AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

The intent of the process to withdraw your application for social security benefits, and make repayments (without interest or subject to a repayment plan) is to correct errors.

 As your article points out, the present value of increased benefits,  is substantially greater than the repayment of benefits (without interest). 

 Have you checked with Social Security to see if there is a time limit, or if Social Security regulations have addressed your strategy.

 The SSA 521 forms asks the person to give a reason.  I wonder if there is an administrative law judge or other SS employee that decides who qualifies.

Among the people who have the money to pay back SS benefits already received, many worry that this is too good to be true. I haven't been to visit a Social Security office but economist Larry Kotlikoff has been. (If you check the stories on this on the web, you'll find that he is a referenced source in both my column and the article by USA Today's Sandra Block.)

He told me that the attitude of Social Security workers is that they want to do whatever works best for retirees. If that includes doing a reapplication or benefits, it's fine with them. Also, if you read the form 521 you'll find that you can either give a reason of your own choosing (whatever that would be) or you can check off that you are continuing to work.

One good reason is that some people take benefits early thinking that is the most beneficial time to do so, only to realize later that they would have been better off to defer benefits and draw down their qualified plan money instead. Kotlikoff and I deal with this question at some length in "Spend Til' the End", our book on financial planning that will be published by Simon & Schuster in June.

One of the most important messages in the book--- which is about smoothing and maximizing your lifetime consumption--- is that all of us can make simple decisions, totally unrelated to investments, that can improve our standard of living throughout our lives. The decision to defer SS benefits is a powerful lever for most households.

Scott

Is the granting of the withdrawal of application discretionary and dependent on coming up with an acceptable reason?

Not by what has been reported to me. While some SSA representatives are unfamiliar with this move, the response of those who are is that they will do whatever brings the greatest benefit to the retiree. If you check the form, you can either provide a reason or you can check off "intend to continue working" which you might, or might not, actually do.

Remember, many people can, and do, discover that they made a mistake in taking benefits early. This is a mistake that can be "undone."

Scott

I'll second that! As a journalist I've always been delighted by the responsiveness of the Dallas area Social Security office, both at the "boots on the ground" level and at the level you wrote about.

You've also put your finger on the reason few know about this: People have little curiousity about life annuities. Industry statistics indicate that only 3 percent of people who have annuity contracts (arrangements that are easily turned into life annuities) actually convert.

What keeps people from owning life annuities is that fear of wayward busses--- you'll buy the life annuity and be hit by a bus the next day, turning your bet into a big-time loss for your and your estate.

That reality is one of the reasons my earlier columns emphasized deferral of taking Social Security benefits for married couples--- that's where you get the joint and survivor benefit rather than a single life benefit. In the end, however, the Social Security deal is better than any of the comparable single-life-only deals we can get from an insurance company.

Scott

I am most intrigued by your columns about SS Benefit Repayment. I am now 75, and have been receiving regular benefits for 10 years. We used the benefits, since they were not needed for living expenses, to pay off our home, two cars, begin to live debt free.

Until last year, when I actually retired, I paid taxes on 85% of my benefits. Just a rough estimate tells me that I've received over $170,000, and paid taxes of well over $36,000 on those benefits.

I gather that the most advantage in repayment is for those who took early retirement at 62? Although I did not take early retirement benefits, am I correct that I can still give SSA back all the funds I've received, and reapply as of now, or just to the point I turned 70? (I'll have to take at least a portion of the 170K from an IRA, paying at least minimum taxes.)

This may be an accountant's fee nightmare, considering the past 10 plus years of IRS returns. At the age of 75 I may be taking a real gamble to pay back more than $170K. My wife, however, is only 59, and any increased benefits would help her.

Perhaps others are in my situation?

There is no additional benefit increase to delay beyond age 70.  However, paying back 170K might still be a good deal, depending upon the increase in monthly income, the taxes, your health and your spouse's health....but, I doubt it.

 You would get an immediate boost in social security income.   Assuming your funds are currently invested in a way that a 4% withdrawal rate currently produces an increasing income, you would be giving up $6,800/year of inflation adjusted income and the principal.... for whatever increased income Social Security provides to you.

Your spouse would also get a boost in Social Security income when she qualifies or as a widow.

Your concern seems to be income to your spouse in the event of your death.  If you are in average health, you could purchase life insurance .  That would provide her with cash to invest and produce income, that would "replace" a portion of the 170K you give back to social security. 

 Boomers, like me, get an 8%/year  boost to delay their Social Security Benefits to age 70.   Because you must have been born in 1932, your increase factor is much lower.

