Social Security - 4/21/08

INTRO: Did you know that returning your Social Security benefits to the government could actually put more money into your pocket?  Pretty amazing, huh? 

1. WHY WOULD ANYONE BE BENEFITTED BY RETURNING THEIR SOCIAL SECURITY BENEFITS TO THE GOVERNMENT?

A. 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%. Starting at age 63, they're reduced by 20%. At age 65, the reduction is 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.

2. CAN YOU GIVE US AN EXAMPLE? 

A. Sure.  Let's say you took early retirement benefits at age 62, and now at age 70 you're getting $11,500 per year.  Over the last 8 years, you've received almost $80,000 from Uncle Sam.  If you return this full amount, you could raise your annual benefits from $11,500 per year to about $20,000 per year.  That's a huge increase.

3. DO YOU HAVE TO REPAY THE BENEFITS YOU'VE RECEIVED WITH INTEREST?

A. 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 which may be in the range of $15,000.  That's free money.

4. IS THERE A HITCH?

A. 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.  In fact, for this strategy to really make sense, you'd have to live at least 7 or 8 more years, to 77 or 78.  That's the time it will take to make up the money you've returned.

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

5. HOW DO I USE THIS TECHNIQUE?

A. You'd get Form 521 from t he Social Security Administration.  It's pretty easy to fill out.  Then you return it to Social Security, and then immediately reapply for benefits at your current age.  But remember, you must also immediately repay every penny of Social Security benefits you've received.

CLOSE: Are you having trouble making ends meet?  By giving your Social Security benefits  back, you might put more money into your pocket.