Money Management Edition Edition
When you retire, what will Social Security be like?
American citizens have lost hope that there will be anything to see. In a Gallup poll conducted in 2021, 43% of respondents said they were concerned about Social Security. According to a study conducted by the same firm, 38% of respondents believe that Social Security is going to be their biggest source of income at retirement.
Can you imagine how Social Security will look in the future? Should workers be concerned?
Many younger workers are concerned that, when they retire, they won’t be able to collect social security. While they have contributed to the retirement system for years, they fear that when they retire, they won’t have any money left. In the Social Security Trustees’ annual report released in April 2020, the trustees noted the potential for social security to become insolvent within 15 years. Moreover, the current COVID-19 pandemic is probably depleting reserves, too. With such reports, it is inevitable for American workers to fear what the future holds. But for bestselling author and Boston University professor, Laurence Kotlikoff, it is important to understand social security, prepare for the future, and more.
Join us and as Prof. Laurence Kotlikoff discusses the importance of understanding social security and how the system works and what we can look forward to in the future with hosts wealth manager Lee Michael Murphy and career advisor Sergio Patterson. Tune in to this week’s episode of The Free Retiree Show.
What You’ll Learn:
- What Social Security is and how the system works
- The future of social security in the US
- How workers can prepare for their retirement and the future with or without social security
[00:00:00] Lee Michael Murphy: Hello, aficionados of career and financial excellence. Welcome into the free retiree show. I’m your host wealth manager, Lee Michael Murphy. And I’m joined alongside career mentor and interview coach Sergio Patterson.
[00:00:13] Sergio Patterson: Good morning, everyone.
[00:00:15] Lee Michael Murphy: Welcome into a money management edition to the free retiree show. For today’s episode, we’ll be talking about social security. With all the money that’s been printed in recent years, many people have been questioning whether their social security can continue to survive for future generations. Even people that are entering retirement are curious as to whether their benefits will continue for the rest of their lives.
We’ll be discussing in this episode, how you maximize the benefits of social security for your retirement and how you can utilize it in your retirement planning. Maybe you’re far away from retirement, maybe you’re not, but what you do today impacts your social security benefits. So you should [00:01:00] understand how it works, whether it’s for retirement, spousal benefits, disability.
If you live long enough, More than likely you’ll end up utilizing social security benefits. And to guide us on today’s discussion. We have literally one of the best experts in the world on social security, our pal, professor Laurence Kotlikoff. For those of you that don’t know who he is, he’s a professor of economics at Boston university.
Top 25 ranked economists by the economist magazine. And he’s even the co-author of a New York times bestseller get what’s yours: the secrets to maximizing out your social security. And he’s been the coauthor of about 16 other books and he’s done many professional articles. You may have seen them in the financial times, Bloomberg Forbes Vox, the economists yahoo.com Huffington post, and to add a cherry on top of that.
He is [00:02:00] one of our only two time guests of the free retiree show. Obviously that’s his biggest accomplishment right there. Right.
[00:02:07] Sergio Patterson: Yeah, that’s a good way to end the best for last.
[00:02:11] Lee Michael Murphy: Serg, I know a lot of the people at your company have been talking about social security, you’ve been at Google, LinkedIn, Amazon, Facebook, what is the level of concern regarding social security with people that you’ve worked with? what’s the chatter at the water cooler.
[00:02:25] Sergio Patterson: Yeah, I think it’s two parts. I think the first one is we’re just terrified. It’s not going to be there when we grow old and when we need it. I don’t know if the data that tells us that . I’m no expert on it, but I think that’s what the chatter is right now. A lot of people are just scared
it’s not going to be there. and we’re paying into something that we’re not gonna be able to leverage. And then the second part is, living in the bay area. I see, just for example, my mother-in-law she’s on social security and it’s not a lot of money. So knowing what I know about living in the bay area and, how do, how does one live comfortably in the bay area and other [00:03:00] big cities or areas like that?
Is it enough to get by? those are some of the questions that I’ve heard and I have.
[00:03:06] Lee Michael Murphy: Yeah. So this is going to be a great episode for, cause I am curious too, I help people utilize social security benefits all the time. The future of it, what the state of our social security is right now, the system, I don’t really know. So everyone’s got different opinions. Are they valid?
Are they not? We’re going to find out with professor Kotlikoff, we’ll take a quick break, but when we’re back, make sure you, join us back in with the professor. You have questions maybe regarding social security. you can send it to email@example.com and, make sure you share our podcast.
We really appreciate the love and support. We’ll be taking a quick break, but when we’re back, we’ll be sitting down with professor Kotlikoff.
Welcome back into the free retiree show. We are sitting down with the one the only professor Kotlikoff professor. How are you doing this morning?
