Considering Social Security Buyback

[Dog]

Contemplating the option of a SS buyback. I will be 63 in January, so still within the 12 month window. I have the cash to do the payback.

Has anyone been through the process? If so, how did it go?

Thanks!

 

[Dash man]

You might want to get the process started. Between COVID and the holidays, it may take a while.

 

[Dog]

Upon further investigation I think I will suspend my SS at FRA (66.8 yo) and reapply at 70 instead of pursuing the buyback option and reapplying at FRA. The outcome will be the same with SS paid out at FRA $ amount.

Some background:

DH has heart issues that have convinced him he will be lucky to make it to 80. So, he was adamant we claim our SS at 62 (earlier this year) to enjoy an enhanced lifestyle during our good years.

Our combined SS and his pension cover our core expenses and most discretionary spending. We have a healthy portfolio with about 5% in cash and laddered CDs for emergencies and when the economy and market declines. Our home is paid off and we don’t have any debt.

So, what changed?

I listened to a Boglehead podcast with Dr. Wade Pfau as the guest. He caught my attention with the discussion of probability-based retirement vs safety-first retirement. This was followed by a very rough October with DH in and out of the ER followed by the several weeks of doctor follow-up visits. Thankfully, he seems to be feeling better this past week.

His pension does have spousal benefits at 50%. So, I will not realize too much of a decline of an income base if I can revise my SS to the FRA payout amount. The combination of probability-based and safety-first makes sense to me. I’m not interested in Whole Life Insurance or an annuity which are advocated with the safety-first approach.

We would like to use the portfolio for “extras” in life, LTC expenses, help family/charities and to leave a chunk for DD inheritance.

The only real change in our overall strategy is rethinking my SS.

Any thoughts or comments are appreciated.

Happy Thanksgiving everyone!

 

[Dash man]

I wish you the best!!

 

[chassis]

Objectively, what present value (dollar amount) have you calculated the impact of your proposed buy back would be?

Subjectively, I have a problem giving the government my money when not mandated by statute.

 

[Sunset]

Upon further investigation I think I will suspend my SS at FRA (66.8 yo) and reapply at 70 instead of pursuing the buyback option and reapplying at FRA. The outcome will be the same with SS paid out at FRA $ amount.

Some background:

DH has heart issues that have convinced him he will be lucky to make it to 80. So, he was adamant we claim our SS at 62 (earlier this year) to enjoy an enhanced lifestyle during our good years.

...

(I'm harsh here).
So your DH wanted to spend now, and when he is gone, you get left with the left-overs... My feeling is in a couple, the higher earner should delay to 70 to have the high SS income for the survivor. If this meant spending down some of children's inheritance that is fine, as inheritance is not a right, just a gift of what's left.

It's quite possible that by claiming both at 62, the savings will actually be spend down more , than if one had waited until age 70 for SS, if one of you lives long (which is likely in a couple situation).

 

[Sunset]

Objectively, what present value (dollar amount) have you calculated the impact of your proposed buy back would be?

Subjectively, I have a problem giving the government my money when not mandated by statute.

It's not giving the gov't OP's money, it's Undoing , a possible bad choice. So that the effect is like delaying SS past age 62 for the 8% increase per year for life in benefit.

 

[pb4uski]

.... Any thoughts or comments are appreciated.

Happy Thanksgiving everyone!

What I would suggest is that you spend some time with opensocialsecurity.com

Check the additional input box at the top of the page as that will allow you to select the mortality tables used for the calculations. You can select one of the CSO mortality tables for you and an assumed at at death of 80 for your DH.

What the program does is based on the information that you input and assumptions that you can override it calculates the "expected" cash flow of each month as the projected benefit if your alive time the actuarial likelihood that you are alive to receive it. It will then discount the expected cash flows at the real discount rate that you provide unless you use the default rate of -.49%. I personally think think -.49% is too conservative and 0% or 1-2% is better depending on your AA.

The tool will show you both the optimal claiming strategy given your inputs. At the bottom there is a graphic showing alternative claiming strategies (your age/his age combnations) and how the EPV for that combination compares to the optimal EPV so you can get an idea as to how sensitive the EPV is for different claimin strategies.

