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

A couple of fellow retirees were discussing this interesting option and one of them said that for us who retired and took our benefits at 62 this option would be of little value. His reasoning is that our benefits would not increase much since we all quit working at 60 and therefore our benefits would not increase. Is this correct? Does this option have value only for persons who took the early benefits but continued to work?

The idea could have merit regardless of your work status, if you are currently age 70 or less.  Let's keep the math simple:

 It boils down to a trade off between inflation adjusted income and liquidity.  If you have to "give back" $100,000 to social security, what benefit do you get and what do you give up.  If your 100K is earning 4% now, it's worth about $333/month of income...that's your "give up."  

 If Social Security will raise your benefits by $1,333/month, and keep adjusting that for inflation, that's an increase of $1,000/month.

 If you have plenty of liquidity, and have a family history of living to age 90, that's a heckuva good trade. 

 Unfortunately, it's all or nothing.  You can't give back half the money.  You are buying an inflation adjusted annuity from Uncle Sam, which has been subsidized by taxpayers.  The increase in benefits comes from an actuarial formula, not from wages earned in retirement.

No insurance or annuity company would offer the same deal on the same terms.  If and when Congress addresses the underfunding in Social Security, this loophole could be closed.

 

JW nailed it. Here are links to the SSA.gov website pages that outline how much benefits rise. If you took benefits before full retirement age, your benefit can rise by the amount it was reduced.

    ----- Percent increase by year or month for delaying benefits from full retirement age to age 70

http://www.ssa.gov/retire2/delayret.htm

   ------Table for full retirement age for year of birth:

http://www.ssa.gov/OACT/ProgData/nra.html

     ------Benefit calculator:

http://www.ssa.gov/OACT/quickcalc/early_late.html#calculator

Note that this states that benefits are reduced by 5/9ths of 1 percent for each month of taking benefits before full retirement age up to 3 years and 5/12 of 1 percent for each month beyond 3 years.

     ------Benefit reduction for early retirement:

http://www.ssa.gov/OACT/quickcalc/earlyretire.html

Scott

 As someone that because of financial reasons started taking SS at an early age, I am interested, and I wonder

Can I do this more than once, say now at age 68 and again at age 70.

and

Is there any value in doing so.  I can see value in not having to repay so much money now, in other words make two payments.

and I increase my spouses retirement if I get hit by the bus between now and age 70.

Skulker,

 The entire reapplication process is a very rare event because few people have the assets to make the refund. I haven't asked Social Security but I'd be willing to bet that your proposal--- going back twice--- would be a first. So it would have all the liabilities of being that.

Scott

My husband (67 years old) followed your advised and in June he went to SS office and signed the form required  to stop receving his social security.  Needless to say they were very puzzeled by the request.  After many attempts to convice us not to this, they reluctantly accepted the form, but couldn't tell us how much money we wowed them.  SS stopped sending the monthly check, but as of today and many calls we have not received a letter indicating the amount we must return to them.  Is this the typical process? How long does it take for them to send us the information?  We want to send them their the money and we don't want any problems later on.  What should we do? Thanks for the reply

JEC,

Sadly, you are in near-virgin territory on this. While the provision to reapply for benefits exists, very few people have exercised it. A column in USA Today this spring, for instance, revealed that only 71 people, nationwide, had applied to that date in 2008. Divide 71 by the number of Social Security offices in America and you have an idea of how little experience a typical Social Security agent has with going through this process. Other readers have also found that there are delays between initiating the process and getting it done. I hope you will share the details--- and timetable--- of your experience when you have completed the process.

Scott

Jimbo7,

 You're between a rock and a hard place. Your wife can delay taking benefits and this will result in a higher benefit when she finally takes it. Once you die, however, her survivor benefit will be based on YOUR benefit. The higher your benefit, the better off she will be as your widow--- and the greater the offset she will have toward the reduction in your pension.

You can increase your benefit (and her suvivor benefit) by going through the reapplication process and returning benefits already received.

Another option, which may be more interesting to you, is for your wife to take benefits but to use a portion of them to purchase a life insurance policy on your life. This would provide her with a lump sum to offset the loss of income upon your death.

Scott

Thanks for your response, Scott.

I think I'm going to need to do some more studying - I hadn't even considered the difference between spousal benefits and survivor benefits.  It is good to know that she can increase her spousal benefits by waiting.  But if I understand you correctly;  the only way to significantly increase her draw would be for me to pay $80,000+ back to SSA and then wait till 2011 to (re)apply for my benefits.  And for her to wait as long as possible (up to 70 years of age) to begin her spousal benefits.  If I then pre decease her, she would switch from spousal to survivor benefits at close to my full (increased) amount.

Is that correct?    Jimbo7

Jimbo,

You can increase your benefits and hers by doing a reapplication that covers the period you have taken benefits. This would require paying back those benefits, less any taxes paid on them, but you could start at the new higher benefit amount immediately. So could your wife.

As I've mentioned, this is a rare event so it gets complicated.

Scott

It would seem that reapplying for SS at 70 would take some careful tax planning. For example, if you had to repay $100,000 and that money came from a tax deferred account there could be a tax liability of $25,000 or more.

I wish I felt as positive as you regarding the SS office in Dallas as well as the usefulness of these links.  I have spent the past year either on the telephone or in both national and local offices trying to get a detailed report of the following information so that I can make a decision regarding repayment of my benefits drawn since I took them in 2005.

1. Payments from SS each month from beginning through Oct 2008.
2. Amount of all payments from me to them to repay for overpayments. ( Because I “over earned” each year, I have already paid back much. In addition they suspended my benefits from Sept 07-08 based on a projection that I would over earn in 07. )
3. Amount of withheld SS payments from Sept 07-08  and whether entire payment was credited to over payments.  In some months medicare premiums were sent to CNA  I also have drawn medicare since Mar of 07 when I turned 65. 

You can see that there are many factors to be considered and I need the detail in order to see whether repayment of the remainder….if indeed I own them anything….requires that I have this.  I will tell you that I have also called the national number numerous times and have gotten the same general runaround. “It’s in the mail”!!!

Can you help? Is it worth my time to carry on??

Discussed in Dallas

Discouraging as it is, I believe it is worth your time to "carry on."

The first thing you need to know is that there are about 3,500 Social Security offices in the United States, according to a Social Security representative in the Santa Fe, New Mexico office.

I recently spoke with a New York Times reporter who had been in touch with the Social Security Administration. He was told that as of the end of September there were only about 200 reapplications year-to-date in the entire country. Yes, you read that right: The entire country. So it is a very, very rare procedure and most agents have no experience with it.

Your reapplication should be quite worthwhile for the simple reason that you are covering your age 62 to full retirement age period and apparently had enough in wage earnings that you had to forfeit a significant portion of your would-have-been Social Security benefits. Since the reapplication transaction works nicely for those who have received full benefits, it should be even more beneficial for you--- you'll have to repay less money to get the full benefit increase.

This is a good time for you to be patient and understanding. Remember, what Social Security agents experience day in and day out is a constant flow of people who have a desperate need for benefits right away, preferably today. So the whole idea of anyone repaying benefits is a wildly alien experience for them.

Scott

Scott