[00:03:55] Prof. Laurence Kotlikoff: Great. Great to be with you guys.
[00:03:57] Lee Michael Murphy: Always a pleasure having you on our show. We’re [00:04:00] blessed that you’re one of our return repeat guests, and I know this range is very low in your career, but we’re super ecstatic about it. So thank you so much,
[00:04:10] Prof. Laurence Kotlikoff: You guys are, I would say as fun as any podcasts there is. So
[00:04:17] Sergio Patterson: a good way to start our Sunday. That’s awesome.
[00:04:20] Prof. Laurence Kotlikoff: A little dull, but you guys are guys something going on.
[00:04:25] Sergio Patterson: That was our goal. That’s good to hear that. That was one of our key goals.
[00:04:30] Lee Michael Murphy: Thank you. Thank you so much. Thank you so much, professor. Let’s talk about social security. Let’s start with a brief explanation of exactly what it is. I think a lot of our listeners are still slightly confused on what exactly social security is. And then what’s the current state of social security.
[00:04:48] Prof. Laurence Kotlikoff: Okay. So the system, is taking 12.4% of our pay. every dollar we earn from age 16 on. Out of our paychecks and it’s called the [00:05:00] FICA taxes, the FICA social security tax. There’s also a component for Medicare, which is a 2.7% of our pay. So altogether it’s 15.3% of our pay is going to these two programs for benefits.
We’re mostly going to get in old age. If you become disabled, you can get social security earlier when you become disabled. and you can also get onto Medicare if you’re disabled, but apart from that, it’s a long way until you get a paid off. Now, people will immediately say, well, my share of the FICA tax is only a half the employers paying the other half.
I’m not paying the whole. Well, do you guys know any employers who, would freely pay your income tax would feed freely pettier your tax of the score when you go from sales tax or your state income tax? No. So employers saying, okay, government wants us to mail you this [00:06:00] payment. The employer mails, both payments, both parts to the government. It takes a right out of your paycheck. And so therefore we’re going to pay you less by the total amount that we have to hand over to them. And whether it’s called employer versus employee, it doesn’t matter. You’re getting less money as take home pay. So, first of all, you’re paying you a Lee and Sergio or paying the full 12.4% of payroll tax to some security.
On every dollar you earn. Now, imagine you could put 12.4% of your pay into a 401k plan. You would think that the end of the day, if you got a decent return, you’d have a whole lot of money. That’s a pretty high saving rate, right?
[00:06:44] Sergio Patterson: Yeah.
[00:06:45] Lee Michael Murphy: Yes.
[00:06:45] Prof. Laurence Kotlikoff: A social security is paying out benefits in a different way. And large part is a Ponzi scheme where
you pay your money, your repair, all tax is going to your parents and grandparents and, other people’s parents and grandparents. And then, they’re saying, well, don’t worry. You’ll be able to. [00:07:00] To take money from your kids when you’re older, of course we’re having fewer kids. We’re having fewer kids later.
[00:07:08] Prof. Laurence Kotlikoff: And partly because we’re having them later, the kids are earning less. So the whole thing is a Ponzi scheme that had the jury deserves the name Ponzi because Ponzi was a sky, was running a fraud. I think in the twenties among Italian prince people will know about Bernie Madoff more cause that’s a more familiar, Ponzi scheme.
But there’s actually a Ponzi scheme is being run every day. A new Ponzi scheme is set up and the sec is going after them. So there’s hundreds of it are being, shut down by the security exchange commission, literally every year, maybe 500 a year. So if you look online anyway, this is a Ponzi scheme being organized by
bible Sam. And it’s been going on, we started under Roosevelt. It was supposed to be funded where the money will be put into your own a fund. And, at least some people wanted to do it that way, but it was immediately,Congress said, well, we’ve [00:08:00] Got this money coming in and why is the saving for that person?
Let’s just give it to the voters who happen to be retired, freeze. What did I say that? Because retire, raise other people. Have disproportionate political weight, because when it comes to election day, what do they do? They vote because they have nothing else to do. Right. They’re retired. That’s a big activity for the day.
it’s not bridge, it’s not golf. It’s going to take a vote. Whereas the younger people are out working, right. They don’t have the time or they’re partying. Right. They don’t have the time ago. Well, we have very high per patient turnout by older people that politicians know this and they suck up to them.
[00:08:43] Prof. Laurence Kotlikoff: So right under, I know beginning was total security’s first payment. It was to people who were older, who,the politicians claim while they were hurting the great depression. Well, some of them were, and some of them weren’t, but it wasn’t just to poor older people that we started giving other people’s money [00:09:00] away to.
It was to everybody who was. And the, highest earners get the most out of social security. it’s a progressive program. So your benefits are disproportionately higher. If you’ve been a lower earner and contributing less, but the in absolute terms, the biggest, checks are going, being paid to the highest earners in the country.
