Social security card and money

Long before you relocate to one of America’s top retirement spots, there’s one financial move you should make that could save you a fortune.

Optimize your Social Security.

Choosing when and how to file for Social Security benefits can save you and your spouse hundreds of thousands of dollars over your lifetimes. Should you file early at age 62 and claim a lesser benefit over a longer period? Or does it make more sense to wait for your full retirement age of 65 to 67? Or how about letting your nest egg grow at 8 percent annually until the ripe old age of 70 1/2?

Boston University economics professor Larry Kotlikoff and his research partners compiled what amounts to a field guide on optimizing Social Security. His co-written book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” examined all 2,728 rules of the complex Social Security system, taking note of its buried treasures and hidden trapdoors.

Here’s what he had to say.

While Social Security benefits are not usually affected by geography, the rules regarding state of residence for same-sex married couples could have a huge impact on their best places to retire. Where they live and when they move there can cost them millions, right?

Yes, unless the U.S. Supreme Court changes it, which they may. If you married your same-sex spouse in Massachusetts, where gay marriage is recognized, and you move to Texas, where it’s not, your spouse cannot collect a spousal benefit, and if you divorce after 10 years, you won’t be eligible for spousal or widow benefits. This is incredibly unfair to same-sex couples. For the same reason, gays who were in heterosexual marriages and got divorced have to be careful about getting married, regardless of where they live, because they could be forfeiting higher benefits from their former spouses. So there are big incentives for certain people not to get married, to wait to get married and even to get divorced.

Not long ago, financial planners told clients not to count on Social Security income because of uncertainty about the long-term solvency of the federal program. Your book suggests that may have been premature. Why?

The reality is, we’ve got 76 million baby boomers who are all going to be retired shortly, and their share of the voting public will be 40 percent or more. So it’s not going to be in any politician’s interest to antagonize them. Any changes that may occur to Social Security will probably happen deep in the weeds with cryptic provisions that won’t affect current beneficiaries.

By your estimation, filers collectively lose at least $10 billion every year in unclaimed spousal benefits alone by not optimizing their Social Security. How does that happen?

When you look at the statistics of who’s taking what when, you find that almost everybody is thinking of this backwards. They’re thinking, “If I don’t take my money right away, I could die and lose it.” But the real problem is not dying, because then you don’t need money. The real risk is living too long and finding yourself at the ripe old age of 100 eating Fancy Feast. Social Security provides the middle and upper-middle classes an enormously inexpensive and safe way to insure against longevity.

Some baby boomers file at age 62. To avoid the “earnings test,” which would require them to split their income with the feds until they reach full retirement age, they either quit their jobs or cut back their hours. What’s wrong with that thinking?

There is a common misconception that you would never get any money back. If you do take your retirement benefit early, there’s an adjustment that occurs at full retirement age that basically gives you credit for the benefits you lost. So from that perspective, you didn’t lose anything.

On the other extreme, those who wait until the maximum filing age of 70 1/2 stand to lose plenty by not taking advantage of benefit collection strategies they’ve probably never heard of, such as “file and suspend” and “start-stop-start.”

That’s the major risk here, because while there is a great payoff to waiting to file, there are these other benefits that involve your spouse, ex-spouses and even deceased ex-spouses you could be taking in the meantime. The best strategy is to get some benefits early and let other benefits grow, then take it at that point. Our basic rules are:

  • Be patient.
  • Make sure you understand and take all of your benefits.
  • Time things so you can take maximal advantage of all of these benefits that are available.

What’s the one thing you hope baby boomers will take away from your book?

That throughout their entire lives, their employers shipped 12.4 percent of every penny they earned to the government on their behalf for a whole slew of benefits they may not even be aware of, and by law that’s your money and you should get it. Our advice for this generation is our title: “Get What’s Yours.” This is your biggest asset; don’t take any chances with it.