Sep 16
There is a little known provision in the social security rules that allow you to return all the payments you have received so far in return for a recalculated new monthly benefit. The money you’d need to return does not include any interest, so if you are 70 years old and had started collecting social security at age 62, you are returning those funds with cheaper dollars. Also, if you had been taxed on any portion of those prior benefits, you may claim the tax as a credit in the year you pay back the accrued payments. After you reimburse the SS office, you reapply for your new benefit. See Pub 915 at IRS.gov or contact your local social security administration office for more details.
Joe
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September 17th, 2008 at 12:02 am
Joe,
This is very interesting and I’m trying to grasp the implications of this.
If you didn’t need the SSA money starting at 62, took it anyway, carefully invested it, then at 70 repaid the sum back to the SSA… it sounds like you’d be able to keep all the interest and also have a huge monthly SSA payment starting afterwards.
What’s the catch?
Have you crunched the numbers on this?
Best regards,
JAL
September 17th, 2008 at 8:28 pm
In the 62/70 example I had seen, the total sum that would need to be returned is $130,000. At 70 the benefit would increase by $900/month or $10,800/year. This is an 8.3% immediate annuity (with joint survivor) equivalent. Actually more due the tax which is refunded with the tax return in the year following.
As with a number of strategies I try to bring to light, this may not apply to the majority. It takes a 70 or so year old who took their first SS benefits some time prior and now realizes they are in good health, so expect to pass the break even point on this maneuver, and has the cash to pay back.
Joe