So you pay this 12.4 up to about $140,000, and then the payroll tax stuff. President Biden would like to start it up again and beyond $400,000 range. But anyway, so this is the way the system works. Now, what do you get back? Well, there’s 13 different benefits of social security, provides most people know about the retirement benefit, which is, just benefits that you get, based on your own work record.
There are benefits so that you can on your work record, provide to your spouse of your spouse or partner? Well, no, it has to be, you have to be married.
[00:09:56] Sergio Patterson: Yeah.
we can be partnered unless you’re in some states, if it. was [00:10:00] like a de facto marriage, but, Anyway, you got the retirement benefit and then you can provide a spousal benefit.
[00:10:07] Prof. Laurence Kotlikoff: If you’ve been married for 10 years and got divorced, or you provide a divorce spousal benefit. If you die, you can provide a survivor benefit to your, ex spouse who your marriage had 10 years. There’s, um, benefits for children who are under 19, and still in school.
And there’s a benefits for spouses who have taken care of kids. there’s,disability benefits. We mentioned. There’s benefits for if I’m taking care of my, let’s say that, my mom passed away a couple years ago. She was 98. I and my siblings were her main supporter. So had I passed away before she did, she could have gotten 75% of my full retirement benefit as a parent benefit.
Most people, my siblings, didn’t know about this. they’re extremely, well-educated my brother’s a provost or Cornell. My twin brother.
[00:10:53] Sergio Patterson: Oh, wow. Twin.
[00:10:55] Prof. Laurence Kotlikoff: Yeah.
All these benefits that people know about, if you don’t [00:11:00] use them, you lose them. So for example,you can start really collecting your retirement benefit is 70 without.
Getting nothing for waiting. So if you’re 75, you’ve lost five years of benefits for no, for nothing. We’ll give you six months of benefits from the rears, they’ll say, well, you forgot to ask. They’re not going to send you a notice saying, Hey, you’re 75 and people will do this. People will become 75.
They’re still working. They think that a qualified to collect the benefits because they’re earning. That’s not at all the case. So people don’t get this straight.
[00:11:30] Sergio Patterson: Professor, I’ve never heard of social security be called a Ponzi scheme, but the way you describe it, it is 100% a Ponzi scheme.
I’ve never heard it described this way, but that’s exactly what it is.
Why am I paying for other people?
[00:11:47] Prof. Laurence Kotlikoff: yeah,I
[00:11:47] Sergio Patterson: want that to go to a 401k and double and triple and compound all the things like what.
[00:11:53] Prof. Laurence Kotlikoff: So Ponzi schemes are games where you like chain letters that we run in, fifth grade, we’re trying to take [00:12:00] money from somebody, give them a little piece of paper, and then they give a piece of paper and you get a dollar from that kid.
And then that kid gives the paper and he gets to,Another kid for $2. And that kid gives it to another kid for $3. And this continues and to bill doesn’t continue until somebody has left having handed over a hundred bucks and gets nothing. Can’t find another kid to hand over 200 bucks.
that’s the kind of a chain letter. That’s why Ponzi schemes are called chain letters. So here in social security, We have a chain letter upon Ponzi scheme that is running out of money. We just had the trustee’s report of social security come out last week and
[00:12:38] Prof. Laurence Kotlikoff: they tuck the bad news about the Ponzi scheme way in the back of that they report it’s like a 200 page report. They put it in the appendix. Now it used to be at the front, this particular table. It’s table six, F1 it’s Roman six. So it’s a not, I N a V. no, it’s a V and I, and then a number six that’s table six effort, no [00:13:00] F1 six V I F one.
You look at that table. If you Google, social security trustees report 20 and 21, go to table six, F1. You’ll see the system has an unfunded liability. That means that the value, the present value of all the value of the president of all the projected outlays. All the benefit payments that they have to make through time into the distant future, minus the present value of all the taxes they’re going to collect according to their actuaries projections, minus the trust fund, which is very small, that totals almost $60 trillion.
Our GDP and our country is 20 close to $23 trillion. So we’re talking about. Two-and-a-half years of GDP. And then there was the country. This system is so broke that it would take our country two and a half years of producing all its output, nobody consuming anything, [00:14:00] just using everything that’s produced, solid sell to the Chinese or the foreigners or whoever.
Slovenians taking all that money. And using it to put a set aside to pay future social security benefits. That’s, what’s what it would take to get the system back into the black it’s in the red. So official debt is one year CDP. So security debt is two and a half years GDP. So this is broke beyond belief, But it’s part of, I got to, economists are called a dismal scientist for reason, because we’re really pretty, we can be pretty Galong.
