The Lange Money Hour: Where Smart Money Talks
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Maximize Your Social Security Benefits with Dr. Larry Kotlikoff and James Lange
Jim Lange, CPA/Attorney
Guest: Larry Kotlikoff
Please note: Some of the events referenced in our audio archives have already passed. Please check www.retiresecure.com for an updated event schedule.
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- Introduction of Guest – Larry Kotlikoff
- Case #1: Single 60 Year Old Woman With Long Life Expectancy
- Utilize Useful Resources for Retirement Planning
- Case #2: Married Couple With Only One Strong Earning Record
- Larry Kotlikoff Running for President
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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at rothira-advisor.com. Now get ready to talk smart money.
Hana: Hello, and welcome to The Lange Money Hour, Where Smart Money Talks. I’m your host, Hana Haatainen Caye, and of course, I’m here with Jim Lange, CPA/Attorney and best-selling author of the first and second edition of “Retire Secure!” and “The Roth Revolution: Pay Taxes Once and Never Again.” One small change for the new year is that the show will start at 7:05 instead of 7 pm to allow for KQV to provide the news at the top of every hour. Jim’s guest tonight is Lawrence Kotlikoff, PhD. Larry is a Harvard-educated Professor of Economics at Boston University, a noted expert on Social Security and a published author fourteen times over. Dr. Kotlikoff has taught for many prestigious institutions, including Yale and MIT, and acts as a financial consultant for several Fortune 100 companies. His latest book, “Jimmy Stewart is Dead,” is widely acclaimed and has been coined as ‘brilliant’ in the way he describes America’s current financial system. And for a less theoretical and more practical take, readers can pick up a copy of “Spend ‘til You End,” co-authored by Larry. In addition to his academic accomplishments, Dr. Kotlikoff has created personal financial planning software, which the Washington-Post calls “the deepest and most powerful financial planning engine.” His new software for deciding on when to take your Social Security can be found at www.maximizemysocialsecurity.com. On tonight’s show, we will be shedding light on some of the tough and more intricate questions pertaining to Social Security. Social Security is more complex than most people realize, and the right decision can put you on a path to a more secure retirement. We are thrilled to have Larry back on the show for the third time. He is a knowledgeable and entertaining guest, so this is sure to be a great show. But before I turn it over to Jim, I want to remind our listeners that the show is live, so please feel free to call in with your questions for Larry. The number is (412) 333-9385. Good evening, Jim, and welcome to the show, Larry.
Larry Kotlikoff: Hey, thanks for having me.
Jim Lange: Well, thank you for coming. Two quick notes before we get into the substance: first, asking Larry Kotlikoff to talk about Social Security is kind of like asking Derek Jeter to bunt. Yes, he’s terrific at it and he’ll do a fine job, but that’s only one of the many things that he can do, and Larry’s abilities outside of Social Security are also extremely impressive in the economic world. On the other hand, this was advertised primarily as a Social Security show and we’ll maybe hit on some of the other things that Larry’s doing, but I will just say that he’s extremely talented in a number of areas as an economist. And the other one is a quick recap of a true story. When Larry was on the first time, he gave us some great information about Roth IRA conversions combined with Social Security, and literally, back in those days, you were allowed to give your Social Security back, and we talked about some very interesting things about Social Security, and when I was writing my book on Roth IRA conversions, I actually, literally, got the show transcribed and I took as much from the transcription as I could, but I wanted to make sure that it was right because, you know, it’s always good to get things peer-reviewed, and I thought, “Well, who better to see if I got it right than Larry himself?” So, I sent Larry an e-mail and I said, “Larry, you know, this is what I got from the show, and is this right?” So anyway, Larry was not only good enough to respond, but he actually added an entire section that did end up in my book. But anyway, my Mom is actually still, at 95 years old, she still edits my book, and she’s pretty liberal with the red pen, you know, with lots of corrections all throughout, and the section that Larry wrote, which was about two pages, was the cleanest section. There wasn’t one red mark. So, in addition to having a brilliant economic mind, Larry is one heck of a writer who got past a very tough journalism professor, so thank you again for being on, Larry.
Larry Kotlikoff: Hey, thanks for having me again and thank your Mom for being so generous, I’m sure.
Jim Lange: Well, she didn’t know it was you. She just thought that I was on a good streak, or something like that.
Larry Kotlikoff: Oh, yeah. Well, that’s great! I’m glad to hear it.
