RWP 350 Bob Carlson RWP 350 Bob Carlson
Podcast 350

350: Maximizing Your Social Security Benefit and Retirement Risks in the 2020s with Bob Carlson

Today, I’m talking to Bob Carlson–America’s #1 retirement expert. Bob is the editor of Retirement Watch, a senior contributor to Forbes, and a member of the Board of Trustees of the Fairfax County Employees Retirement System.

He’s written several highly influential books, including The Essential Guide to Retiring in the 2020s, and Where’s My Money?: Secrets to Getting the Most Out Of Your Social Security.

In this conversation, Bob and I get into the risk factors that can potentially derail your retirement at the last minute, the obstacles making retiring in the 2020s more challenging than they were in the early 2000s, and what you can do to minimize money stress and have a successful retirement.

We then set aside quite a bit of time to answer your burning questions about Social Security, including how to maximize your lifetime benefits, manage longevity risks, and how to plan for a future in which Social Security itself is set to run out of money in 2033.


Here's all you have to do...

  • Step 1.) Subscribe to the podcast and leave an honest rating & review over on iTunes.
  • Step 2.) Text BOOK, that’s B-O-O-K to 866-482-9559 for a link to our book request page, complete the form and we will ship you the book for free. It’s that simple!

In this podcast interview, you’ll learn:
  • How to find good financial advice–and sniff out writers who don’t have real expertise.
  • What makes the 5 years before you retire so critical.
  • Why retirement planning is getting more and more complicated every decade.
  • How to avoid having to choose between spending less early into retirement or risking running out of money later on.
  • Resources and tools you can use to get a better sense of your unique financial situation.
Inspiring Quote
  • "Small incremental improvements are a lot better over time than just trying to get some big-picture goal or aspect of your finances." - Bob Carlson
  • "General rules are good, but you need to actually look at the details and see what makes the most sense in your situation." - Bob Carlson
Interview Resources
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Read the Transcript

Casey Weade: Hello and welcome to the Retire With Purpose Podcast. This is Casey Weade. Wherever you might be consuming this, Facebook Live, you might be here with us right now, maybe on YouTube, maybe you're consuming it in one of the dozen different podcast mediums out there, welcome to the show. This is going to be an awesome show that I cannot wait to share with you. We've got some great giveaways and insights but most of all, this is an amazing opportunity for you to integrate yourselves with one of our world-class guests. Today, we have with us financial editor, author, and speaker, Bob Carlson, the one and only, also known as America's number one retirement expert. So, could we get a better retirement expert on the show? I don't know. I think we've got the number one in the country and maybe the world. You've probably heard of Bob in the past if you've been a subscriber for our Weekend Reading email, that email that hits your inbox every single Friday. If you don't have it, sign up for it now. We have individuals all over the world that have signed up for that, and you're going to receive four articles on trending topics.

Initial sign-ups get a copy of my book, Job Optional. Get yourself signed up and you'll have the option to also submit questions for our guests before our interviews, which we have a ton of great questions that came in today. And you've seen a lot of his articles actually featured in our Weekend Reading for Retirees email series. That's where I was initially introduced to Bob. He is a former accountant and attorney turned financial and retirement editor, the editor of Retirement Watch, one of the most popular monthly newsletters and blogs for retirement, specifically in the world. He is a senior contributor for Forbes and has served on the Board of Trustees of the Fairfax County Employees Retirement System since 1992. He's been Chairman since ‘95, member of the Board of Trustees of the Virginia Retirement System and appointed to the Virginia Retirement System Deferred Compensation Plans Advisory Committee in 2011.

And what are we going to talk to Bob about? We're going to talk about his books. He's authored and co-authored several different books, The Essential Guide to Retiring in the 2020s, which we're going to kick off our focus in today. And then we had a ton of questions come from our weekend reading subscribers specifically around Social Security. And the focus of this conversation was going to be largely around the new Essential Guide for Retiring in the 2020s, which we're going to kick it off with. However, we want to make sure we hit on what's clearly on the top of our Weekend Reading subscribers' minds, and that is we're also going to cover Where's My Money?: Secrets to Getting the Most out of Your Social Security.


Casey Weade: With that, Bob, welcome to the podcast.

Bob Carlson: Thank you. I'm glad to be here. I'm looking forward to this.

Casey Weade: Well, Bob, I'm excited to have you here. But first and foremost, I mean, I'd love to have that title, America's number one retirement expert. I think there's quite a few people in our industry that would love to have that title. How does one get to the point of becoming America's number-one retirement expert?

Bob Carlson: Well, I started out, as you indicated, as being a tax expert. I passed the CPA exam, went to law school, was going to do taxes, and I was writing a tax newsletter. This was back in the 1980s, and I was getting questions from readers about retirement-related tax questions. And I looked around and there was really no good source to refer to or even not a good source for me to research. It was rather difficult to get answers. So, I wrote a little book called Retirement Tax Guide, and that did well. And so, I thought, "You know, there might be broader interest,” so I developed this newsletter, Retirement Watch, covering all the financial aspects of retirement, and that kind of took off. That was more than 30 years ago. I'm still doing it. The subscribers are growing. Some other people have tried to enter the space and have pretty much come and gone. So, there's an audience there. There's a need there. And apparently, the way I'm addressing it to people is very effective and they keep joining and we have a lot of long, long-time subscribers. So, they're getting benefited over the long term as well. So, that's kind of our capsule of how we got where I am today.