For those just seeking a summary explanation, let's consider the simplest example scenario: an unmarried person, using the calculator prior to age 62. For such a person, the calculator:

1. First assumes they file as early as possible, at 62.
2. Calculates the amount of their monthly retirement benefit under such assumption.
3. For each year up to age 115, the calculator multiplies the annual retirement benefit by the user's probability of being alive in such year, to arrive at a probability-weighted annual benefit.
4. That probability-weighted benefit is then discounted back to age-62 value using the discount rate the user provided as input (i.e., to account for the fact that a dollar today can be invested and is therefore worth more than even an inflation-adjusted dollar in the future).
5. All of those probability-weighted, discounted benefit amounts are summed, to arrive at a total "present value" for the assumed claiming strategy (e.g., claiming ASAP at 62).
6. The above process is repeated for each possible claiming age (i.e., every month between 62 and 70).
7. The claiming age that had the highest present value is then suggested to the user, and the present value associated with such claiming age is provided as well.

If the person is older than 62 when using the calculator, claiming strategies that are no longer possible (i.e., filing in the past) are eliminated from the analysis.

For a married couple, it's the same sort of process, but with more going on. Specifically:

In addition to retirement benefits, spousal benefits and survivor benefits are included in the analysis.

1. Probability weighting the various benefits each period involves separate calculations for "probability only Spouse A is alive", "probability only Spouse B is alive", and "probability both spouses are still alive."
2. Each combination of possible claiming ages must be considered, for both spouses, and for both types of benefits (i.e., retirement and spousal).

 

[gauss]

Is this still even allowed?

I believe that the rules were changed on the "apply and suspend" stratigies ~ 5-7 years ago.

edit: Never mind. Now I see that OP has mentioned a 12 month window. I think that was the big change (ie not doing this beyond a 12 month window) that I was thinking of

-gauss

 

[pb4uski]

No, I'm pretty sure that they still allow buybacks within the first 12 months. You're thinking of something different.

https://www.aarp.org/retirement/soc...swers/social-security-going-back-to-work.html

... Social Security will let you withdraw your original application for retirement benefits only once, and it must be within 12 months of the date you first claimed your benefits.

You start the process by filling out Social Security form SSA-521. Send the completed form to your local Social Security office.

If you opt for a withdrawal, Social Security will treat it as if you never applied for benefits in the first place, and you will have to repay every dollar you’ve received. That includes:

Your monthly retirement payments.

• Any family benefits collected by your spouse or children, who must consent in writing to the withdrawal.
• Any money withheld from your payments by Social Security — for example, to pay your Medicare premium.
• If you’ve been getting retirement benefits for more than a year, the window for withdrawal has closed.

...

 

[gauss]

^ Yep
I corrected my post.

Thanks

 

[RunningBum]

Is this still even allowed?

I believe that the rules were changed on the "apply and suspend" stratigies ~ 5-7 years ago.

edit: Never mind. Now I see that OP has mentioned a 12 month window. I think that was the big change (ie not doing this beyond a 12 month window) that I was thinking of

I lost track. First the OP talked of doing it before age 63, which must be within the 12 month window. Then said:

Upon further investigation I think I will suspend my SS at FRA (66.8 yo) and reapply at 70 instead of pursuing the buyback option and reapplying at FRA. The outcome will be the same with SS paid out at FRA $ amount.

Seems like they are taking it now so 66.8 would be too late to suspend, but maybe this is some different thing I'm not aware of.

 

[pb4uski]

No RB, they can do that, they just stop collecting and their benefit grows until they start collecting again.

 

[Sunset]

Upon further investigation I think I will suspend my SS at FRA (66.8 yo) and reapply at 70 instead of pursuing the buyback option and reapplying at FRA. The outcome will be the same with SS paid out at FRA $ amount.

I wonder if this will really be done... or are you simply kicking the can down the road, and then won't actually do it.

It's easier to do now, while you have a large savings , as over the next 4 yrs from now, the simple existence of a large savings will tempt someone (DH) to spend it now.