Jim Lange: But anyway, last time, you gave us some really interesting strategies about Social Security, and I do want to get to some of the other things that you are doing personally and some of the areas of your expertise outside of Social Security, but if we could, I’d like to start with some of the issues regarding Social Security and when people should take it. So, I thought maybe we could start out with some of the more simple cases, and then kind of move on to some of the more complicated cases involving when people are married and even divorced, etc. So, could we start out with, let’s say, the simplest case, in fact, I had a woman come to my office today, and she is right now 60 years old and she is planning her retirement, and she got three numbers from the Social Security Administration on what she would get if she started collecting at 62, if she started collecting at 66 and if she started collecting at 70, and I think our listeners would be bored to tears if we went through all the numbers, but maybe if you could conceptually discuss what she might be better off and in her case, you know, I asked her based on her genetics and based on her health, how long did she think she was going to live and in her case, she said 100. Now, you might also include in that discussion maybe a more common life expectancy, and also, in her case, she had money that she didn’t need the Social Security to meet her monthly expenses.
Larry Kotlikoff: Well, actually, I’m going to assume she’s single.
Jim Lange: Yeah, yeah. In this case, she’s single, so it’s easy and we’re not worried about any heirs or ex-husbands or anybody else.
Larry Kotlikoff: So, in her case, it’s relatively easy. She needs to wait until 70 because, that way, she’ll get the maximum Social Security benefits, but by waiting, she’s giving up money along the way, and she’s buying a higher benefit. So, in effect, she’s buying…think of what she gives up along the way in terms of the foregone benefits as paying a price for a higher annuity. So, she’s, in effect, buying an insurance policy which is a stream of payments that continue until she dies, and she is somebody who has a very high maximum age of life, which is 100, and I think most of us actually have a very high maximum age of life, and the maximum is what we need to focus on, not the expected age of life, but the maximum age of life because none of us can count on dying on time. So, when we start doing life expectancy calculations when we think about Social Security, that’s a no-no to economists because it’s taking us to be dying many, many times over and that we can somehow average out living long against living short, but we can’t. We’re not an insurance company with many, you know, thousands of lives that we’re insuring, or millions of lives. We’re just one person who’s going to die at some point. It’s just like we’ve got one house and we buy insurance because we know if we lose that house, we have to pay a huge amount of money. If we had three million houses, then we wouldn’t buy insurance because we would know, on average, how many would burn down. So, we don’t do an actual calculation when we think about buying a house. If people did that, no one would ever buy a house. Here it’s the same story. We want to buy as much longevity protection as we can from Social Security because they’re pricing it at such a terrific price, such a low price, because they’re providing it on an actually fair basis. So, for her, she wants to wait until 70 and she probably wants to take out her 401(k) money early and leave her Roth money alone, or do a conversion to a Roth based on some advice from you, Jim, and that can also save her taxes because when she takes the money from the Roth after she’s taken Social Security, the Roth withdrawals are not subject to…you know, don’t get counted for purposes of figuring out whether or not your Social Security benefits are taxable. So, in general, the best strategy for her is to withdraw from her 401(k), not necessarily all of it, but start somewhat early withdrawing from the 401(k), take Social Security late and she’ll get the highest living standard possible from that strategy.
Jim Lange: Well, I would agree with you, and you actually bring up a couple of interesting points. One is that by delaying her Social Security, she actually will have a number of years between retirement so she will not have the income from her job, she will not have the income from her minimum required distribution, and in her case, she has enough money that she can live comfortably, she will not have the income from Social Security, and that will become the ideal years to make a Roth IRA conversion. But I want to take up on the concept of you said you’re kind of insuring her a greater income, and you and I actually talked about this when we met a number of years ago in New York City when there was a symposium on how retirees should withdraw money to make it last for their lifetime, and there was a financial product, an insurance product, that very few people are interested in or have sold. It’s called a deferred immediate annuity, and basically, to oversimplify, let’s say you’re 70 years old and what your concern is is that you’re going to run out of money when you are much older. And I don’t have an exact quote, but let’s say that you can plunk down maybe $100,000 at age 70, and you get to withdraw, maybe, roughly $80,000 a year starting at age 85, which means if you die before age 85, the insurance company wins, but if you live to 100, you’re going to do very, very well. So, this is a commercially available product and it sounds like it’s a little bit analogous to the waiting for Social Security because, you know, if you die before 70, then you just lose, but if you make it to 70 and then live well beyond that, you’re going to be ahead. Is that a fair analogy?
