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S.S. as annuity - interesting Greaney article
Old 06-13-2008, 10:26 PM   #1
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S.S. as annuity - interesting Greaney article

Where can a 70-year-old buy the least expensive life annuity?

Interesting article - any thoughts? How long can this loophole last?

K.
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Old 06-13-2008, 10:33 PM   #2
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I am hoping the loophole will last for another 21 years.
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Old 06-14-2008, 12:37 AM   #3
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One possible scenario is that having repaid the S.S. received to date, your future S.S. payments might be means tested.

Medicare part B premiums are already means tested. Granted - currently it only affects those in high income or capital gains brackets - but still a consideration for some on this forum.
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Old 06-14-2008, 09:57 AM   #4
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I think I'll just take it when I'm 62, invest it well, and spend it like a drunken sailor in my 60's while I can still appreciate it.

Beats sitting around on the couch in my 90's chortling about how I beat the system and now thats about to really start paying off!
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Old 06-14-2008, 10:50 AM   #5
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What would happen if you paid it all back and then died the next week?

I know you wouldn't (couldn't) care, but what about your estate?
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Old 06-14-2008, 01:03 PM   #6
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Lots of people dont care about what happens after they kick off. And lots dont care about their lost quality of life from having set aside money so as to optimize 'sticking it to the man'. Because they're dead, of course.

I've tried to follow that logic back to figure out why someone who feels that way doesnt just blow all their money at the casino and then immediately employ the smith and wesson option. Cuz after all, at that point you're dead and what difference does it make?

In my case I've got a wife and a young son, and i'm pretty interested in making sure they're well taken care of and dont have to deal with any complicated financial BS if I die suddenly.

"Okay honey...if you're reading this then I'm dead. Heres what you do. In 2042, take that $250k thats in the investment account and give it back to the government. Thats right. Fork it over. In exchange, they'll start paying you an extra $400 a month in SS benefits. If you make it past 90 and the SS guys havent made any changes to the payouts by means testing, revising or dropping the inflation adjustment or otherwise cutting benefits...you'll have beaten the system!!!"

She'd figure out pretty quick that this was just some scam to keep her from blowing the 250k by running off to the Caribbean with the pool boy.
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Old 06-14-2008, 01:27 PM   #7
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I agree completely that if one is drawing SS now and is less than 70 repaying and re-setting would likely be a good option as he approaches 70.

But what if you are already past FRA, retired, but still not drawing? Would it be a good idea to file for beneifits with the intention of withdrawing and paying back the receipts a couple years later?

If you need the money, or see very good investment possibilities that you want to take advantage of, maybe it would be. Otherwise, for me it is a difficult question. The governemnt usually finds ways to screw us, not give us a free ride. And this is a free ride in several ways- not the least of which is that we don't have to pay any interst on the money that we are returning.

I personally do not want to gamble that this will last, as what would be the political force to oppose it taking it away? A few moderately well off people who who aren't very appealing on the heart-strings meter.

So I'll just wait until I am 70, unless the Dow goes to 5000 and I really want all the cash availability I can find.

I am by nature a patient person so this is no proble for me psychologically.

Ha
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Old 06-14-2008, 01:46 PM   #8
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So I'll just wait until I am 70, unless the Dow goes to 5000 and I really want all the cash availability I can find.

I am by nature a patient person so this is no proble for me psychologically.

Ha
Count me in. Of course, since I'm married we're planning on the 62/66/70 "split". That is, my wife takes her's at 62, I file spousal against her at her FRA age 66, and then I take mine at 70.

For those who may be saying (to the "spit" program) "huh?" here's an article on the technique:

The Baby Boomer's Guide To Social Security - WSJ.com

- Ron
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Old 06-14-2008, 02:00 PM   #9
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Right now I'm planning to wait until 70 -- not for me but for the survivor benefit for my wife. Obviously, changing health assessments will certainly impact my decision but making it past 80 isn't real common on my side but her family routinely lives way too long. She'll probably need the extra income for assisted care.

One thing I hadn't seen discussed is the taxes you pay on SS between 62 and 70. When you pay it all back, you'd have to refile your last few tax returns to get it back but some would be too old.
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Old 06-14-2008, 03:21 PM   #10
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So I'll just wait until I am 70, unless the Dow goes to 5000 and I really want all the cash availability I can find.


Ha
Please............don't push me over the edge. I'm trying to cut my beer drinking down.
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Old 06-14-2008, 05:01 PM   #11
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One thing I hadn't seen discussed is the taxes you pay on SS between 62 and 70. When you pay it all back, you'd have to refile your last few tax returns to get it back but some would be too old.
This topic is discussed in Kotlikoff and Burns' Spend 'Til the End. They say you can recover the taxes through a deduction or credit. They are gung-ho on it and I definitely will keep it in mind.
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Old 06-15-2008, 05:39 AM   #12
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This topic is discussed in Kotlikoff and Burns' Spend 'Til the End. They say you can recover the taxes through a deduction or credit. They are gung-ho on it and I definitely will keep it in mind.
Download IRS Publication 17 (it is a pdf) and look for the instructions for line 71 of the 1040. You have a choice deduction on Schedule A OR a Credit on Line 71 for ALL taxes paid on past SS benefits repaid. Simple and no amended returns are necessary (entry in tax year of repayment).

BTW this has been discussed EXTENSIVELY here in the past. The search option should bring up A LOT on the subject. (There are at lease 2 members of this board that have done it or are still in the process).
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Old 06-15-2008, 05:50 AM   #13
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Download IRS Publication 17 (it is a pdf) and look for the instructions for line 71 of the 1040. You have a choice deduction on Schedule A OR a Credit on Line 71 for ALL taxes paid on past SS benefits repaid. Simple and no amended returns are necessary (entry in tax year of repayment).