Casey Weade: Bob, this is one of the things I find really unique about you and one of the reasons I wanted to have you on the show and one of the reasons I also include a lot of your posts and articles in our Weekend Reading is that you are unique in the editorial space and the authorship space around retirement. And due to that extensive financial background you have, JD, CPA, degrees in accounting, financial management, one of my biggest concerns and also one of my biggest frustrations is the majority of what we read about finance and retirement on the Internet isn't written by someone that has the kind of background that you have. How do you advise individuals that are trying to learn these things for themselves by scouring the Internet to avoid the pitfalls of following the wrong advice?

Bob Carlson: It's very difficult these days because anyone could set up a blog or Facebook site or something like that and claim to be an expert and put out advice, and turns out they might be wrong or incomplete or they might be biased in some way. So, it's important not only to just read something that seems interesting but look behind the scenes. How long has this person been doing this? What background do they have? Do they have potential conflicts of interest? And also, don't rely on just one source. I think that’s what's really key today is to get multiple sources. And that if you start to see disagreement between the sources, then you really need to dig down and see who do you trust or even just try to figure out the answer for yourself. So, that's a good question. That's the key issue many people have today is they know they need help but it's harder to get help today because on the one hand, while it's widely available, a lot of it's kind of questionable. So, you have to look at who's giving you this advice, what's their background, and what are their potential conflicts.

Casey Weade: Well, I trust you, Bob. And one of the things that did stand out to me, I think it's interesting when you talk about, I mean, you didn't specifically say the retirement red zone but getting into your most recent book, The Essential Guide to Retiring in the 2020s, the book is focusing on five years before or five years after retirement, and yet this timeframe seems to shift from expert to expert. You know, Michael Kitces, Wade Pfau, they talk about that ten years before or 15 years after and some say the two years before and then ten years after. There's a wide variety of different timeframes. And I was kind of curious how you landed on the five and five timeframe and how you think about this retirement red zone if you want to call it that.

Bob Carlson: Yeah. The five and five, it's not fixed in stone. It can vary from person to person. And also based on what's going on currently, I picked it because five years before retirement is when most people start to get serious about it, start thinking about the detailed issues. Before that, they're mostly just trying to save as much as they can, get the highest investment returns they can, that sort of thing. But as they get close to retirement, they have to look at more issues. They have to consider where do they want to live, what are they going to do about Social Security, health insurance, and Medicare, these other detailed issues behind just accumulating a significant amount of money. The other reason for focusing on that time period is that's when you're most at risk of things going wrong, particularly with your investment portfolio. You've been saving and investing your whole career, 30 years or so. You're going to have a lot of money once you're in that timeframe. It's probably going to be the most you ever have and you're going to be projecting your retirement plan based on that amount of money. But if there's a bear market or you make some big investment mistake during that timeframe, your portfolio could decline significantly, could decline 10% or 20%, even more depending on the bear market and your investment policy.

And if you lose that much money early in that retirement period, in that five years before you retire or the first five years of retirement, it really disrupts the long-term plan. It puts you way behind right from the start, and you really need to revise your plan. So, that's why I focused on that period, in particular, is because it's, number one, when most people are starting to focus on the serious issues and, number two, it's when your portfolio is most vulnerable to these outside forces, such as a bear market. And that could really derail your retirement plan.

Casey Weade: And I think if memory serves me correctly, Michael Kitces talked about that, calling it the portfolio size effect. And in the early years, those returns don't matter that much because we don't have that much wealth. As we have more wealth, returns matter much, much more but then tying that in the timeline really shows us what's really important there. But the reality is, I mean, we should always be focusing on retirement, right? Whether we're 20 years old, 20 years out, 40 years out, 10 years out, this should always be on our minds. Of course, there's greater risk around that five-year timeframe but we've also seen that there's a significant amount of risk ten years out from retirement. However, I can't say that there's, I mean, I could probably count on my hands how many people walk into our office on an annual basis that are actually ready to start planning for retirement ten years out or more. And usually, we don't have these conversations until we’re about five years out from retirement. I remember having a conversation on the golf course one time with a physician that said, “What do you do?” “We do retirement planning. We help people to retirement transition.” He said, “Well, should they have that figured out already by the time they're making the transition?” But we don't think about these things, right? We're just so caught up in life that we don't even think about it. And maybe part of saying five years out for you is, is that partly because this is when someone can psychologically grasp that timeframe?

Bob Carlson: Yeah. Many people, if you try to talk to them too soon about some of these issues, it's just foreign to them. They can't grasp it. They can't really get interested in it but as they get closer to retirement and also there's more people they've known, their friends and coworkers have already retired and they start to hear some of the issues from those people, then they start, they kind of get it more. They're more interested in it. They see that someone else is telling their experiences, they're revealing some mistakes, things they wish they'd done differently. So, then as the people who haven't retired yet, they start to take it more seriously. And they think, “Well, this is not just someone trying to make some money off of me. These are real problems. I have to be thinking about them and I need to be thinking about what I want to do about these different issues.”