Larry Kotlikoff: That’s a very good analogy, but the big difference with Social Security is that the benefit you’re getting and the annuity you’re getting is inflation-indexed, whereas I don’t know of any deferred annuities that are inflation-indexed. You can certainly buy immediate annuities that are inflation-indexed. There are about four companies that offer those, but I don’t know that any of the deferred annuities are protected against inflation, and that’s a huge risk. The government’s been printing money out the wazoo, so the potential for a very high rate of inflation is there in the economy.
Jim Lange: So, this is actually, in effect, a better deal than you could get from an insurance company?
Larry Kotlikoff: Yeah, Social Security’s got the best prices for annuities, and you can buy them just by waiting to collect. Now, should we talk perhaps about married couples?
Jim Lange: Before we do that, I can just hear the objections out there: “Oh Larry, Social Security’s in trouble! They’re going to go bankrupt! I’m not going to get anything when I’m older! I better just take the money now!”
Larry Kotlikoff: I think the likelihood that they’re going to cut the benefits for people that have reached eligibility to receive that are 62 or above, it’s very, very low. I think they may increase the taxation of the benefits, but I don’t see them pulling out the rug from under people that have decided to wait. I mean, that would be extremely unfair and I just don’t see it happening anytime soon. So, I think it’s a safe bet to wait and, yeah, I mean, another issue is whether taxes in general are going to be up. The country’s going broke, today the government has decided to spend another hundred billion dollars in another tax cut, namely extending the payroll tax cut for the rest of this year. So, that’s bills that somebody’s going to have to pay, and our kids don’t have the wherewithal to pay all these bills that are going to come due because, you know, when you borrow money, somebody has to pay the principle and interest, namely either us or our kids, and it’s going to be us, to a large extent. When we get into the situation of when our official debt starts looking like Greece’s official debt, and it’s not that far off, we’re going to have to pay the piper. Tax rates might go up, so there’s an argument in that context to worry about how much will your Social Security benefits be taxed away, but for the calculations, you know, we have the software ESPlanner, which allows you to look at these things in a systematic way, and also to postulate that there will be tax hikes, but I’ve run a lot of cases with 30% tax hikes, and it still seems to be better for people to wait. I can’t say that’s uniformly the case, but for most cases I’ve run, if you can afford to wait in terms of having other resources to rely on until 70, and you’re single, like this is the way to go.
Jim Lange: All right. By the way, you just glazed over a wonderful resource for our listeners, which is ESPlanner, and that’s www.esplanner.com?
Larry Kotlikoff: Yeah.
Jim Lange: Is that right? By the way, I will personally endorse this because I have personal knowledge of this and, you know, when I last looked, there were basically two versions. There was a free version and a paid version, and the amount of information that was on the free version, sometimes you look at a free version of software and it has a little bit, but it’s really a ploy to get you to buy the expensive version, but in your case, it is wonderful, and then, if somebody is really a number-cruncher and they like the way you lay things out and the way your logic works, and I think it works very well, then I think going up to the paid version would be a very good investment.
Larry Kotlikoff: The free version is at esplanner.com/basic. It was ranked number one by Money magazine of all financial tools on the web. So it is really cool. Forbes called it the best of the web, and it’s free. Just don’t log in. Just go and play with it. If you want to have your input saved, you can pay $40, and then there’s some other features. But then, if you want to do a little more detailed planning and deal with these Social Security issues in more detail than at esplanner…ESPlanner Plus, which we sell at esplanner.com, and we sell the ESPlanner Plus, it includes Monte Carlo simulations for focusing on how your portfolio is going to fit your living standards. The whole focus of economics is on your living standard, and this is a living standard machine that we’ve put together, and we’re figuring it out, in the case of Social Security, how to raise it. So here’s a plan that you do where you take Social Security at 62 and taxes don’t increase. Now you want to think about well, what happens if I take it at 70 but federal income taxes are going to rise by 30% starting when I’m 72? You can run that, and two seconds later, you can see whether your living standard’s higher. And so, it may be that it’s significantly higher to go ahead and take Social Security, even if taxes go up.
Jim Lange: And one of the things that I really like about the way you think about things, and I also, I think Hana just mentioned your book. Is it “Spend ‘til the End?”
Larry Kotlikoff: “Spend ‘til the End,” yeah.
Jim Lange: “Spend ‘til the End,” which I actually thought was excellent, and the emphasis that you give is not be a pauper now so you‘re saving more for later. What your idea was was that you could actually spend more now and spend more later, so in effect, by cutting the pie differently, you actually get a bigger pie.