[00:14:33] Prof. Laurence Kotlikoff: Although we have fantastic personalities. Right. But,
[00:14:40] Sergio Patterson: But we need reality here. Right? we just need reality.
And I think, I think, that’s what you’re giving us.
[00:14:47] Prof. Laurence Kotlikoff: So, but the really bad reality is, that the.
System is a entire fiscal system. You can look at it program by program. You look at the off the books that on for social security off the books [00:15:00] that captain hidden putting in these appendices for Medicare, for. For the defense program, defense expenditure, all these things have to be paid for by taxes.
So let’s look at the unfunded. Let’s look at the entire fiscal picture for the country and ask is the whole entire fiscal enterprise sustainable. Well, it turns out it’s not, and it’s actually much worse than looking at those at official debt or a social pretty by itself. If you put everything on the books. And you project all the outlays for all the different programs, whether it’s paying for the president’s lunch, gassing up air force one, paying for the defense and department paying for, welfare benefits, food stamps, et cetera. All of those allies and present value have a number, and then there’s all the receipts.
So all the present value of all the taxes the difference is about 10 years of GDP. It’s not one year of GDP, which is the official debt. [00:16:00] It’s not two and a half years of GDP, social security. It’s 10 years of GDP. And the absolute size of this unfunded liability depends on discount rate is what interest rate you use to take a dollar in the future and translate it back into how much it’s worth today.
And so social security uses a low discount rate, which makes the, not the absolute number. Be big and. I liked to use a much higher number, which it makes it smaller, but here’s the real point, which is that in order to under whatever discount rate do you use, it turns out that we need about a 40% immediate and permanent increase in every single federal tax, excise taxes, corporate income taxes, payroll taxes, personal income taxes, all these taxes, estate and gift taxes.
All they ha they all have to be. 40% or 35 to 40% higher starting immediately. [00:17:00] We have to have this massive tax ID to pay for all the spending that’s being projected, not by me, but by the congressional budget office.
[00:17:10] Lee Michael Murphy: Yes, it’s crazy high.
[00:17:12] Sergio Patterson: I was just looking at my paycheck and , we just got a bonus and I was like, they took literally almost 50%.
[00:17:19] Prof. Laurence Kotlikoff: Yeah. it’s ridiculous. Some people have no incentive to work. This is why we have so many poor people. we just showed that if you take the poorest Americans, the 20% that are poorest, a quarter of them are in marginal tax brackets above 70%.
Some are marginal tax brackets of up to a thousand percent. You earn another dollar, you’d lose food stamps. You might lose your housing support. You’re going to lose your Medicaid benefits. You can lose your earned income tax credit. plus you have to pay the payroll tax plus, all these taxes that.
and we do take into account the fact that if you pay the payroll tax, you get extra benefits. So it’s not like we’re leaving out all the benefits side of anything. It’s very carefully done. We’re taxing people to [00:18:00] death at the margin, but on average as well, I mean, you’re saying, if the average tax as well, here’s my pay, here’s my taxes.
[00:18:06] Prof. Laurence Kotlikoff: A ratio is my average tax. The marginal taxes have iron an extra or a hundred thousand dollars. How much do I get to keep? And as you said, it’s not a whole lot, so. The we have to fix the fiscal system. This is why you guys know. I ran for president back 2016 against, two people had no idea, or didn’t seem to want to articulate what was wrong with the country.
One of the problems is the country is broke. we’re posing, there are conflict and I’ll stop talking because I know you guys variously have more interesting things to say than I do.
[00:18:40] Sergio Patterson: That’s good.
[00:18:41] Prof. Laurence Kotlikoff: But, and I’ve been talking a lot a unit. That’s my problem. I talked to too much, Yeah.
I feel like I’m in a college lecture right now, . This is an interesting lecture.
[00:18:52] Prof. Laurence Kotlikoff: I really want to say is that this conflict is a false conflict. But the real conflict is not between the fringe left and the [00:19:00] fringe, right. The real conflict is between the old and the young, the real expropriation here is that the old people for five decades, seven decades now, Starting with Eisenhower really have gunned up the social security.
This Ponzi scheme. Every administration Nixon did to a large extent every administration is taking their turn, in trying to,in expropriating the young to the benefit of the old, but in the process , trying to do some good things. We need to force people to say, "We need a social security type system because people on their own will not save enough for their old age."
This, the healthcare system. the private healthcare system will not provide health insurance for people that preexisting condition without the government’s intervention. So there is a very important role for the government. It’s just the, that role does not include expropriating our children does not include bankrupting our country. So we should not, we should have had what we need policies that redistribute within generations [00:20:00] that fix, to get us enough revenue to prepare. We need an intelligent economist design, policies. We don’t need to drive our kids broke.