Casey Weade: Yeah. We're ready to listen at that point. So, you originally did the first edition of this book back in 2004. And why do it now? Why did you choose this timeframe to revisit this book and update it?

Bob Carlson: Well, one of my themes is always, "Retirement has changed. It's going to change again.” So, I keep rewriting the book on retirement because things are always changing. And that's a major mistake a lot of people make because they retire with a plan. They think they're set and they can just go about their business but everything changes, the markets, the tax laws, Social Security, and Medicare, anything that affects your retirement finances changes over time. So, it has to be rewritten. At this time, in particular, I think retirement going forward is going to be very different than it's been in the recent past. There are a lot of things going on. I think it's going to be making it more difficult to be a retiree, especially a new retiree than it has in the past. And one thing I expect is investment returns to be lower than they've been over the last 10 or 20 years. The Fed is not going to be supporting the markets the way it was. After the financial crisis, interest rates are going to be higher. I think profit margins are going to be lower for companies for a whole host of reasons, the rising labor costs, regulations, taxes, less globalization, lower productivity. A whole range of factors I think is going to keep profit margins for companies lower than they've been. They've really increased to record levels over the last ten years.

And I think that's kind of a peak. It's going to come down and that's going to reduce stock market returns. And the stock market returns have bailed out a lot of mistakes for retirees in the recent past. Also, inflation is back. People had been worried about inflation for about 20 years but it's back. I think it's going to be sticky. It's going to be tough to get it down to that 2% level again. So, people are going to have to get used to it. We have several problems with Social Security and Medicare. These are the financial foundations of most people's retirement, and there are serious issues with them that are not being resolved. So, people have to factor potential changes in Social Security and Medicare into their plans. And another big thing is the baby boomers, about 10,000 a day have been retiring since 2011, beginning in 2024. That's going to increase to 12,000 a day as the big deep bubble of the baby boomers starts to hit age 65. And that's just increasing the demand in all the goods and services for retirement. It’s going to reduce their supply available to people and it's going to exacerbate those problems in Social Security and Medicare.

So, for this whole range of reasons, I think retirement going forward in the 2020s and the 2030s, it's going to be harder for people than it's been in the past and that's why they need to spend more time with these nitty-gritty issues, things other than investment returns so they can ensure that they are able to retire if they want to one they've been planning for and they're not disrupted by these outside forces that’s going to affect their retirement finances.

Casey Weade: Well, Bob, that's a bleak picture you just painted there. Maybe you can share with us a couple of bright spots?

Bob Carlson: Yeah. I mean, there are solutions to all these issues. And my intention here is to get people to focus on a lot of things, the aspects of retirement planning that most people ignore. As I said, Bessemer returns bailed out a lot of retirement mistakes over the last 10, 20 years or so, and you can't depend on that now. So, you have to do things like make sure you claim Social Security benefits at the optimum time, get the best Medicare plan for you, consider getting guaranteed lifetime income through annuities or some other way, focus on reducing your taxes. Many people just assume when they go to retirement, they're going to get a lot of tax breaks, their taxes are going to go down but typically, particularly with well-off retirees, that's not the case. They're in the same tax bracket or a higher tax bracket. You have a lot of what I call stealth taxes or your income tax might be the same, but you're paying taxes on Social Security benefits, which used to be tax-free. You might be paying the Medicare premium surtax, so your Medicare premiums are going to be higher than the base rate just because your income is higher or you've made some tax planning mistakes. So, there are a lot of areas in retirement finances. If you make the right decisions, you can overcome these other obstacles. They’re going to make it harder for most retirees going forward.

Casey Weade: Bob, do you consider yourself retired?

Bob Carlson: No. I'm working pretty much full-time, I enjoy it, and my time is flexible since I work for myself. So, if I want to take a half day off to play golf, I can do that. So, I enjoy what I'm doing. I'm not retired at this time. I'm going to look at that when I get to age 70 or so. But for now, I'm not retired. I don't plan to retire. I kind of consider myself maybe semi-retired.

Casey Weade: And considering that for yourself with all of these obstacles, I don't get the sense that you feel that your retirement's doomed. I think it can just feel very heavy as many see these things. I mean, you've reiterated a lot of things that many people are already aware of. They've read in the news and they've talked to advisors about, and that can very easily get them in a bad mental place where they think it's just not possible. Why even plan for it? How do you stay in a very positive place if you are?

Bob Carlson: Well, it's important to know these difficulties, these issues that I mentioned, but it's also I use that as kind of an incentive to look for solutions, to look at how to claim Social Security, what kind of Medicare program they get, how to manage your home equity, ways to reduce your taxes. Many people, they just look at kind of the big numbers, the big pictures. Most of that stuff just kind of go on its own and don't give a lot of details. I use that as a motivation to find solutions to make sure these other aspects of your retirement finances are taken care of. And you're not just relying on investment returns or one or two parts of your retirement finances. You're dealing with the whole picture and optimizing your financial situation.

Casey Weade: Well, maybe your analogy around professional golfer would fit in well right here. Could you share that analogy with us and kind of how that fits into the way you're continually creating more confidence in your life?

Bob Carlson: Yeah. Last year, in particular, there are a bunch of young golfers that won and did real well.

Casey Weade: Have you started watching Full Swing?