Larry Kotlikoff: Yeah. Uncle Sam is giving us all kinds of options for arranging when we pay taxes and how much we get in the form of benefits. So, I refer to this as ‘tax alpha.’ We can get a higher return with no risk just by being smart about when to take our benefits and how to deal with taxes. You know, we got the 401(k), we got conversions, we got Roth versus non-Roth options, and these things are really an opportunity to figure out how much you want to pay to Uncle Sam. So you can make a lot of money and raise your living standard just by doing smart things in that area, but there’s other areas such as should I take a job in Seattle versus staying in Kansas City? Now, if you go…I’ll take a little diversion from Social Security for a second. If you go to CNNMoney.com and you look at their calculator about the cost of living in Seattle versus Kansas City, it looks like you need to have maybe a 30% higher wage to live in Seattle, but if you’re 55 and you’re thinking about making that move to a job in Seattle that pays 30% more, well, it’s going to pay 30% more until you retire at, let’s say, 65, but those higher housing costs that Seattle has and other costs are going to continue until you’re 100. So, the whole calculation is completely screwed up. So, you really need…if you look at it more like a 70% salary hike, if you’re going to permanently move to Seattle, if you’re going to live in that high-cost area for the rest of your life, that’s a whole different story. So, our software can help you figure this stuff out. You know, is this actually a lifetime living standard increase move, or is it a decrease move? And, you know, so there’s so many safe ways to get your living standard up without risking it in the stock market, or risking too much of it in the stock market.
Hana: Larry, I hate to do this because I’m finding this conversation extremely fascinating, but we do have to take a quick break. When we come back, we will continue this conversation. I want to remind our listeners out there that we are live tonight, so if you have any questions, you can give us a call at (412) 333-9385. We’ll be right back with Jim Lange and Larry Kotlikoff, author of “Jimmy Stewart is Dead,” on The Lange Money Hour.
Hana: Hello, and welcome back to the Lange Money Hour. This is Hana Haatainen Caye, and I’m here with Jim Lange and Larry Kotlikoff, author of “Jimmy Stewart is Dead.”
Jim Lange: Well, Larry, I think we covered the simple situation where a single woman deciding when to take Social Security, you were pretty firm. She should wait until she’s 70.
Larry Kotlikoff: If she has enough assets to get her by. If she doesn’t, then she has to see the tradeoff because if she waits, the longer she waits, the lower her living standard will be before she starts taking. So, there’s going to be a jump-up in her living standard. So, she has to figure out…about this tradeoff, whether she’s willing to take a sacrifice on a living standard in the short run and take a higher living standard in the future.
Jim Lange: Okay, that’s fair. Let’s take the more complicated case. Let’s assume that we have a husband and wife, and even though I think the model is changing, let’s assume, for discussion’s sake, that a more, let’s say, traditional family where at least one, typically the husband, but not necessarily, has a very strong earnings record and has been working at a fairly high salary for many years, and the other one is, let’s call it the dependent spouse, you know, works some but doesn’t have nearly as strong an earnings record. What would you typically recommend that a couple like that do regarding Social Security?
Larry Kotlikoff: Well, again, if they have the regular assets or the retirement account assets to get them by, the best strategy is to have the husband reach full retirement age and file for retirement benefits but suspend their collection. That’s called ‘file and suspend,’ and then he can proceed to wait until 70 to tell Social Security he wants to actually receive his Social Security retirement benefits. So by filing and suspending and waiting, he gets the maximum Social Security benefits at 70. He gets the full value of the delayed retirement credit, but this act of filing and suspending permits his wife when she hits full retirement age to go into Social Security and just apply for her spousal benefits, and she’ll get her spousal benefit and then she can defer electing to take her own retirement benefits, and at 70, elect to take that, and it may well be that her own retirement benefits exceeds her spousal benefits. So, she will, in effect, get free spousal benefits for four years if her full retirement age is 66. So, this is a way to get a good chunk of money. You know, I have a friend of mine who, his name is Paul Solomon. He’s an economics correspondent for the News Hour with Bill Leher, and we play tennis and he’s asking me one day about when to take Social Security, and, you know, and bingo! In five minutes, in one minute actually, I got him about $50,000.
Jim Lange: I was going to say, it sounds like it’s worth about $50,000.