I don't see how it would come out the same as FRA, if you payback and cancel SS , then collect at FRA (66.8 yo) , that is 4.8 yrs of added 8% . (38% more)

Suspending at (66.8 yo) to age 70 is only 3.2 yrs of added 8%, (0.25% more) if actually done.

So the first choice of undo collecting SS means a bigger benefit for life.

 

[chassis]

It's not giving the gov't OP's money, it's Undoing , a possible bad choice. So that the effect is like delaying SS past age 62 for the 8% increase per year for life in benefit.

@Sunset I get it. I avoid sending the government money unless mandated by statute.

The OP needs to quantify, for the sake of the thread, the calculated present value of the proposed decision.

@Dog what is the present value dollar amount impact of your proposed decision? $1? $1 million?

 

[pb4uski]

chassis, opensocialsecurity.com can provide answers.

For example, a female born 1/1/1960 with a $1,000 PIA. 2% real discount rate and 2017 Non-smoker Preferred mortality.... expected present values:

Claim at 61 & 1 month: $155,479..... 90.9%
Claim at FRA of 67: $167,257..... 97.8%
Optimal (69 & 6 mos) $171,089... 100.0%
As late as possible..70 $170,871..... 99.9%

Obviously, if PIA is $2,500 then multiply above numbers by 2.5 but %s will not change.

Below are two graphs... the top is with 2% discount rate and the bottom is with 0% discount rate.

How to read the graphs:

• At 2% discount rate: Mid-to-late 2029 is the sweet spot but anytime between late 2027 and age to are good. Earlier than late 2027 is increasingly suboptimal.
  
• At 0% discount rate: Best to take near age 70 in 2029; before that is increasingly suboptimal.

 

[OAG]

I did about 5 years of "buy back" back about 13 years ago. Went smoothly and now that I am 80 feel it was worth while. Total was about $83K which included some that applied to DW. DW received hers at 62 (and passed at 79 years old). I initially took it at 62 and paid back at approximately 67.5.

 

[PatrickA5]

I did about 5 years of "buy back" back about 13 years ago. Went smoothly and now that I am 80 feel it was worth while. Total was about $83K which included some that applied to DW. DW received hers at 62 (and passed at 79 years old). I initially took it at 62 and paid back at approximately 67.5.

How did you handle the fact that you (most likely) paid taxes on SS for those 5 years? Did you file amended returns?

 

[skipro33]

I understand what your husband is doing; collect BOTH now compared to just one now and one later. Do the math and see which is more over average life of the survivor. What if you invested yours instead of delaying at FRA? Just stuck it in a growth account? Where would you be then and wouldn't that savings then be locked in, yours or your heirs to keep, not loose upon death? While it might seem you'll outlive your husband, there's certainly no guarantee of that.

In my situation, I started my SS at 62. At age 63, one month shy of 64, I was diagnosed with cancer. It's not curable but is manageable and I'm likely to live another 10 years. DW was going to wait until FRA. My SS now is 3X the amount of hers at FRA, so she'll have a spousal benefit in addition to hers up to 50% of my PIA. We chose to start her SS now, at the lesser amount but with spousal 50% reduced because she's not yet at FRA. When I do die, she'll just get my SS amount, her lesser amount drops.
There's no use in my suspending to FRA with my prognosis, and we may as well collect both SS's for the reduced years while we can.

In the meantime, our IRA's continue to grow without any need to withdraw, which we would do without SS. That alone is really growing our net worth faster than if we both delayed SS until FRA or 70.

Check the additional input box at the top of the page as that will allow you to select the mortality tables used for the calculations. You can select one of the CSO mortality tables for you and an assumed at at death of 80 for your DH.

This is what I did and it suggested DW starts her SS immediately.

 

[Sunset]

OP - What is the Pension suvivorship set to, after your DH dies does it pay you 100% or did your DH also want that at 0% survivorship to maximize the spending now.

Currently you are quite possibly going to be 80+ with low SS (since claimed at 62) , what pension will you get ?

 

[Dog]

OP - What is the Pension suvivorship set to, after your DH dies does it pay you 100% or did your DH also want that at 0% survivorship to maximize the spending now.

Currently you are quite possibly going to be 80+ with low SS (since claimed at 62) , what pension will you get ?