Bob Carlson: I've not seen that yet. It's on the list but I'm not getting into it.

Casey Weade: It’s so good. You're going to enjoy it but I think it speaks directly to this.

Bob Carlson: Good. So, I noticed in the interviews with these young golfers asking them how they became so good and what their goals were, they all said they never really said, “I want to be the number one ranked golfer in the world. I want to win this many tournaments,” that sort of thing. But instead, what they did is they set a goal of each day becoming a little bit better at golf. And it might be a small thing each day but each day they wanted to do something better than the day before. And so, they just focus on one thing, and then when they felt they've done that, they move on to others and over time they become better and better and the game becomes more complete. And that's how they got to the point where they're winning the big tournaments, winning a number of tournaments, also focusing on details on these little aspects of their game, made them the elite golfers of the world. And that's sort of what you have to do with your retirement is many people, they just look at that big number of, "How much money do I have to accumulate?” And that's their focus. They just try to save and get high investment returns but really, you need to focus on just improving your finances a little bit each day or each week, whether it's finding a new tax strategy or looking at your Medicare plan or anything else. So, small incremental improvements are a lot better over time than just trying to get some big-picture goal or aspect of your financials.

Casey Weade: It's kind of the whole 1% better analogy, right? Was that 1% better every day, you’ll end up 37 times better by the end of the year? And I think one of those areas to speak to that, that is the biggest area of focus that retirees should be focused on but also one of the biggest challenges is making this transition from an accumulation mindset to an income mindset that, “I have accumulated all these assets. Now, I have to turn into income that can last the rest of my life.” And so, I thought a good way for us to get into Social Security would be to talk a little bit about income planning. And there's just one thing that really stood out to me in your book, and it was something that you called the False Retirement Challenge. Could you speak to that?

Bob Carlson: Yeah. A lot of people they just want to save and they actually want their money to increase in retirement and they don't know how to spend the money. They don't have a spending plan and that's, I think, the biggest hole in most retirement plans is they don't have a plan for spending money. That was particularly true with my parents as they grew up in a depression, save as much money as they could, and then when they got to retirement, they couldn't make themselves spend it. It was very difficult. So, that for many people, as you get into retirement, is very difficult starting how to spend the money, how much can you safely spend, and when can you stop saving and let that money dwindle over time?

Casey Weade: Yeah. I think that's the hard part, right, is to see that thing that was our net worth scorecard all of a sudden start going backwards. It feels like we're losing.

Bob Carlson: Yeah. But it's not the case and that's, as I said, it's very difficult for many people, particularly people who grew up in hard times early in their lives, spending money is very difficult for them. They're always in the saving mindset. They don't want to spend money on themselves, splurge in any way, buy anything that's not on sale, and they end up eventually passing away with a large net worth. And their standard of living in retirement was much less than it could have been.

Casey Weade: We forget the reason why we saved in the first place. So, in your book, you talk about retirees only having two choices either to spend more early in retirement when they might be healthier and mobile and as a result run the risk of running out of not having enough money later, running out of money later, or they can spend less early in retirement in case long term care expenses arise later. How can retirees avoid those two unfavorable choices?

Bob Carlson: Yeah. It's really a difficult question for most people. First part of that is to get a plan for long-term care. It's a lot of insurance policies out there, different types of insurance policies, but decide if you need long-term care, how are you going to find it, finance it? Are you going to get one of these insurance policies or you're going to use the equity in your home? Do you have enough money saved and set aside that it doesn't matter? So, people will be more willing and able to spend money comfortably if they know that if long-term care is needed, they have a plan to finance it. And a big part of that is many people really don't know how much long-term care costs, what the odds are they might need to significant long-term care, and things of that nature. So, first, if you're concerned about needing long-term care in the future, dig into these details, find out how much it might cost in your area, and have a plan to finance it, whether it's buying some kind of insurance or doing something else. The other thing you need to do is put together a long-term spending plan so you can see over time what happens to your nest egg if you spend so much each year and get so much of an investment return. Are you at risk of running out of money?

Many people don't really run the numbers. They don't look at what happens under different scenarios and so, instead, they're just kind of thinking in their heads, “Well, I can only spend this much money and I'm not going to spend any more.” And if they look at the numbers, it's a little different. Also, you need to realize people naturally spend less as they get older. The Department of Labor does regular studies about what people of different age groups spend, and it’s consistently found every time it does this that people in the early years of retirement will spend about the same money or they're actually spending more in the early years because they have this bucket list of the activities, they wanted to travel, different things, and so they'll spend as much or more if they did before they retire. But eventually, they've done all those activities. And also, as you get older, you're just naturally slowed down. You're less active. So, when people get somewhere in their seventies, spending starts to decline and it declines pretty steadily even after adjusting for inflation. On average, it declines about 2% a year after inflation. So, people naturally, as they get older, are going to spend more. So, it makes sense in your retirement planning to just assume you're going to spend more in the early years of retirement when you're healthy and active and have this list of things you want to do.

And then naturally, as you get older, you're going to be spending less and it’s not going to be depriving yourself. It's just a natural part of the life cycle of spending. And people would realize that and factor that into their plan. I think, number one, they would be more comfortable with spending early in retirement, and, number two, they'll have a more enjoyable, successful retirement.