Larry Kotlikoff: Yeah. I made him $50,000 and he would say that’s exactly what happened, and he still owes me dinner, but we’re going to do that. We just haven’t had time! But I had another friend who’s a patent attorney for my company. We have just applied for another patent and I just had lunch with him yesterday, and he told me that he and his wife, she had elected to take Social Security at 65, and that she was going to wait until 70 to collect her retirement benefits. She was just collecting her spousal benefit. I said, “No, Mark. That’s not possible. When Joan, your wife, elected to take benefits before her full retirement age, she elected to take her spousal benefits. Social Security forced her to also elect to take her retirement benefits, and they’re giving her basically the larger of the two, and she won’t be able to get anything more in the future. She’s stuck with this benefit for the rest of her life, and that you should have waited until she became 66 and had her take just her spousal benefits, and you just lost, you know, probably $50,000 by making this mistake and not knowing.” And so, we’re now, you know, apparently they got some bad advice by the people at Social Security that they talked to, and people in the local office don’t know too much about file and suspend, and it’s rather complicated because of this deeming provision. If you take one of the two benefits before you’re deeming to have applied to take the other, and they don’t necessarily describe it, you know, they don’t explain it to you at the office, and this guy, this friend of mine, this patent attorney, he’s got a law degree from the University of Pennsylvania, which he got after he got a PhD in engineering from MIT. You can’t find a, basically, a smarter person, and he’s sitting there and he’s telling me, “This is a nightmare trying to figure out Social Security.” So I said, “Look, you should have gone…we have this new product. It’s called MaximizeMySocialSecurity.com where you can, for forty bucks, you could’ve used our software for forty bucks and figured out exactly what to do, or I could have done it for you for free.” But anyway, they made that mistake and there you go.
Jim Lange: By the way, for most of our listeners, and the example that you just gave was one of the main reasons why I wanted to bring you back on the show because you just gave a very excellent strategy that might be worth $50,000. So, even if people didn’t get everything, and by the way, you actually explained something similar the last time you were here, and people can go on my website at retiresecure.com and actually get out the transcript, both the audio and the transcript, and read that again. It’s also in my book, but it is a great strategy, and it’s so important that people just think this out and don’t trust the person at the Social Security office. There might be some very good people there, but you might get some bad advice, and whether you use, if you’re a do-it-yourselfer and you’re up for it and you go to maximizemysocialsecurity.com, I can’t stress how important that is, and if you’re not a do-it-yourselfer, we actually, in our office, we have both access to this and then we also, we have the Horse’s Mouth software also. If you remember, because we were actually talking, Larry, with, oh, I forget her name from Horse’s Mouth…I’ll think of it in a minute…but anyway…
Larry Kotlikoff: Yeah, I know who you mean. I’ve talked to her.
Jim Lange: Yeah.
Larry Kotlikoff: I don’t know their software too well, but here again, the lady who, and she’s a very, I mean, she’s a terrific person and knowledgeable about financial issues, but she looks at it as a financial planner actuary accountant perspective, and I’m looking at it as an economist, and we look at it as an economist. As an economist, we don’t do actual calculations for people in this context because, again, people are only going to die once. They’re not going to be able to average their different dates of death, and the big risk here is not dying early. The big risk here is dying late. So, you have to plan to live to the end to your maximum age of life because you may actually live that long. So, that’s why our software is doing it’s…when we figure out the maximum Social Security, we do a present value calculation assuming you live right to the end, to age 100, because that’s the right calculation to make from any economist’s perspective.
Jim Lange: Yeah, I remember the last time you were on, you were saying, “Don’t worry if you die young! If you do, you’re dead! You don’t have any more problems! Your problem is if you’d lived ‘til 100!” Which I thought was pretty good!
Larry Kotlikoff: In heaven, you’re not supposed to need money, as far as we know, right? You’re supposed to have everything taken care of in heaven. That’s what heaven’s all about.
Jim Lange: Well, based on the spending habits of several of my clients, you would think that they’ve figured some way to take it with them. But actually, I think that that’s some of that old depression-era mentality, which by the way, is I would say much more the rule than the exception for most of my older clients.
