The Ultimate Social Security Do Over

12/7/10 – There has been an update to the Social Security Do Over which you can view here:

If you don’t know about this tactic, you can read the article The Ultimate “Do Over” by clicking the link.  Briefly, this tactic provides a way for you to file for your Social Security benefit and then later, after your benefit would have been potentially increased had you not filed, you can re-pay what you’ve received and start over at your new age. (Read the article at the link above, it’s explained much better there…)

I didn’t tell the complete the story in that article though:  there are a few items that you need to keep in mind with regard to this tactic.  I’ll finish the story below.

More Information

Affordable Annuity. This tactic is called the Ultimate “Do Over” because it represents an extremely affordable annuity.  By this I mean that, by going through the process of re-setting your benefit after repaying, you can effectively increase your benefit for an extremely low cost.

For example, if you filed and collected Social Security at age 62, and then at age 70 paid it all back – approximately $160,000 (no interest, just the payments!).  When you restart your benefit at age 70 your new payments are increased by roughly $1,400 per month.  In order to achieve the same income ($1,400 per month) with inflation adjustment, it would cost you a minimum of $230,000 (based on popular internet-based calculators).  And that doesn’t include survivor’s benefits.  Pretty much any way you figure it, this is a great deal.

Payback Includes Every Payment Received. When you figure out the amount that must be paid back, you have to include not only the amount you have received on your own account, but also any amounts others have received based upon your account – including your spouse, children, other dependents, and any ex-spouses who are taking benefits based on your record.

Each of these folks must consent, in writing, to the payback and subsequent stoppage (and restartage) of benefits.  This might be problematic, especially if we’re dealing with an ex-spouse with whom there might be a contentious relationship.

For the administrivia-concerned:  the payment must be made via a money order or cashier’s check.

There’s a Downside. You also need to know that there’s a downside to this tactic.  While you’re collecting your benefit prior to enacting the “Do Over”, if you should happen to die, your spouse’s Survivor Benefit will be based on the earlier age benefit that you took before.  This can result in a dramatically-reduced Survivor Benefit – which can be exactly counter to what you were intending to accomplish when you considered this tactic in the first place.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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