Casey Weade: Yeah. I think that's my issue with Dr. David Blanchett's research, which I'm a huge fan of David's research and he's been a past guest on the podcast speaking directly to spending in retirement. You know, is this retirement spending smile where we spend about the same those early years, spend less in those mid-years, and then as health care expenses kick in, we start to spend more. So, it kind of results in this U-shaped curve or the spending smile. And really the increase in spending, those all due to increasing health care expenditures which could be mitigated with planning so that we don't actually experience the smile, right? It's really more of a, I don't know, a smirk. Yeah, right. So, it just continues to go down. We don't have to plan on the increase in spending if we've planned around good insurance coverage, right?

Bob Carlson: Right. If you have the right Medicare plan for you and if you have some long-term care financing strategy, you do not have to have those higher expenses later in life for health care.

Casey Weade: Yeah. Well, enough on that, Bob, but you did mention the A-word earlier. You said annuities, and you said that retirees should be looking into guaranteed lifetime income strategies. And I wanted to ask you about your thoughts on annuities and maybe get in this in a way that… What are some of the biggest myths around annuities? Why has that become one of the four-letter words that isn't a four-letter word in the world of retirement planning?

Bob Carlson: Yeah, you’ll run into a lot of financial people and a lot of media people who say never buy annuities, they’re complicated, their fees are high, and so forth. But that really only applies to certain types of annuities. And those are not what I talk about when I say you should use them to get guaranteed lifetime income in retirement. You get single premium immediate annuities or deferred income annuities that are very simple, straightforward. They’re the oldest type of annuities. You just deposit money with an insurance company and it tells you how much money it’s going to pay you on a regular basis for the rest of your life, no matter how long you’ve lived.

So, this is a supplement to Social Security. It provides you this basically the equivalent of a salary in retirement. You’re converting part of your retirement savings into a steady income, into a steady paycheck. So, you know you’re going to have this money coming in no matter what’s going on in the markets. A lot of people don’t want to do these types of annuities, partly because they give up control. And also, they think that they’re going to go into the markets and earn a higher return than they could get from this annuity.

But what you really need to focus on with an annuity, it’s not an investment so much as it’s a risk transfer. You’re transferring too big a risk to the insurance companies. One is the risk that you live a long time, well beyond life expectancy. A certain percentage of the population is going to do that. Surveys find that many people underestimate what their life expectancy is, how long they’re likely going to live, and so forth. So, you should get a good grasp of what your likely life expectancy is. And you can transfer it to the insurance company that potentially you’re going to live a long time. It’s their problem because they’re going to guarantee you income every month or so for the rest of your life, no matter how long you live.

The other risk you transfer is investment risk. The insurance company is investing the money. If the markets go down 10%, 20%, it’s not your problem. They’re going to be paying you that same amount of money no matter what’s happening in the markets. And they have a long-term perspective, a really long-term perspective, like 100 years or so. So, they don’t really care if the markets go down 10% or 20% because they’re looking at the long term. They price this into how much they’re going to pay you for that guaranteed lifetime income. So, an annuity is really a risk transfer where you take these two very big, significant risks of your retirement, a long life or poor investment returns, and you transfer over to the insurance company and it’s going to pay you that guaranteed income no matter how long you live.

Casey Weade: So, you touched on guaranteed lifetime income solutions there. I want to take you back four years, and maybe you don’t remember this exact article. You do a lot of writing, but an article from four years ago that you did for Forbes about replacing bonds in your portfolio with fixed and fixed indexed annuities. And in hindsight, I’m sure there are a lot of individuals that wish they would have followed your guidance following what’s happened with interest rates over the last couple of years.

Where do we stand today with replacing bonds in our portfolio? Where do you stand with replacing those bonds with fixed and fixed-indexed annuities? Do you feel the same way today as you did four years ago with the shifts we’ve seen in interest rates?

Bob Carlson: It’s still a good strategy because you’re getting pretty good guaranteed interest rates from these insurance products and also from bank CDs. A lot of bank CDs have gone up to reasonable levels. So, you’re still getting a very nice interest rate without the risk of principle decline if interest rates go up further.

Bonds are a bit more attractive today because interest rates have gone up, and if interest rates come down at some point, you will get the capital gain from making the bond going up in value. But currently, I don’t think that’s going to happen for a while yet. So, I think for any kind of conservative investor, it makes a lot of sense to be putting fixed income part of your portfolio in some kind of annuity or CD rather than bond.

Perhaps in a year or so, interest rates will finally start to peak. Inflation will come down at a point where the Fed can start easing interest rates. And then there’ll be a capital gain opportunity in bonds. But for now, even though the case for the annuities and CDs is not as strong as it was back then, it’s still a pretty good place to be for anyone who wants to preserve principle more than they want to look at a big capital gain.

Casey Weade: Well, enough on that. I’ve got to speak to what our posse really wants us talking about, and that’s Social Security. So, I wanted to get in and touch on a few things there. And I want to say, your book goes through in-depth into the realm of security and tax planning, income planning, investment planning, estate planning, long-term care. You get into all those various topics. However, you do have one book that was devoted solely to Social Security. And I want to make sure that we had plenty of time to hit on that topic since we have so many individuals that want to hear about that. And that book was Where’s My Money?: Secrets to Getting the Most Out of Your Social Security.

