Social Security Strategy - Payback Method

This Social Security Strategy involves paying back benefits to get a higher future monthly benefit. This strategy is not widely publicized and can make sense in specific cases.

Here is how it works. You have been collecting Social Security benefits for years and have reached age 70 in a situation where you have a large nest egg and desire more cash per month. Also the age of the spouse is importand and it may make sense if a spouse is considerably younger than you that has benefits calculated upon your contributions.

Scenario:

You retired at age 62 with a benefit check of $1,200/month. The amount would have been $1,600/month if you had retired at age 66. At age 70 the amount would have been $2,100/month.

At age 70 you decide that you want the higher monthly benefit and file Form 521. You can get it by paying back all of your benefit checks, about $115,000. Once all of the paperwork is done in a few months you can then get the increased monthly payment.

When does this strategy make sense:

1. You are going to live at least to age 85.
2. Your spouse's benefit is based upon your contributions and is much younger. In this case the spouse gets your benefit for the remainder of his/her life and lives a long life span.

In most cases this strategy does not make sense since nobody knows how long they will live. If you have this much money invested you likely will make more money by keeping it invested and drawing from the investment rather than giving it back to the government.

You owe it to yourself to consider this option in your retirement planning. Have a professional walk you through the scenarios to determine if this strategy works for you.