Larry Kotlikoff: Yeah. Now, for your older clients, some of them might be a widow or a widower, and here again, there’s an option to take your widow’s benefit early and then defer taking your retirement benefit, or it might be better to take your retirement benefit early, and so which thing you should do is, again, our software figures this out for you. We deal with widows and widowers, but it’s not simple. It depends on your whole earning history and what your deceased spouse’s earnings history is, so we actually ask for both of these inputs. We ask for the earnings history of the widow and of the decedent spouse to get it right. Now unfortunately, Social Security has stopped sending out our earnings statements. As you may know, Jim, this system is so broke that they can’t even afford to send us our annual statements, and you can’t get them online necessarily. You can get a benefit calculation by going there, but they low-balled the estimate of your future benefit, so they’re not particularly reliable when it comes to somebody who’s, let’s say, 45 and trying to project what they’re going to get. Social Security assumes no real wage growth in the economy into the future and doesn’t assume any inflation will occur. So, they’re making these strong assumptions to give people a low-ball estimate, and you can’t really therefore get a reliable estimate from Social Security. Your future benefit and you can’t get your earnings record out of them, although I think if you push them hard enough, you probably could get it from them. So, this is a problem.
Hana: Okay, we’re going to take another break. I wasn’t aware of some of that and it’s a little bit disturbing! When we come back, we’re going to continue talking about the Social Security issues, and I want to remind our listeners out there that we are live tonight, so if you have any questions, you can give us a call at (412) 333-9385, and we’ll be right back with Jim Lange and Larry Kotlikoff, author of “Jimmy Stewart is Dead.”
Hana: Welcome back to The Lange Money Hour. This is Hana Haatainen Caye, and I’m here with Jim Lange and Larry Kotlikoff, author of “Jimmy Stewart is Dead,” and we’re talking about Social Security.
Jim Lange: Larry, one of the things that, I usually keep the advice at a fairly practical level on the show and don’t really get into politics or fixes for national problems, but I know that you are a very outspoken expert on issues like Social Security and what we are doing, and I think that if somebody is interested in that, your book “Jimmy Stewart is Dead” is a wonderful read, as opposed to somebody who says, “Well, I’m not so worried about the country. I’m just worried about me,” which I think is probably most of our listeners, so they should probably go for “Spend ‘til the End,” but if you could tell us a little bit about what you think some of the country’s macro problems are, and what you are doing about it? I think our listeners would be very interested in some pretty interesting news.
Larry Kotlikoff: Okay, Jim. Well, yeah, the news is that I’m running for president on the AmericansElect.org platform, and this is a new thing that’s come about over the summer. Some donors gave this organization $30,000,000 to get onto the ballot in all the fifty states and the District of Columbia. So, come next November, when we go to vote for the president, there’s going to be a candidate for AmericansElect.org on the ballot, and I’m trying to become that candidate. I have a website that’s called Kotlikoff2012.org, and if people go there, they can find out about my candidacy, and they can also go to AmericansElect.org and register themselves and click ‘support’ next to my name. I need to get 50,000 support clicks to get into their primary runoff process, and then in June, there’s going to be six finalists and there’ll be a final election in June. All this is being done online, so if I can get people who are interested in my candidacy to go to AmericansElect.org and click ‘support’ for me, that would be great, and to tell everybody they know to do that, as well. If I can get the 50,000 support clicks and then go on to win this nomination, I think I’d love to take on the president and Rick Santorum, or whoever it is, in the election because what’s going on is that the two parties have been catering to their extreme wings to a large extent for six decades, and undercover of having acrimony between the two parties, what’s been going on is that both parties have agreed to take from young people and give to old people to run a massive Ponzi scheme, and it’s been used to do some very good things: Social Security, Medicare, Medicaid. These are programs that have done enormous good, but they’ve also left a colossal bill for our kids to pick up. So, I’m desperately concerned about our children’s welfare and I think, when it comes down to it, that the thing we care the most about in the world is our kids. So, one of the themes of my campaign is that our kids are us. It’s not our Toys ‘R Us, but our kids are us, and we have to look out for the kids, and what we have now is a fiscal policy which is completely endangering their future. In addition, we’ve got an economy that’s stagnant to a large extent, that has 29,000,000 people that are out of work or short on work, and I think I can figure out how to fix this and get people back to work. I think being an economist brings a lot of special expertise to these kinds of issues that a lawyer or an actor in the case of Ronald Reagan or a businessman in the case of George Bush or a nuclear engineer in the case of Jimmy Carter, a lot of presidents with a lot of different talents, but not a one of them was an economist, and the economists they hired turned into politicians two seconds after they were hired because their whole objective is to make the politician viable for the next election, and that means catering to the extreme elements of the party. So, we keep flipping from one extreme party, or are basically catering to one extreme versus the other. We never get policies that actually work for the core of the country and actually work for our kids, and that’s what you see at Kotlikoff2012.org. You see some very simple policies. I call them Purple Plans because red and blue makes purple, and red Republicans and blue Democrats can agree that these purple plans actually meet their interests and their concerns. So, there’s a new tax reform proposal there, there’s a Social Security reform proposal, there’s a healthcare reform proposal, there’s this proposal for fixing