Now, this was something I came across on the Internet. I think also, in your book and some of the promotional material around it stated this fact from United Income. So, according to United Income, only 4% of Social Security beneficiaries made the optimum decision about when to claim retirement benefits. How do you feel about that statistic?

Bob Carlson: Yeah, they looked at actual cases of they would get a lot of data when people claim Social Security benefits and then looked at how long they lived, and using the data they had, they determined most people claimed too early. And you can quibble about the actual number whether it’s really 96% that do it wrong or not. But yeah, the fact is most people still claim Social Security benefits before full retirement age. Very few wait until benefits are maximized at age 70. And so, they’re claiming early for the most part, and I think most– the key thing to know about when to claim Social Security benefits is that it’s indifferent to Social Security. They have life expectancy estimates, and for them, they’re going to pay out the same amount of money no matter when people claim because the amount she receives when you claim is based on your age, or the older you are, the higher payment is.

But the actuarial tables they used, this goes back to 1983, were based on life expectancy back then. And life expectancy has gone up. So, initially, half the people would live life expectancy, half would live beyond. So, the system would break even. But now, with life expectancy actually higher than what’s on the table, more than half the people are going to live beyond which life expectancy. Tables are more than half the people are going to benefit by claiming Social Security later rather than earlier.

So, if your goal is to maximize your lifetime benefits, waiting to claim as long as you can is going to increase those lifetime benefits for more than half the people. So, that’s the basic argument in that United Capital study is that people would have higher lifetime benefits if they’d waited to claim longer than they did.

Casey Weade: And I think when others hear that statistic and maybe not even that one, I mean, I’ve seen a lot of these across the Internet where the majority of beneficiaries don’t claim at the best time, and most of those are built around, well, they just didn’t delay their benefits, they claimed earlier rather than delaying. And I feel like that’s a bit like what you said earlier that most people are just focused on investment planning when there’s a lot of other important elements that go into creating a comprehensive retirement plan – taxes and Medicare, long-term care. We have all these different things we need to pay attention to, that factor in to creating the best retirement plan.

The same thing is true about Social Security, isn’t it, that it’s not just about delaying that benefit and looking at Social Security in a vacuum of how much we’re going to get in benefits. But there are a lot of other factors that need to be considered for our own unique situation. And that’s my concern when others hear that as they go, oh, well, I just need to wait as long as possible, but that might not be the best thing for you.

Bob Carlson: Yeah, it’s different from individual to individual. For example, if you have reason to believe you do not have average life expectancy or better, it makes sense to claim early. Also, some people just don’t have other resources and they can’t work any longer, so they should probably claim early as well.

So, while it’s good to have general rules, it’s important to consider your individual situation. I always recommend first that people get one of these Social Security calculators that’s available on the web and look through different scenarios for them, but it’s also important to look and see, are there reasons in your case where it doesn’t make sense for you to wait to claim benefits? So, general rules are good, but you need to actually look at the details and see what makes the most sense in your situation and make sure you look at the details, not just kind of try to do it in your head or do what’s intuitive. But look at the details, look at some projections from these calculators under different scenarios and see what’s optimum for you.

Casey Weade: There are so many factors – portfolio size, Medicare, income needs, taxes, and legacy goals. There are a lot of different things to consider. However, as you said, I mean, the biggest part is how long am I going to live? And it’s all about longevity. And you have a way of helping people with this decision. How do you help people calculate their longevity risks?

Bob Carlson: Yeah, it’s important because many people, as I said, when you take surveys, they greatly underestimate what their life expectancy is. So, it’s important to look at some hard data. And what I often recommend is people go to the Internet and they look at some of these life expectancy calculators out there that let you input some of your personal data, and then you can get some realistic estimate of what your probability is of living to different ages. You don’t want just one number where you say my life expectancy is X. You want these calculators that put out like, well, you have a 20% chance of living to 90, a 30% chance of living just to 75 or later or something like that. And you can do that.

There are a bunch of websites, just one called Living to 100 that has a calculator. The Wharton School has a widely regarded calculator, highly regarded calculator. And there’s a website just does the main life expectancy calculators and you can go there, and last time I checked, I think they had four or so of the top calculators and you can get your life expectancy estimate from each of those, then you’ll have a reasonable probability of what your life expectancy is.

Casey Weade: We’ll make sure to insert all of those things in the show notes. You can get at And since you mentioned Social Security calculator, we did have one of our fans/Weekend Reading subscribers, Hans, submit a question. Hans, thanks for your question. And it was around Social Security calculators asking if you did have a favorite Social Security calculator that he says, “Well, tell my wife and I the best times for us to take Social Security.”

Bob Carlson: Yeah. There’s three I’d recommend people look at. There’s one if you open my Social Security account on the Social Security website, then you can have your personal data input in there and get projections under different scenarios. There’s also one called Maximize My Social Security. I’ve used that. I’ve run it through various scenarios. It’s pretty good.

And similar one is called Social Security Analyzer, I think it’s called. And I’ve used both of those. And I’ve run different scenarios through them. They get very similar results. And so, if you use those three and the Social Security one, of course, is free and the other two are pretty low costs. I think they’re about $40 to get them and use them. You can run through as many scenarios as you want and you can see how much benefits you get at different ages under different scenarios. So, I would use those three.

