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February 4th, 2010

Have You Considered Paying Back Social Security Benefits?



Last year we wrote about how the recession prompted many Americans to draw upon their Social Security (SS) benefits early. For those of you who are unaware, collecting SS benefits before your full retirement age — “which is based on year of birth” — results in a smaller monthly check than if you waited.

A recent article in the Wall Street Journal notes that a little-known strategy can help you get that bigger SS check, even if you choose to receive benefits “early”:

A little-used window provided by the Social Security Administration allows retirees to pay back their benefits and re-apply later.

This maneuver has gained notoriety as a way to game the system. It technically allows a retiree to claim benefits at an early age, repay them at an older age, and then get the bigger benefit check afforded those who delay their benefits.

Why Not Wait?

One of our readers named Lucia commented that her husband, age 61, is planning to retire early because he can’t compete with younger workers in their rural county where the unemployment rate is 17%. Economic hardships such as unemployment and downturns in the stock and housing markets provide compelling reasons for many Americans to seek access to their benefits earlier.

Weigh the Risks

However, the experts say that repaying your benefits in order to collect a bigger check down the road is risky, especially if you’re married:

It also gets complicated when there’s a spouse in the picture. A benefit of delaying benefits is that not only will the retiree get a bigger benefit, but when one spouse dies, the survivor receives the greater of the couple’s benefits. For those trying to game the system, a spouse could be left with lower benefits should the one claiming early benefits die before refiling.

A big hurdle to repaying benefits is that it has to be done in one lump-sum payment — and includes any benefits paid to a spouse and most Medicare premiums. For those who have taken benefits for many years, this requirement may put repayment out of reach unless there’s a financial windfall, such as an inheritance or a real-estate sale.

“I recommend that in any case where a spouse has already started spousal benefits that they go over the assumptions with someone in their local SSA office as well as to call the national SSA phone number and get a second answer,” [Bud Hebeler, founder of AnalyzeNow.com] says.

If you’re receiving benefits and wish to stop and repay what you’ve got so you can get a bigger check later, you’ll need to fill out the SSA-521 form.

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4 Responses to “Have You Considered Paying Back Social Security Benefits?”

  1. Lucia Says: February 4th, 2010 at 3:39 pm

    Wow, job recovery would have be huge to pay one’s SS back in one lump sum. I don’t think there’s much of a risk for playing the system with the current economic picture.

  2. Tim Manni Says: February 4th, 2010 at 4:39 pm

    Hey Lucia,

    I know what you mean…you’d have to be pretty lucky to come into that kind of cash. I found that phrase odd too: “way to game the system.” I didn’t really get why the author of the WSJ article chose that phrase if it’s a perfectly legal practice…considering there’s an official form to do.

    Great hearing from you,

  3. kevinwenke (kevin wenke) Says: February 9th, 2010 at 5:08 pm
  4. social security payments Says: February 2nd, 2011 at 1:33 am

    Yes, I have considered paying back social security benefits if my company provides me this facility. And this would be such a nice steps. And I think children should take benefits for this. Thanks.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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