Social Security is planning to dramatically limit a strategy we’ve discussed in past visits. Though only a few people use it, the use has been climbing and the government wants to put a lid on the growth.
The strategy is to pay back the benefits you received and claim a higher level of benefits.
Suppose you begin receiving retirement benefits at age 62. You’re paid a lower monthly benefit than you would receive at a later age. As the years go by you realize it would be smarter to wait and receive a larger benefit. Or you didn’t need to the benefits that early but decided to take the payments an invest them.
In either case you can decide to return the benefits received to date, without interest. Then, you could restart benefits at a later age and receive the higher benefits you’re entitled to at that age as though you previously never received benefits. Technically you withdraw your application for benefits and repay the benefits paid to date. Then, you reapply for benefits.
The Social Security Administration is proposing to curtail this option. Proposed rules, which could take effect in a few months, would allow an application to be withdrawn only once in a lifetime and only within 12 months of when they began receiving benefits. After the first 12 months, there no longer would be an option to withdraw the initial application, repay the benefits, and begin benefits again at a higher rate.
RW October 2010
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