Social Security - 4/11/08

Jeff: Did you know that returning your Social Security benefits to the government could put more money into your pocket?  Here to explain this unusual financial strategy is attorney Michael Solomon.

Jeff: Why would anyone be benefited by returning their Social Security benefits to the Government?

Mike: The full retirement age for people turning age 62 this year is age 66.  But lots of people opt to start taking Social Security early, at age 62.  If you start at 62, your benefits are reduced by 25%. At age 63 it is reduced by 20%. At age 65 it is reduced by 6.7%. The social security web site has a table showing you the cut backs for early retirement depending on your full retirement age, 65 through age 67.

The reduction affects your benefits for as long as you live.

So let’s say you took early retirement benefits years ago.  Today, you could return the full amount of the benefits you’ve received, and then reapply for higher benefits.

Jeff: Can you give us an example? 

Mike: Sure.  Let’s say you took early retirement benefits at age 62 of $11,000 per year.  Now you’re 70.  If you return the $77,000 you’ve received from Social Security, you could raise your annual benefits from $11,000 per year to almost $20,000 per year.  That’s a huge increase.

Jeff: Do you have to repay the benefits you’ve received with interest?

Mike: No.  That may be the best part of this deal.  Let’s say you took your Social Security benefits and put them into a CD.  Now, years later, you could repay the benefits and keep all the interest.  That’s free money.

Jeff: Is there a hitch?

Mike: There’s always a hitch.  First, you have to have enough money to repay your benefits.  For many people who must live on their benefits, this won’t be possible.

And second, there is some risk.  If you repay the benefits, and then you die the next day, you’ve lost a lot of money and have not received any benefit in return.

So this strategy is not for everyone. But for some, it can be very useful.