the financial system, which I discussed in “Jimmy Stewart is Dead,” there’s an energy plan, there’s a generational balance proposal. So, these purple plans are really what we need, and we also need to get all the employers in the country to pledge to hire collectively, at the same time, simultaneously, in unison, I don’t know how to say it in different ways, but we need to coordinate their joint hiring of 5% more employees. The large mid-size employers have to hire 5% more employees in the near term, and then we can get back to full employment and lo and behold, the employers, when they do this, are going to notice they’ve got more customers because we will now have 29,000,000 people who were not making as much money, who are going to be making money, and will be able to spend it. So, we have a coordination failure when all the employers decided in September ’08 that all hell was breaking loose with respect to the economy and it was going to be terrible times, and they all started laying off people en masse. You know, it was almost like a coordinated action, and they all became pessimistic at once because they’re watching the news and they figured, well, he’s firing, I’m not going to have customers, therefore, I’m going to fire. We need to turn that around by getting the top 1,000 CEOs together in a room. This is what I would do on day one, and I’d say “Look, I’m not going to subsidize you guys to hire. I’m not going to tax you. I’m not going to force you. I’m not going to beat you to a pulp to do this.” I’m going to say, “Look, we’ve gotta do this, and if you do it together and at once, we’re going to get the economy rolling, and your kids will get a job and your nephews and your nieces. Let’s do it for the country and do it for yourself.” And I think that can happen. So, we need to have the president understand that we’ve got a coordination failure, and to coordinate a collective response to it because this economy can be in more spots than one, and we’re in a lousy spot, and that’s what we call bad equilibrium in economics. So, I think I can get things rolling in a lot of ways, and then, of course, there’s foreign policy, which I also think in that area there’s been just abject failure by the politicians. They’ve spent decades dragging us into wars that were extremely expensive in terms of deaths and injuries to young people and to the nation’s treasury, and for what? What did we really achieve out of Iraq? You know, whatever happens to Iraq is not going to be affected by our spending ten years there, I don’t think. I think that they will either find a way to have a democracy, or fight with each other until the end, and having spent ten years isn’t going to change that, and the same thing with Afghanistan. We’re going to be leaving and whatever was going to happen in Afghanistan is going to happen again. I’m not saying we shouldn’t have gone after Osama Bin Laden. That’s what we should’ve focused on, not trying to nation-build in Iraq or Afghanistan or, before that, in Vietnam. This is a clear strategy mistake. Now, the big threat in the area of foreign policy right now is Iran, and I see these politicians acting like blowhards. They keep saying that Iran is getting the nukes and they want to stop that, but they’re not actually taking any actions to stop it. My view is that you have to be tough with Iran on this stuff and set a date and say, “Look, this is it. Our patience has run out.” Whether you have to say that publicly or privately, you have to be prepared to use the military, which we spend a huge fortune on, to take out their nuclear weapons facilities because we don’t want these people to be threatening our kids for the rest of their lives with nuclear weapons.
Jim Lange: All right. By the way, as a little bit of a cynic or a skeptic, I don’t see your odds of winning as tremendously high, but I’ll tell you what you might end up doing, and this might be a little bit a la Ron Paul, which is Ron Paul probably doesn’t have a great chance of winning, but it has brought attention to some issues that are important to him. Now, I think you might have some profound disagreements with some of his positions, but it sounds like you’re actually giving some very intelligent positions, particularly in the area of your expertise which is economics, that if you do get some exposure, might, let’s say, turn into some potential action in Washington where, let’s say, on a bipartisan basis, people say, “Hey, you know, here’s a guy that has a plan,” and it’s not, let’s say, you know, where a pizza guy says 9-9-9 but (I hope I didn’t insult too many people), but where a serious economist, Harvard educated, world renowned in many areas says here’s a plan, and additional exposure, and maybe running for the president is a great way to do it. Now, you might be thinking, hey no, I’m going to take on Obama and I’m going to make this thing happen…
Larry Kotlikoff: No, I’m going to take on Obama and I’m going to make it happen because, Jim, here’s the deal: people are fed up with the politicians. They really are, and they’re not proposing anything to fix these problems. Social Security is 27% under-funded. The president has just made it worse today in terms of its funding by cutting payroll taxes more, and he’s got no plan for fixing it. He’s got no plan for really getting healthcare spending under control going forward. He’s added another system, which can be enormously expensive for our kids. We all need a basic plan. There is a way to do that without driving the country broke. We’re giving everybody some basic healthcare, driving the country broke. So, my purple health plan is an answer. So, I think when the public really looks, the problem with these fringe candidates is that, whether it’s Ross Perot or any of the other people that have run as third party candidates, is that they have come across as extremists. So Ron Paul is also pretty extreme in terms of some of his positions. I think very highly of some of the things he’s saying, but I think the joke around is that everybody agrees with Ron Paul on one thing, but not two things. And I think they’re going to agree with me on all things because I think I’m just coming out with common sense, and I’m not a politician, I’m not a political guy. I’m an independent. I’ve never been a Republican or a Democrat, and I think I actually would take the election. So, if I could get your listeners to go and click ‘support’ for me at AmericansElect.org, I could get this to happen, and we could get our country fixed for our kids.