Maybe Scott can burn up his HP calculator on this one.  My hunch is that your spouse would vote to keep the 170K liquid. 

I am 62 now and plan on applying for benefits with the view of reapplying at 70. My older wife will start getting her benefits based on my (reduced) earnings record.
From what I've read, if I file form 521, my wife will also have to. What if she dies when I'm 67? Will I have to repay back all her past SS earnings as well? In that case, the break-even point may never come even despite an unusual longevity. Even if she dies soon after I reapply (say when I'm 72), those couple of years of her increased SS income won't make up for the 10 years of returned benefits. Am I wrong?
 

It's not clear to me that your wife would also have to reapply for benefits. If this were an IRA question we could go to someone like Ed Slott. But it isn't. It's a Social Security question and the experts are rare.

IF you wife did have to reapply for benefits because you did, they she would also be eligible to have her benefits increased as well.

Scott

 Thanks for getting back. I am quoting from form 521 itself:

any payments we made to you or anyone else on the basis of that application will have to be returned

Seems likely to me the wife dying before the "unretirement" application may serve as basis for its rejection by the SS, even if her benefits were all returned (I'm just guessing). Even if it were not, it may not make much economic sense for only one person reapplying for the increased benefits, after having reimbursed the reduced combined ones.

I am started to think this should best be an individual play, by the spouse with the best longevity odds (unless both do). The other spouse would do well to retire on her/his own terms and switch to 50% of the better earning half only after the latter's reapplication (at say age 70).

Comments? 

              Mary Beth Franklin at Kiplinger's is one of the most active reporter/researchers in this area. In a piece on getting more from Social Security published today she adds a tid-bit of very interesting information:

In the last year, only 71 retirees in the entire country filed 521 forms! Here's a link to the story.

http://finance.yahoo.com/retirement/article/105188/Secret-Ways-to-Boost-Your-Social-Security?mod=oneclick

             In my opinion the best way to maximize benefits is for couples where a higher earning spouse (usually male) defers benefits while the lower earning spouse (usually female) takes benefits at 62. This works best because one of them is likely to receive the higher benefits for 25 years--- more than enough time to have a large payback over the forgone income.

 Anyone able to return several years of Social Security income probably had enough income throughout the years that they were paying tax on the Social Security Income that they received.  So if they return the Social Security income to the government several years down the road, is there any rebate for the taxes that were paid.  If not, the Social Security income will have been taxed twice; once for the original payments, and then again for the new increased payments.

 Filing for tax credit is afforded. Dr Kotlikoff of ESPlanner writes:

"If you do decide to take benefits early with the intent of repaying and reapplying, we recommend you fill out, but not file, a separate tax return each year that does not include your Social Security benefits. The difference in taxes on this extra return and the actual return you file represents the extra tax payments you'll be able to recover as a tax credit when you ultimately repay and reapply. Keeping your past actual tax returns and these annual alternative returns will provide you with documentation to substantiate the tax credit."

As to the question whether the wife should return her husband-derived benefits when the husband applies for withdrawal, the answer I got from SSA was "yes, even if she is no longer alive at the time of the application". In other words, the intent seems to be to undo the entire transaction as if it had never taken place (including tax consequences). Consequently, the good news is the wife would only have to return the portion of her benefits that bumped her up to 50% of the husband's. The portion based on her own earnings is hers to keep and be bumped up to the new, higher, 50% upon reapplication and approval at 70.

So, if the wife dies shortly before the husband's intention to file form 521 (say when he is 69 1/2), he'd do well to reconsider applying if his longevity prospects aren't that great. On the other hand, if she dies shortly after the reapplication, he'll be stuck with the consequences of his decision however unfavorable financially .
 

In your recent article in the paper you advised someone 73 years old that if he repaid his Social Security benefits taken since turning 62, he could reduce the cost by the amount of income taxes he had paid on his benefits since 62.  I am 67 and started taking benefits at 62.  I recently repaid those benefits and had planned to file amended tax returns, but I thought I could file amended returns for only the last three years.  Can I go all the way back?

Incidentally, when you repay and refile for benefits, you can refile retroactively for six months, so although you theoretically repay the last six months, the SSA lets you deduct from your repayment the higher benefits you would have received for the last six months.  Example:  If you have received $80,000 of total benefits with $8,500 of that in the last six months you owe $80,000.  However, the retroactive benefits for the last six months may be $2,000/month or $12,000, which you can deduct when making the repayment.