[00:20:10] Sergio Patterson: I have a question that might be tough for you to answer, but, which generation do you think is going to be the first generation that won’t have access to social security? Is it going to be millennials Lee and I, or is it going to be the generation after us? what are your thoughts there?
[00:20:25] Prof. Laurence Kotlikoff: I think the way things are going to go down is that they’re not going to really ever cut the benefits because if they did that, the politicians would find the old people not coming to vote for them on election day. I think what they’re going to do is cut the benefits indirectly by taxing people more on the benefits they received. So they’re going to give you your money into your left pocket and take it out of your right pocket. This is basically what they have underway right now. Sergio and Lee, I don’t know if you know this, but we have under. The, federal income tax. Your social security benefit is subject to [00:21:00] taxation.
So if you earn enough money, what’s called modified adjusted gross income, that’s your income plus your social security taxable income plus your social security benefits is above a threshold. Half of your social security benefits become gradually become taxable. And then if your income is even higher for managers, Modified adjusted gross income goes even beyond a second threshold, 85% become taxable, and those thresholds are not indexed to inflation.
So this means that when you guys and prices are just rose, like 5% over the last 12 months. Right? So when you guys. Are older and starting to collect so straight to those thresholds are going to be really low. So that means there’s at least 85% of your benefits are going to be subject to the federal income tax.
So here you get your full benefit check, but then it’s taxed away through this other. Yes, you’re shaking your head. it’s. This is how the politician, and this is all in the projections. And the thing is still two and a half years. [00:22:00] Of JDP broke. Okay. the thing is still not sustainable, even though we’ve got this silent secret, X taxation of your benefits that you guys don’t know about.
And this all happened, due to, David Stockman, who was a former budget director. And. I just tell you this one vignette. Okay. Stop in is very concerned about the future, sustainability of fiscal policy. And when he was the budget director under Reagan, the first budget director. He proposed. He said, so, the system is broke.
We need to raise the retirement age, starting with a, and he put actually a proposal that the Republicans, Florida, a proposal in the Senate to raise immediately the retirement age for social security to get social security. And that lost a, an, a vote 112. But he also slept in this taxation of social security benefits.
That’s not index from where the thresholds are an index for inflation under the [00:23:00] cover. He said, he told us in the media, I was actually working in the council of economic advisors. So I went to a budget meeting to meeting where he was gleeful about. I actually succeeded. I put this thing up. I knew it was going to get kicked shot down immediately as a loss leader, but under the cover of radar of that, I slipped into this other thing, which involves higher and higher taxation.
So screen benefits through time, which was going to come out of your house. Now he thought that was a great victory. I thought it. was, a terrible policy. Basically. We need to do things in the light of the day, not hide them from the public. And w we have not had a public discussion that trustees reports. 50, $60 trillion unfunded liability and table six, F1 is in the back of the, almost at the very, and they push it any further back into that report. It’s not going to be in the report when it first came out, it was in the main part of the report. And then the trustees who were [00:24:00] supposed to talk about what’s in the damn report, don’t even mention the number.
This is the most single most important number in this report. It’s not even much. And it’s $6 trillion higher than it was. Last year, we ran a deficit of $6 trillion last year, like twice the official deficit, the borrowing. So scurries deficit went up by 6 trillion bucks.
[00:24:25] Lee Michael Murphy: So, what can we do? Should we even plan for social security? As people that are still, in the workforce have probably at least a few decades to work. I mean, can we trust that it will be there and, or it sounds like it’s going to be there. It just sounds like they’re just. Siphoned off all the benefit that we would’ve gotten in through taxes and all that.
[00:24:45] Prof. Laurence Kotlikoff: Well, you have to realize that you’re living like a, An emerging country. That’s what we used to call these countries at their rural countries. We’re on a slow path, maybe a fast track to Argentina. Argentina used to be the fifth highest per capita GDP country in the world. [00:25:00] It’s now an emerging third world country again, or not again, a 1900.
It was really up there now. It’s really down here. We’re, that’s the kind of trajectory we’re on and you have to do everything you can to protect yourself. Namely, make sure your parents get the most. They again, can from the system. Because the more money they have, the less money that you have to give to them, the more money they’ll leave to you if they’ve passed pass away.
So you have to, you have to save as much as you possibly can. to end, you may want to save more in raw form than then. I, in, in taxable, in a deferred tax program or rolling. account allows you to pay taxes now and not pay taxes in the future on money that goes into the account because the tax rates are likely to be higher in the future because the system is the whole country is so broke.
