency where I would have lost money over the five year period? Surely this would be the ultimate frustration!?! Luckily the odds are low, that happened 0.4% of the time over all five-year rolling periods since 1973 (n = 2/483).

But maybe you're looking at this as black or white. What's the odds you would have earned less than 7% a year or more on your 60/40 portfolio - the rate of SS growth on suspended payments? Only 17% (n = 84/483). 83% of the time you achieved more ending wealth by taking social security and not tapping your 60/40 investment portfolio.

What about someone who says I need to do more than just "break even" on taking social security, my portfolio would have to gain double digits for me to feel justified for not taking the "sure thing." OK -- a 60/40 portfolio has only earned less than 10% on 37% of all five-year periods (n = 179/483). About 2/3 odds that you would have cleared that hurdle and been FAR better off.

But what if you're still anchoring to that 17% chance (historically) of making less than 7% a year? Maybe look at this in another way -- in 17% of all five-year periods (n = 82/483) you made more than 16.9% per year, every $ you left in the portfolio for five years compounding at that rate grew to at least $2.18 which is quite a reward for you or your heirs.

What will you decide?

*60/40 portfolio in this comment is the Dimensional 60/40 Balanced Strategy Index
Moneytrax profile picture
Nice comment Eric.

I decided to take my Canadian benefits at ~66 and preserve my portfolio. My reasoning was that's it's better to get back some or most of what I contributed rather than risk getting little or nothing if I were to die tomorrow or in the near future.

If I'm lucky enough to be talking to St.Peter one day, he'll be able to tell me: "Moneytrax, you blew it," or "Moneytrax, at least you got that decision right."

PS: When deciding what to do, it's probably also wise to consider any tax implications and one's spouse's situation. In Canada, TaxTips.ca allows one to test out different scenarios.
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