A lot of these financial projections, I can’t discourage people from using just one source because they’re very complicated calculations and you make small changes in the assumptions or how you interpret the rules. And so, I’d suggest people use more than one. I think it’s worth it for most people, both the time and the expense to get those more detailed, more comprehensive answers.

Casey Weade: Yeah. And again, we’ll have links to that in the show notes. And we run these calculations all the time, we’ll hand people over for free, hey, here’s your Social Security analysis. But that doesn’t mean just because this says it’s the best time to take Social Security, it actually is because they are just looking at Social Security in a vacuum and not taking a look at your big picture.

So, the question of the day, Philip, thank you for your question. He asks just the most obvious question to ask a Social Security expert and that is, at what age now is the age to start Social Security and receive maximum income benefit? I know you’ve talked through some of these things. I just want to know, how do you answer that question when someone asks it?

Bob Carlson: Yeah, it’s similar to the question of how much money do I need to retire. It depends on what you want. If you want to maximize your benefit, it’s age 70. Social Security does not pay you anymore if you delay past age 70. So, to maximize that monthly benefit, you wait to 70. But as you mentioned earlier, there are a lot of other factors to consider. So, that’s the starting point. Do you want to maximize your Social Security? But then you want to look at your other assets, your other income, your other goals, and decide in light of those, what’s the best age for you to do that to start taking money out of your IRAs, things like that. So, it’s a comprehensive picture. But if your sole goal is to maximize your monthly benefit, then you’re going to wait to age 70.

Casey Weade: It just seems like it should be common sense. And I know we can’t do this, but why can’t we just call and ask the Social Security Administration? Shouldn’t they have the answer?

Bob Carlson: They should. And it’s a very sad story, but it’s not reliable. Anyone who’s been in the financial advice business has heard stories from people who say they called Social Security and they got an answer different from what I told them or what you told them or what they read somewhere else. And I’ve had subscribers tell me that when I wrote something, they called Social Security, they got a different answer. So, they were a little skeptical. So, they waited a day or two, called Social Security again, got someone else, and got a different answer.

And the inspector general of Social Security has done several reports, and it’s found that Social Security gives wrong answers a high percentage of the time. It’s just a matter of their being trained properly, having the proper background, how much time they’ve had on the job, but in particular, given bad advice to widows, when you’ve been married and the spouse passes away, a surviving spouse has several options how to take benefits, and they can also change their mind a few years later. And Social Security often either does not tell them they have this option. They don’t give them the full range of options available or they give them the wrong answer.

So, it’d be nice if you could just call Social Security and get an answer, but there’s a reasonable probability you’ll get a wrong answer. And also, Social Security is not in the advice-giving business. It’s not going to consider the other factors in your life that might affect your decision of when to claim Social Security benefits. So, even if you get the right answer as far as the law goes, it’s not going to be a comprehensive answer that considers all the factors in your financial situation.

Casey Weade: Well, the elephant in the room here is Social Security insolvency, right? We had a handful of questions on that, specifically one from Jim asking, “The Social Security Trust fund is projected to be exhausted in 2033. So, if you’re planning to retire in 2033, should you retire early and prior to the reduction in benefits?”

Bob Carlson: Yeah, it is a good question. There’s a lot of misunderstanding, misinformation about Social Security insolvency. The trustees put out an annual report each year in which they project when the trust fund is going to run out. And actually, last week, I think, the Congressional Budget Office did its own projection and came up with the estimate that the trust fund is going to run out two years earlier than the trustees said last year, in 2032, they’re now projecting it runs out of money.

But there are several things to consider other than whether the trust fund is going to run out of money. For example, the program is not going to disappear if the trust fund runs out of money. They’re still receiving taxes each year from self-employment taxes and payroll taxes, and these are estimated to pay 75% to 80% of benefits indefinitely. So, you’re not going to do surveys and they say a big part of the population because I’m not going to get anything from Social Security because the trust fund is going to run out of money. It doesn’t mean you’re not going to get anything because those taxes are going to come each year and they can pay a significant part of the benefits.

Other factor to consider is, as the trust fund gets closer to running out of money, Congress is likely to do something. And typically, when it adjusts benefits and taxes, it grandfathers or protects the people who are already receiving benefits or are close to receiving benefits. So, they are untouched. And I think that will be the case going forward. I think anyone who is in that Social Security climbing window is not going to have their benefits cut, even if other people have their benefits cut and have taxes increased. So, I would not claim benefits early just because there might be a benefit cut in the future.

Another factor to consider is if benefits are going to be cut across the board, I would want to be claiming the maximum amount I could, but I would not claim early and get that lower benefit because you’re going to get that cut on the lower benefit. I’d rather have that cut on the higher benefit. So, even if you think these across-the-board benefit cuts are going to come into play, I would still delay benefits just so that cut counts from a higher base.

Casey Weade: I can see the argument from Jim, though, right? If we say, well, yeah, I mean, historically, they’ve made changes. This isn’t the first time that the trust fund has faced insolvency and changes were made usually in the 11th hour, but it didn’t affect current beneficiaries. So, you go, all right, well, if it’s not going to affect current beneficiary, I need to become a current beneficiary as soon as possible.