So saving on housing, doubling up, this is all the ways [00:26:00] that, I can think of to help people at all ages, get a higher living standard safely without trying to beat the market, which is essentially impossible. So strategic decisions. So you have to think about yourself and your parents and even your siblings as a group, we have to kind of. Group up. Get house rich shack up with mom because we have about 25%. I believe that’s the number of people, your ages, living with their parents at this point, because that’s one way to really economize one save
up, so our saving rates have to be dramatically higher. Our state national saving rate is among the lowest of the developed world. Much, like 10 times lower than China. It’s just the tiniest realized that life is uncertain and that they’ve got a crazy government. So people privately just skimp and.
and say man, we have to save like man cause, and the other thing is we can’t retire early. We can’t plan on [00:27:00] retiring at 62 or because we could be retired longer than we will work. This could be, retirement is basically a decision to go on an indefinite basis. We have to think of this as a financially riskiest thing possibly that
[00:27:17] Prof. Laurence Kotlikoff: you could possibly do.
So if we have the ability to not retire and a lot of us are forced to retire, there’s tons of age discrimination. If I were on the market right now to get a job at a top university on that Boston university. But if I went on the market and I said to the. The top 20 universities where you hire me, I’ve got a long history of publications.
I’m very active. they say, well, no, you’re 70. They’ll look at me and let’s move. You’re 70. I have gray hair. And,they probably won’t they’ll think, well, he was active now, but two weeks from now, he’ll stop working. Well that’s age discrimination right there. and That’s for sure.
So, so yeah, I [00:28:00] would say we have to take, retirement planning and career planning and job choice and housing decisions, all these and retirement account decisions. Like, should I, how much should I contribute? would it be better to pay off my student loans and put money into my 401k? I’d absolutely.
Because there’s certain lines are crazy high.
interest rates. Don’t borrow for college. I mean, do you know that 40% of the kids that go to college or start college end up failing out, dropping out
[00:28:31] Lee Michael Murphy: I
[00:28:31] Prof. Laurence Kotlikoff: and they bought
[00:28:32] Lee Michael Murphy: high?
[00:28:33] Sergio Patterson: 40%.
[00:28:34] Prof. Laurence Kotlikoff: 40%
more borrow privilege.
So it’s crazy risky to borrow for college because there’s a 40% chance right off the bat, but those zero pay. Well, I’ll tell you just one story that I
[00:28:48] Sergio Patterson: That’s not a good bet.
[00:28:50] Prof. Laurence Kotlikoff: Yeah, I had it in my undergraduate class. I was talking about, it was a course on personal finance. It was talking about student loans. I said, [00:29:00] they’re really high interest rates.
You really don’t want to borrow. How many of you have a 10,000 loans? All the hands went up. How many points does all the hands were stay up? How do we have, 50,000. 20% of the hands were up. Finally, I ended up with somebody had over a hundred thousand dollars in loans and, and then, I mean, I knew at this point that I was going walking down the wrong path.
I shouldn’t all them asking these questions to begin with.
[00:29:27] Sergio Patterson: Yeah,
[00:29:30] Prof. Laurence Kotlikoff: Professional mistake. I should not because I was putting people on the spot asking him a personal evolution. This was a violet, this was many years ago. So it wasn’t just the other day. I’m a lot smarter now, but I made a huge mistake and I said, would you mind telling me how much you, you ha you have? And it was like 120,000.
So it was kind of. And BTU is now very expensive. If you’re in the, if [00:30:00] you’re not the net price is very low for most people, for a lot of people because their income parent’s income is low. And then you got the people that from rich families who can afford it, but then you got the middle class. People get stuck.
Anyway, she was in that range and she got stuck having to borrow. And I said, well, you, I hope you’re like, I’m a business major. So you’re going to get a high salary and be able to pay this off. She was an art major at that point
[00:30:29] Lee Michael Murphy: God.
[00:30:32] Prof. Laurence Kotlikoff: I also, you know what she was majoring in at that point, she started to cry and I felt just terrible
[00:30:40] Sergio Patterson: That’s tough.
[00:30:41] Prof. Laurence Kotlikoff: was really just a terrible thing. I did. I confessed to it
[00:30:47] Sergio Patterson: Hopefully she’s super rich now.
[00:30:49] Prof. Laurence Kotlikoff: well, possibly, but. There won’t be a, so much money that you’ve been, not pursue her career, her desired career. It didn’t have enough.
[00:30:58] Sergio Patterson: Yes, no.
I [00:31:00] asked her, well, she’s at, she was a senior, or did you have any job offers? Not even front paid internships? Did she didn’t even get an unpaid internship. at that point, nobody was responding to. And she was a bright person, is just weren’t jobs in that area. So she had borrowed money for this career and she borrowed so much and she couldn’t pursue it.
[00:31:24] Sergio Patterson: Yeah, I was thinking, going back to social security, my biggest takeaway from hearing you is. We can’t trust the government to take care of us when we’re old, like that’s one vessel, social security,
[00:31:36] Lee Michael Murphy: No super early retirement.