Jim Lange: All right. Well, again, I’m not quite as optimistic at you winning as you are…
Larry Kotlikoff: It’s a long shot.
Jim Lange: …but here’s what I would say. You have always impressed me as being sensible and smart. You have great information for how individuals can do well for themselves, and I think that in your solutions in “Jimmy Stewart is Dead,” I don’t know if I want to call them right or left, it just seems to me sometimes things just make economic sense. It’s not like you’re right in the middle. It’s just kind of like a smarter plan.
Larry Kotlikoff: Yeah. Let me just say something about that because there’s a financial reform there called limited purpose banking, and I call that my purple financial plan. If you go to my website, Kotlikoff2012.org, you’ll see a link to that. So, that plan has been endorsed by, just listen to this list, not just five Nobel prize winners in economics, but George Schultz, who isn’t a Republican, Bill Bradley, you know, he’s a former Secretary of the Treasury and State, Bill Bradley, former Democratic senator from New York and basketball star, Robert Reich, who was the Labor Secretary for President Clinton, Michael Boskin, who was George Bush’s head of the Council of Economic Advisors, Bill Niskanen, who ran…he just died, tragically, a sort while back, but he was the head of Cato for years, and I mean, we’ve got Kevin Hassett, who ran McCain’s economics team, we’ve got Jeff Sachs who’s a very close friend of mine who’s quite to the left in terms of his position on things. So, we’ve got left, right and center who have supported this. So, you see that I think this is an area where we can bring people together.
Jim Lange: Yeah, now, by the way, that, what you’re talking about, ending the world’s ongoing financial plague with limited purpose, banking, that is the subtitle of “Jimmy Stewart is Dead.” So, why don’t we wrap up with a couple of resources for our listeners? For Social Security software that I think is excellent, www.maximizemysocialsecurity.com. For people who are interested in, you know, well beyond Social Security and would like to run some numbers and take advantage of some of the very well thought out spreadsheets and analysis that you have, it’s www.esplanner.com. All right? If somebody is interested in supporting your bid for the presidency, again, could you give me that one more time?
Larry Kotlikoff: Well, there’s two sites there. It’s www.kotlikoff2012.org. You’ll see all my policy positions and views, but then if you could go to americanselect.org and register yourself, it just takes a minute or two. Don’t bother asking all their questions, but then find my name in the list of candidates, and there are a lot of them, but there’s only a couple of declared candidates that are really serious and I’m one of the two, so it looks like they’ve got a lot of candidates but they’ve got a lot of drafted candidates like even Barack Obama is drafted. So, anyway, if you go there, click ‘support’ on my name and get your friends to do it, and that’d be lovely.
Jim Lange: All right. One last thing because we’re literally about to close, that’s kotlikoff2012.org.
Hana: Okay, thank you for joining us for another The Lange Money Hour, Where Smart Money Talks. A special thank you to Larry Kotlikoff. He joins our growing list of informative guests throughout the years, and you can access our vast library of past shows on our website at www.paytaxeslater.com, and as always, you can catch a rebroadcast of this show at 9:05 am on Sunday morning right here on KQV. Join us at 7:05 pm on March 7th when our special guest will be Sandy Botkin.END
James Lange, CPA/Attorney
Jim is a nationally-recognized tax, retirement and estate planning attorney with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania. He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again. He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans. His plans include tax-savvy advice, will and trust preparation and intricate beneficiary designations for IRAs and other retirement plans. Jim's advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger's Retirement Reports and The Tax Adviser (AICPA). Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.
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