Retirement Pay — Give It All Back?

Remember how much fun it was when you were a kid and you played games that allowed “do over’s”?  Or is there a golfer out there with soul so dead he hasn’t enjoyed taking a “Mulligan”?

In retirement planning there are a lot of decisions we have to make that are irrevocable … no “Mulligan allowed”, just like playing in a golf tournament.  But of all people, the US Social Security Administration makes a “do over” available for many folks out there who might not have realized it.

Suppose you are one of the folks(like me) who took advantage of the rule that lets them start drawing Social Security retirement benefits when they were 62, instead of waiting until my full retirement age (66 in my case).  The retiree gets benefits for an additional span of time … four years in my case, but she or he pays for those extra years for the rest of hid life, by virtue of a reduced monthly benefit, forever, to pay back the early benefits.

There are a lot of formulas and experts out there who can tell you how to figure the pros and cons of taking early retirement … but up until I read this article I am quoting today I had no idea that the ‘go early’ decision was anything except irrevocable.

Turns out that indeed this is one of the few places in the retirement cycle that Uncle Sam gives you another chance.

I’m going to start this column with a warning: What I’m about to review is not for everyone, yet it sounds too good to pass up.

Parental discretion advised.

Here’s the deal: If you’re 62 to 70 years old, you can get an interest-free loan from the government and a partial do-over on financing your retirement.

I’m talking about buying back, or restarting, your Social Security benefits.

Didn’t know you could do that? Neither did I. But it’s something even baby boomers in their late 50s might want to keep in mind.

"This can really significantly raise people’s living standard if they can afford to repay and reapply," said Laurence Kotlikoff, an economics professor at Boston University who specializes in personal finance….

Let me back up and explain.

The Social Security Administration allows you to start drawing benefits before your full retirement age, as early as 62. If you take early retirement (and many are, thanks to the economy, says U.S. News & World Report), you get a lower monthly payment than had you waited until 65, 67 or even 70.

Under this option, you can actually ask to halt those early benefit payments, return them in total and restart benefits at the higher (possibly as much as 75 percent) monthly rate. On the same day, and perfectly legally.

Michael Hale of Hillsboro, a former database marketing manager for Bank of America, is considering doing it next year. He retired at 58 and started drawing benefits at 62.

Now 65, he hopes the change will replace some of the fixed income lost when his assets dropped during last year’s market meltdown. "We’re fine. This would just reduce the worry level somewhat." …

Why would you, much less this client, do this? Because it could provide you and your beneficiaries more financial breathing room. It’s worth considering if you have to go back to work, which can reduce your monthly Social Security benefit. That’s a real scenario for many seniors here: Economists say one reason Oregon has the nation’s second-highest unemployment rate (12 percent) is that so many retirees are searching for jobs again.

You’d also take advantage of an interest-free loan from the government. You might even earn some money off it if you sock those early benefits away in government-insured savings accounts or CDs. …

Also, take into account how you’d fare investing the money yourself. If you’re investing in assets that earn a return of 5 percent or more, you’re probably better off taking benefits at 62, Kee says. If your nest egg is earning only a 3 percent return, you might want to wait.

Bottom line: You need to run the numbers carefully. And the considerations aren’t easy. You’d best talk to a financial planner before diving in.

The way Hale sees it, repaying his benefits in one lump sum to get a higher monthly payment beats any other fixed-income investment he can find in today’s market. …

"It’s like buying an immediate annuity, where you fork over the cash and they guarantee an income stream," he said. "Of all of the places out there, this is as guaranteed an income stream as there is."

Brent Hunsberger does not give individual financial advice but welcomes comments and questions on his column and blog. Reach him at 503-221-8359 or brenthunsberger@news.oregonian.com

Read the full article  on paying back your social security to make more money and also do you homework on this.  Remember I am not a qualified financial adviser …but for people like me who took early retirement, and especially for Federal Annuitants like me who only get a further reduced Social Security benefit because of our Federal Retirement, this might make a lot of sense.  I could pay the benefits back easily out of savings and then enjoy a substantially larger Social Security check, while also increasing the widow’s benefit my wife would be entitled to if she survives me.

Food for though, for sure.