[00:31:38] Sergio Patterson: need like the 401k down in the Roth and get the savings. We need the investments. All right.
Because the government may or may not be in the right position to take care of us, , is that
[00:31:48] Prof. Laurence Kotlikoff: The government is absolutely totally completely broke. We’re broke beyond belief. We’re broke beyond any developed country. We’re probably twice the second worst,develop country is fiscally speaking.[00:32:00] so, and we can also trust our employers to take care of us either when they may have plans set up where they, aren’t contributing enough, they’re not getting us to contribute.
We have to look at comprehensively at our finances and ask, what do we really need to save in order to make it to a hundred? Because we might make it to a hundred.
[00:32:20] Sergio Patterson: Yeah.
and so I want to , make sure people understand that, we have to pull together within families and across families, because the government has put us into a terrible shape and that social security report is really just the tip of the iceberg.
[00:32:34] Prof. Laurence Kotlikoff: How bad that is. It’s just still just the tip of the iceberg of the problem. Did I depress you guys We’re very happy that.
[00:32:40] Sergio Patterson: Uh,
[00:32:41] Lee Michael Murphy: I’m sad
[00:32:43] Sergio Patterson: I mean, for me, I, it was eye
[00:32:46] Lee Michael Murphy: this is, but this is what we need to hear, because right now, Everywhere every station you turn on or every politician , that tells what’s going on, they’re making it seem like, oh, it’s not that bad.[00:33:00] they want to give you kind of like a false sense of hope, but really it’s on the people to take care of themselves.
And I think,I won’t get too political, but I think that, a lot of people put too much. And uncle Sam to take care of them. And I think we’re at this crossroads where we have to realize that. It’s not, it might not be there. And the best solution is for you to,make the right decisions in regards to your , investing, planning for your retirement and then living reasonably, I think that’s one thing that I think from your economic based planning approach that I really like is, you have to be reasonable.
And how you look at your future and your consumption, smoothing is extremely important. you can’t look at everything with the cherries on top and a rainbow over it because that might not be the future. So, think about what you, the life you want to live and, cut out as much material things as you can and live reasonably.
[00:33:58] Prof. Laurence Kotlikoff: Yeah. I think [00:34:00] uncle Sam, it’s not just that he’s looking out, not looking out for us. He’s looking out from. Is basically what the, why we should think about uncle Sam.
[00:34:08] Sergio Patterson: He’s a degenerate, right? He’s like, I picture him like a degenerate gambler. Like he owes a bunch of different bookies all across the world and he’s in a tough spot uncle Sam’s in a tough spot.
[00:34:18] Prof. Laurence Kotlikoff: I’d say he’s the thief from the perspective and a scammer. From the perspective of your generation, he’s running a Ponzi scheme. I discussed two scams. And so security is running official scams that are not even the Ponzi scheme part, even independent of that. just the way they deal with that.
It’s the fact that you pay all your life. And if you forget to, ask for benefit, you don’t get it. I mean, that’s a huge scam. That’s just indecent. That’s like stealing your money. He’s the thief uncle. Sam was a thief.
so, I love our country, but, and I know we can do better, but unless we have truth, and people see what’s really going on when [00:35:00] we’re never going to fix things, you haven’t heard a single politician mentioned.
So securities long run a problem, which is the 59 50, almost $60 trillion red ink, not a single one has bothered dopamine to look at the trustee’s report and open it and read the whole thing or just go to that table, which I’ve been writing about for decades. Now, I were in a book called the clash of generations coming generational storm.
[00:35:31] Lee Michael Murphy: Professor. Thank you so much for coming on the show today. We love insight. We love the beautiful
[00:35:35] Prof. Laurence Kotlikoff: it’s just getting worse and worse
as you look at it.
[00:35:37] Lee Michael Murphy: dim, Tim, big painting that you, you painted. And, uh, but it’s really great stuff. And it’s important. And it’s also refreshing to hear about it because you’re right. A lot of thethey don’t want to talk it, probably puts them in a bad light, knowing that these things happened on their watch, but, um, your books, which I’m really excited for money magic, your [00:36:00] social security book, where can people get.
[00:36:02] Prof. Laurence Kotlikoff: Well, I would say the neighborhood bookstore, if you could place an order there, obviously Amazon, there’s a Barnes and noble, but we want to try and, support independent bookstores because they’re disappearing. But anyway, it’s coming out on the 4th of January and, it’s a fun read.
it, it starts all off with my, explaining why I became an economist rather than a doctor. I’ll leave it at that.
[00:36:35] Sergio Patterson: That’s great. Congrats on that. Everyone go get the book money magic.
[00:36:38] Prof. Laurence Kotlikoff: There’s a frog, being tortured in the middle of, as part of that story. So if the story features a tortured frog, a frog that’s being tortured by me.