BTW this has been discussed EXTENSIVELY here in the past. The search option should bring up A LOT on the subject. (There are at lease 2 members of this board that have done it or are still in the process).
Thanks. As usual, there isn't much discussed that is really new. I hadn't seen the tax issue discussed before but I don't read every post.
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Old 06-15-2008, 12:30 PM   #14
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Download IRS Publication 17 (it is a pdf) and look for the instructions for line 71 of the 1040. You have a choice deduction on Schedule A OR a Credit on Line 71 for ALL taxes paid on past SS benefits repaid. Simple and no amended returns are necessary (entry in tax year of repayment).
Could you pls clarify......not sure I am looking in the right place but Pub 17
generally has discussions by topic, not by line number of 1040 so I am not sure what you are reading. Pg number of Pub 17 would be useful.

If I look instead at the instructions for Form 1040 booklet, the instructions for Line 71 talk about a Refundable Credit for Prior Year Minimum Tax.
This doesn't sound to me like it is related to prior yr tax on SS . Am I
misunderstanding something?

Even if it is as you say, calculating the past taxes on SS doesn't sound trivial unless you are in the regime where you paid no taxes (because of low income) or where you paid taxes on 85% of the SS (because of high income). For the region in between , it's more complicated.
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Old 06-15-2008, 10:08 PM   #15
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Pub 17 -page 81 - Section titled - Repayments More Than Gross Benefits.

-Robert K
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Old 06-16-2008, 01:23 AM   #16
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Pub 17 -page 81 - Section titled - Repayments More Than Gross Benefits.

-Robert K
Robert......thanks for the reference. Looks like the credit is on line 70.
Seems like a bit of "fun" recalculating the tax for 7 or so yrs.
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Old 06-16-2008, 02:22 AM   #17
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Count me in. Of course, since I'm married we're planning on the 62/66/70 "split". That is, my wife takes her's at 62, I file spousal against her at her FRA age 66, and then I take mine at 70.

For those who may be saying (to the "spit" program) "huh?" here's an article on the technique:

The Baby Boomer's Guide To Social Security - WSJ.com

- Ron
Hadn't thought of that option. Thanks.
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Old 06-16-2008, 06:43 AM   #18
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With a lot of extreme longevity in my family and few living relatives, I feel that I must prepare to live to over 100. Any other choice (for me) would be irresponsible. So, with that in mind I do not plan to take my SS at 62.

I do regard SS as an annuity of sorts. Tentatively I will wait to 66, keeping my eye out for any Congressional moves towards changing SS in the meantime and continuing to read threads about SS on the ER forum with an open mind. If all goes smoothly, at 66 I will re-assess and possibly do the same until age 70, in 2018. Or, I might take it at 66 and call it a day (and this is the age I use in my spreadsheets right now). I'll cross that bridge when I come to it. Of course I do not know what will happen to the market and to my health between now and ages 66 or 70, and I can always apply at any point along the way if it appears to be prudent at that time.

I thought about the choice of taking it at 62, refunding the money to SS, and then taking it at 66, but dealing with SS and with the more complicated tax situation sounds like more of a PITA than I want to handle in ER. I guess I am not quite that thrifty.
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Old 06-16-2008, 07:02 AM   #19
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Could you pls clarify......not sure I am looking in the right place but Pub 17
generally has discussions by topic, not by line number of 1040 so I am not sure what you are reading. Pg number of Pub 17 would be useful.

If I look instead at the instructions for Form 1040 booklet, the instructions for Line 71 talk about a Refundable Credit for Prior Year Minimum Tax.
This doesn't sound to me like it is related to prior yr tax on SS . Am I
misunderstanding something?

Even if it is as you say, calculating the past taxes on SS doesn't sound trivial unless you are in the regime where you paid no taxes (because of low income) or where you paid taxes on 85% of the SS (because of high income). For the region in between , it's more complicated.
Sorry for the error in line number; it is 70 versus 71. Really not too difficult to calculate the Deduction as that would come from the SSA 1099 SM that the SS gives you in the year of repayment. The calculation for the Credit should be available from (using IRS 1040 for Year 2007 as an example) line 20b of the 1040. Generally you just recalculate what the taxes would have been WITHOUT the entry on 20b and the difference would be your Credit for that year. You do the same for each year you had taxable SS benefits then total it up and put it on line 70 (with the annotation they specify in publication 17; "I.R.C. 1341"). While the Deduction is easier to calculate, IMO the Credit will result in the larger return of Taxes Paid.
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Old 06-16-2008, 07:30 AM   #20
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Sorry for the error in line number it is 70 versus 71. Really not too difficult to calculate the Deduction as that would come from the SSA 1099 SM that the SS gives you in the year of repayment. The calculation for the Credit should be available from (using IRS 1040 for Year 2007 as an example) line 20b of the 1040. Generally you just recalculate what the taxes would have been WITHOUT the entry on 20b and the difference would be your Credit for that year. You do the same for each year you had taxable SS benefits then total it up and put it on line 70 (with the annotation they specify in publication 17; "I.R.C. 1341"). While the Deduction is easier to calculate, IMO the Credit will result in the larger return of Taxes Paid.
RW----Thanks. I agree w/ everything you said. You'll still need to have saved 7 or so yrs of Turbotax (or equiv) versions of software, or paper tax
tables/rate tables. Since deductions/exemptions can change w/ AGI changes
the paper calculations could be more of a hassle. I guess you could just use the current year version and get reasonably close and let IRS do the correction for you.
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