Bob Carlson: Yeah, I talk to people all the time and say, you know my feeling is if they can offer me money, I’m going to take it as long as they let me have it. And there’s great distrust of Congress and the bureaucracy in general. So, I understand that. But when I look at it, I think, number one, they’re most likely to protect people who are at or near claiming age. And number two, I would want that cut coming from the higher benefit level. Even if I’m not already claiming benefits, if I’m promised a higher benefit level at the time I have cut counts, I would want it imposed at that level rather than claiming a few years earlier and having the benefit cut at the lower level.

Casey Weade: And if you’d like to get a copy of this specific book, Where’s My Money?: Secrets to Getting the Most Out of Your Social Security, just text us the word “book” to 866-482-9559 and we will send that book out to you for free. On with this point and we can move on right after this, but we had another question from John. I think it’s important that we address this, asking a little bit more about insolvency if Congress does act, how do you suppose Congress will deal with the shortfall once the Social Security fund is depleted?

Bob Carlson: It’s going to be probably a combination of things which will be increasing taxes and lowering benefits. The President has said that they’re not going to increase taxes on anyone making less than $400,000 a year. And there are several proposals in Congress to extend the payroll tax to salaries of $400,000 and more, currently pay a payroll tax above a certain level, which is indexed for inflation each year. So, I forget where it is for this year, but it’s, let’s say, around $150,000. So, any income you have above that, you don’t pay Social Security taxes on it.

And so, there’s a wide popularity in Congress for imposing the tax on a higher level, but the projections show that that’s not going to cover but a small portion of the gap. So, there’d probably be some kind of adjustment for younger people in their benefits, but more and more, I’m thinking the Congress is likely to kind of move this away from a self-supporting program and do what it does with Medicare, where general tax revenue funds a lot of the shortfall.

Medicare charges premiums to people and the premiums are supposed to pay for 25% of estimated costs each year. And then the Social Security program, which is funded from general revenues pays the rest. And I suspect that when it comes down to looking at how much benefits will have to be cut and how much taxes will have to be increased, there’s a good chance Congress is just going to decide to fund the difference from general fund revenues rather than continue to have this being a self-supporting program.

Casey Weade: Interesting take. Bob, we’ve got a few minutes left here and we have a handful of other questions, so I’d like to hit on a couple of those before we bring things to a close. We have a couple of questions on working and Social Security. We have a couple of questions on survivorship. So, I wanted to pull one of those questions at each one of those categories, if we can. So, let’s talk about working and filing. We have a question from Pat asking, “If I decide to take my Social Security at 63 and then go back to work and make more than I did before, is my Social Security check recalculated?” This is such a common question and one that I find is widely misunderstood. I think it’s really important we address it.

Bob Carlson: Yeah, your Social Security benefits are based on your 35 highest earning years. And if you continue to work while you’re receiving benefit, then with the lag, if your earnings pump out one of the lower-earning years, which you are, given your new higher 35 years, then it will recalculate your benefits going forward. As you continue to work if you’re receiving benefits, they recalculate the benefits each year with kind of a lag. So, yeah, if you don’t have 35 high-earning years, each year you work won’t knock out one of those lower earning years and give you a higher benefit starting at some point in the future.

Casey Weade: That’s a great answer. And I’m torn between these last two questions. So, let’s see where one of these takes us. One is definitely more complex than the other, but it has a lot of value to offer. But let’s go with Jane. So, Jane asks, “My husband passed away. I’m taking his Social Security. Do I take it at his retirement or wait until 70? Will it grow at 8%?” So, let’s talk about the survivorship benefits.

Bob Carlson: Here, survivorship benefits, they’re very complicated and this is where even Social Security makes a lot of mistakes. Surviving spouse would generally look at two different benefits. You look at your own earned benefit. You can claim that or you can look at the survivor’s benefit, which is based on what the deceased spouse was receiving or would have received when they passed away. But once they’ve passed away, if they were not age 70, not receiving benefits yet, you don’t get an additional accrual increase for waiting until what would have been their higher age. So, they died at 66, were not receiving benefits, the survivor does not get a higher benefit for waiting until that person would have been 70. It’s what they would have received on the day they passed away. So, I think that answers the question.

Casey Weade: Yeah, that’s great. And hey, again, if you’d like to get a copy of this book, just text us “book” at 866-482-9559. But we also want to give away The Essential Guide to Retiring in the 2020s. So, what we’re going to do is you can shoot us a text and make sure you send over your iTunes username because if you write an honest rating and review over on iTunes, subscribe to the podcast, we’ll verify that, we’ll send you out whatever book you want. So, you just text us “book” and then you can select which book you want. Do you want The Essential Guide or do you want the book on Social Security? We’re going to give those out for free as long as you write an honest rating and review for the podcast. We truly appreciate it, helps us continue to get recognized in the world of retirement and podcasting and get these very important messages out there.

Bob, thank you so much for joining us here for this conversation. It could have gone on for another hour. And I think we got to some of the most important elements, and I look forward to having another conversation in the future.

Bob Carlson: Thank you for having me. I enjoyed it.

Casey Weade: Take care, Bob.

Bob Carlson: You, too.