[00:36:52] Sergio Patterson: Okay.
[00:36:56] Lee Michael Murphy: Thank you Professor[00:37:00] we’ll go to Larry. Forgot the professor over shit.
[00:37:02] Prof. Laurence Kotlikoff: okay.
[00:37:04] Sergio Patterson: Yeah.we should have asked. We’ve been calling you professor
[00:37:06] Lee Michael Murphy: Yeah. Thank you so much, man.
[00:37:08] Sergio Patterson: well, thank you, Larry. I appreciate you
[00:37:09] Lee Michael Murphy: Thank you so much, Larry.
[00:37:12] Prof. Laurence Kotlikoff: okay guys.
I’m going to wait to give you the, my thumbs up here.
[00:37:26] Sergio Patterson: Yeah.
[00:37:29] Prof. Laurence Kotlikoff: You guys are good. You guys, a lot of fun. Um, I do, uh, go on because I feel like
[00:37:35] Lee Michael Murphy: we’ll get
[00:37:36] Prof. Laurence Kotlikoff: it was a
[00:37:36] Lee Michael Murphy: for you and we’ll send it over to you. And then maybe the next week.
[00:37:40] Prof. Laurence Kotlikoff: out there.
[00:37:41] Sergio Patterson: Yeah, this is helpful. Thank you.
[00:37:43] Prof. Laurence Kotlikoff: Yeah. Okay. I’ll push it up. And, uh, yeah, happy when the, whenever, uh, you want, if you want to do it again before the book, when, when the book comes out and love [00:38:00] to come on and talk to you about the book.
[00:38:02] Sergio Patterson: That’d be good.
[00:38:04] Prof. Laurence Kotlikoff: The, uh, I’ll read you really quick. They just, the chapter titles. So this one is the first one is called, uh, my daughter, the plumber. Uh, let’s see.
[00:38:16] Sergio Patterson: Wait, is your daughter and actual number?
[00:38:18] Prof. Laurence Kotlikoff: no, but it used to be, you know, there’s families, I’m Jewish and Jewish mother would always say my son and the doctor. That was the, I mean, this is the century as long from the middle ages. That was the. Uh, thing that Jewish parents would say about the kids, my, my son, the doctor, because they were one of their kid to be a doctor.
And they went through very proud of that. So it’s my daughter to the plumber. Um, and then plumbers make more than the doctors. These, these days, uh, or many,
[00:38:49] Sergio Patterson: can’t go wrong with a trade right now.
[00:38:51] Prof. Laurence Kotlikoff: hanging in her hangout is about retirement. Um, Uh, 10 stickers and maximize your social security. Give yourself a tax cut. That’s about a retirement [00:39:00] account.
Get out river house road shack shack up with mom Mar marry for money.
[00:39:05] Lee Michael Murphy: that that’s
[00:39:06] Prof. Laurence Kotlikoff: the divorce.
[00:39:07] Lee Michael Murphy: that down.
[00:39:10] Sergio Patterson: Mary married, marry for money.
[00:39:12] Prof. Laurence Kotlikoff: yeah,
[00:39:18] Lee Michael Murphy: Yeah.
[00:39:19] Prof. Laurence Kotlikoff: whereas all good. Pays.
[00:39:20] Sergio Patterson: didn’t think about that. Damn shit.
[00:39:24] Prof. Laurence Kotlikoff: Sometimes getting a fair split. If you look at it and then a Dunbar for college, it’s far too risky. And then, um, we got, uh, invest like an economist and then making your own money magic my 50 top secrets.
[00:39:39] Lee Michael Murphy: Oh, thank you. I would love, I would love to read it. I was actually looking for it,
[00:39:43] Prof. Laurence Kotlikoff: So we’ll get you guys an
[00:39:45] Lee Michael Murphy: ago and I re I heard it was before you came on the first time I really wanted to read it. Cause I read it like the background of it is, oh, I want to read that now. And I could, and then I realized that it’s January release.[00:40:00]
[00:40:03] Prof. Laurence Kotlikoff: Yeah. I mean, uh, yeah, I’m logged in you, you, you don’t have to bother buying it. Just maybe put in your calendar. Shoot me a, uh, ping me on like December 15. Okay. I can
[00:40:16] Lee Michael Murphy: so
[00:40:17] Sergio Patterson: Yeah, we can like share it out on our networks too.
[00:40:20] Prof. Laurence Kotlikoff: Okay. Here’s our address? A couple of copies.
[00:40:25] Sergio Patterson: Cool. Thank you. All
[00:40:27] Prof. Laurence Kotlikoff: you’re doing
[00:40:27] Sergio Patterson: ya. Hi.
[00:40:30] Prof. Laurence Kotlikoff: case.