Pay Back Social Security- Can This Work

[Raygun99]

Not sure if this has been discussed and if it has any common sense to it? My Brother says he plans to take social security at age 62 and exercise the provision to pay it back at 70 for the stepped up increase allowed. He indicates he will fund the pay back with IRA funds and take the tax hit when he pulls the dollars out to repay SS$$ Is this a sound strategy? Does it assume SS will potentially return better growth than the IRA thus the early exercise and the pay back to step up the age 70 pay out?

 

[DblDoc]

Yes, SS does allow you to "reset" your retirement age by paying back all your benefits received to date - without interest, and start collecting your new, higher benefit.

A hidden Social Security benefit - MSN Money

DD

 

[haha]

Could I pay back now, and wait until I am 69 or 70 to refile?

I started SS this January to allow me to take advantage of the depressed stock market, but now I have raised cash and would perhaps like to do this. I would prefer waiting a year or 18 months to start again. The advantage to paying back asap, as I see it, is that once they have my money they cannot change the rules on me

Ha

 

[bizlady]

But his strategy assumes that this feature will be available down the road...

I think it could be interesting to start at 62, and payback at "full retirement"

 

[Tadpole]

I keep wondering about the surviving widow who switches to the spousal SS. Can the widow do a "buy back" of the deceased' years? A person could be "planning" a buy back at 70 but drop dead without warning before the planned buy back.

 

[REWahoo]

For those of you who are interested in the Social Security "withdraw, pay back and reapply" option, you might want to do a search on the forum as this subject has been discussed a number of times. One former forum member, OAG, went through the process and gave a detailed description of his experience - including the income tax ramifications, so you might want to search his old posts.

Here is a sample thread on the topic: http://www.early-retirement.org/for...-security-any-new-ideas-42992.html#post793009

 

[FIRE'd@51]

Could I pay back now, and wait until I am 69 or 70 to refile?

I'm pretty sure you can, although I don't know why you would want to (other than to lower your current AGI). Why not just wait and repay and restart at 69 or 70? Folks under full retirement age who go back to work, repay in order to restart when they finally retire, so as not to lose benefits while they are working. I believe this was the genesis for the strategy in the first place.

I keep wondering about the surviving widow who switches to the spousal SS. Can the widow do a "buy back" of the deceased' years? A person could be "planning" a buy back at 70 but drop dead without warning before the planned buy back.

This is a good question. I asked it of OAG, and his feeling was that since a spouse is an "interested party", he/she could probably file for repay and restart of the deceased spouse's SS, but he wasn't 100% sure.

A couple of things to keep in mind:

If your AGI exceeds about 85K (for a single filer), you are assessed with a substantially increased Medicare Part B premium. Also, I believe Obama wants to reduce the "doughnut" in Medicare Part D with a 50% subsidy for brand-name drugs in the "doughnut", but this subsidy will not include those who pay the extra Part B premium. IMO, SS will probably go down this same road with additional means-testing, perhaps by raising the maximum taxable portion from the current 85% to 100%. For couples filing jointly, the threshold is 170K, but a surviving spouse will be exposed to the lower 85K amount. For someone near the threshold whose entire income (other than SS) is portfolio income, there is flexibility to keep the AGI below these limits, but it requires monitoring/planning. Additionally, at age 70.5, those with regular IRA's (as opposed to Roth's) will face required minimum distributions, which will add to the AGI. Of course, all of the above will affect the "delay SS to age 70 decision" as well.

 

[Raygun99]

Thanks for the replies and the other links: I have scoured those and other relative opinions but still have not found one regarding the financial benefits of taking money from an IRA or 401K to repay the $$ when the time comes. Does that strategy guarantee you aprox 7-8% annual gain (based on stepped up benefits) as compared to lower gains that could potentially be in the retirement accounts?-- Again the premise is that being taxed on the $$ comeing from the IRA will be the same if taken at 62 or at 70-- but the gain in stepped up SS is guaranteed ?

 

[haha]

% sure.

A couple of things to keep in mind:

If your AGI exceeds about 85K (for a single filer), you are assessed with a substantially increased Medicare Part B premium. Also, I believe Obama wants to reduce the "doughnut" in Medicare Part D with a 50% subsidy for brand-name drugs in the "doughnut", but this subsidy will not include those who pay the extra Part B premium. IMO, SS will probably go down this same road with additional means-testing, perhaps by raising the maximum taxable portion from the current 85% to 100%.

Good post. I have paid this enhanced amount 3 years running, and I am getting tired of it. Also, I don't want this provision to disappear while I twiddle my thumbs.

Ha

 

[FIRE'd@51]

Does that strategy guarantee you aprox 7-8% annual gain (based on stepped up benefits) as compared to lower gains that could potentially be in the retirement accounts?

No, the strategy guarantees the withdrawal rate for as long as you live.

For a 66 year-old, who repays SS started at age 62, it's the withdrawal rate that is 8.25%, not the investment return. The rate of return may be considerably lower depending upon the actual length of your life (or the lives of you and your spouse). For example, a single man at full retirement age of 66 has a life expectancy of about 15 years. If he lives his life expectancy, his realized rate of return will be about 2.8% because the SS annuity has no terminal value.

 

[Martha]

I mentioned before but there is some talk of removing this loophole: http://www.early-retirement.org/forums/f28/take-ss-asap-and-invest-it-instead-of-waiting-41897.html#post774195

This thread also has a discussion on tax effects of the pay back.

 

[MJ]

I am approaching 62 and considering whether to take my payments with the intent of paying it back. I also realize there is a chance that future legislation could end this nice loophole. If such legislation was passed, would it take effect immediately or would there be a limited amount of time that someone could still apply to pay back past payments?

 

[Bestwifeever]

Although I can see where this could be a good idea, it is an example of how %^&#@ complicate financial decisions are. Can't things be streamlined and made simple?

Last month or so someone posted that they could take a small lump sum in lieu of part of their pension and what should they do--again, I can see the pros and cons of that, but just one more decision to lose sleep over and the benefit either way is probably immaterial (or the choice wouldn't be offered--actuaries are smart!).

I can see this loophole being closed--to me it doesn't seem like it should be an option anyway (and if DH and I were to do it, I'm sure the day we mailed the check to return the amount taken from 62-66 that we would be struck by lightning). I'm also imagining how many hours it would take me to explain to DH what the advantages and disadvantages of doing so would be--and he still wouldn't understand.

[/rant]

 

[ziggy29]

I can see this loophole being closed--to me it doesn't seem like it should be an option anyway

The main reason, I think, is that it's a loophole that disproportionately benefits the relatively affluent. From a populist standpoint it would stand to reason many would want this as part of "reform," or at the very least make the money paid back with a market rate of interest, say 5% or the CPI over the period (whichever is greater).

I'm not counting on having this option available to me, so I'm not even considering it in my financial plan. If it's still around when I'm about 60, I'll treat it as a potential option.