It is a FERS pension. I will get 50% survivorship (cola’d). I’m also covered under his insurance until Medicare in 2..2 years. My current SS benefits and the 50% survivorship would cover current core fixed living expenses. We do have a healthy nest egg at 75x expenses.
Also, DH and I make our decisions jointly, but I manage our finances.

 

[Dog]

What I would suggest is that you spend some time with opensocialsecurity.com



Check the additional input box at the top of the page as that will allow you to select the mortality tables used for the calculations. You can select one of the CSO mortality tables for you and an assumed at at death of 80 for your DH.



What the program does is based on the information that you input and assumptions that you can override it calculates the "expected" cash flow of each month as the projected benefit if your alive time the actuarial likelihood that you are alive to receive it. It will then discount the expected cash flows at the real discount rate that you provide unless you use the default rate of -.49%. I personally think think -.49% is too conservative and 0% or 1-2% is better depending on your AA.



The tool will show you both the optimal claiming strategy given your inputs. At the bottom there is a graphic showing alternative claiming strategies (your age/his age combnations) and how the EPV for that combination compares to the optimal EPV so you can get an idea as to how sensitive the EPV is for different claimin strategies.

Thank you for your comments and the reminder. I actually used this tool and the actual SS site before we retired and have a tab in my spreadsheet that broke down the recommendations.
It recommended that DH take his SS at age 67.3 and for me to claim at 70.
DH has always planned to take his socials at 62, and mine was up for debate when the time came. I did opt to file at 62 knowing in my gut, I was going against conventional wisdom. I made an emotional decision based “a bird in the hand is worth two in the bush”. DH and I had been working and paying into SS since we were both 16 and just wanted to get some of those $ back.
I was fine with the decision until that Wade Pfau interview.
Most likely we will be fine no matter what decision is made on SS, but I will be calling the SS office tomorrow to discuss the Buyback option.
I don’t frequently post on this forum, but read it almost daily for the wisdom and experience.

Thank you!

 

[chassis]

chassis, opensocialsecurity.com can provide answers.

For example, a female born 1/1/1960 with a $1,000 PIA. 2% real discount rate and 2017 Non-smoker Preferred mortality.... expected present values:

Claim at 61 & 1 month: $155,479..... 90.9%
Claim at FRA of 67: $167,257..... 97.8%
Optimal (69 & 6 mos) $171,089... 100.0%
As late as possible..70 $170,871..... 99.9%

Obviously, if PIA is $2,500 then multiply above numbers by 2.5 but %s will not change.

Below are two graphs... the top is with 2% discount rate and the bottom is with 0% discount rate.

How to read the graphs:

• At 2% discount rate: Mid-to-late 2029 is the sweet spot but anytime between late 2027 and age to are good. Earlier than late 2027 is increasingly suboptimal.
  
• At 0% discount rate: Best to take near age 70 in 2029; before that is increasingly suboptimal.

@pb4uski Thanks, as I said, I get it. What happens if you (or the OP) gets hit by a bus at age 62?

@Dog What present value dollar amount is represented by your proposed choice?

 

[pb4uski]

@pb4uski Thanks, as I said, I get it. What happens if you (or the OP) gets hit by a bus at age 62?...

Pretty much the same as if you were vested in a defined benefit retirement plan and had not yet started retirement benefits and got hit by a bus at 62.

You lose... life ain't fair so put on your big boy pants and live with it... also, watch out for busses, milk trucks and beer trucks. The other side is that if you avoid those busses and trucks and live long, you win.

 

[Navigator]

I used to think I had a good understanding of SS, but the more I looked at it the more complicated it became. It turns out that none of the rules of thumb you hear about applied to my case, and the advise of so called experts was nothing more than overgeneralizations.

I agree that taking a probability-based approach to handling financial decisions is a good one. Unfortunately, the best strategy for taking Social Security very much depends on the specific situation of the people involved. For example, if your spouse was the higher earner, the benefit of you waiting to 70 is diminished. One question is how is the money you would pay back to social security invested now? If it is in low interest rate CDs or a bank account, then by all means pay back the money if you can. If it is invested or partly invested in the stock market, that is a much more complicated situation.