A couple of years ago, Boston University economics professor Laurence Kotlikoff publicized a mind blowing discovery: retirees could dramatically increase their Social Security checks by reapplying for Social Security benefits.
It was entirely legal; it was an opportunity that had lay unnoticed for years. It was soon discussed on National Public Radio and PBS, and in USA Today and a number of in financial magazines. Let’s discuss it here.
Hit “restart” and reset your SSI. Everyone eventually applies for Social Security, but few people reapply – and that’s the key to this strategy, which can potentially bring retired couples $1,000 or more in additional SSI per month. Kotlikoff calls it “restarting the Social Security clock”. If you have retired within the last few years, it is a move worth considering.
You can start collecting Social Security benefits when you’re first eligible, and then restart your payments at a higher rate later. You simply file Form SSA-521 (www.ssa.gov/online/ssa-521.pdf) to request a withdrawal of your Social Security application. After the SSA processes that form, you reapply for Social Security – and since you are older now than when you first applied, this time you will receive much higher payments.
For example, a 63-year-old individual who started Social Security benefits in 2008 at age 62 would have received a payout of $18,794 a year; waiting until age 66 or age 70 would have meant $25,732 or $35,250 annually for that person.1
So if you feel you applied for Social Security too soon, this presents you with a remedy. As Kotlikoff noted in USA Today in 2008, a 70-year-old receiving $11,556 as a result of claiming early retirement benefits could reapply for Social Security benefits at age 70 and boost her standard of living by 14%. It would be like having an inflation-indexed annuity for about 40% less than the cost of a similar investment from an annuity provider.2
What’s the catch? You have to repay the Social Security benefits you have already received. But you don’t have to pay interest on that money.2 Basically, you’re repaying an interest-free loan from Uncle Sam.
Now if enough people do this, there is the risk that the federal government may say, “Wait a minute – look at all these people exploiting this opportunity.” But very few retirees do.
If you do reapply, there’s nothing fishy about it. Visit your local Social Security office (make an appointment by calling 1-800-772-1213). Bring Form SSA-521 with you, or ask for it and fill it out while you are there. Don’t be surprised if the person on the other side of the desk doesn’t know what you’re talking about when you mention reapplying for benefits. So bring a copy of the formal SSA explanation (www.ssa.gov/OP_Home/handbook/handbook.15/handbook-1515.html ) with you.3
Once you repay your benefits, you can restart them whenever you want. If you fill out Form SSA-521 and hand over a check repaying the money you’ve received, you can reapply for benefits right then and there – the request is routinely approved.4
For the record, Form SSA-521 only allows you to check one of two boxes for why you want to reapply for benefits. The first is “I intend to continue working” and the other is “Other (please explain fully)”.5 Mickie Douglas, a spokeswoman with the Social Security Administration, told Financial Advisor Magazine that it is entirely legitimate to write down that you are reapplying because it is “financially better for you".1
What risks do I run by doing this? The big risk is that you could die soon after you repay your benefits – you could be out, say, $50,000 or $60,000 without living long enough to enjoy much of the additional income. But survivor benefits would be larger for your spouse, of course. Speaking of spouses, widows and widowers cannot employ this strategy to reapply for a deceased spouse’s benefits.2
Is this a good move for you? It might be. In case you are wondering, Kotlikoff is no hack - he holds a Harvard Ph.D. in economics and is a former member of the President's Council of Economic Advisors. He knows his stuff, and so should you. If you have the money to repay a lump sum equivalent to the benefits you have received, this may be a great move – but talk with ClearView and your tax advisor to see how this decision affects your overall financial strategy.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
1 fa-mag.com/fa-news/3209.html [2/29/08]
2 usatoday.com/money/perfi/retirement/2008-02-21-early-social-security-loophole_N.htm [2/21/08]
3 ssa.gov/OP_Home/handbook/handbook.15/handbook-1515.html [8/1/06]
4 www.esplanner.com/case-reapply-social-security [3/2/09]
5 ssa.gov/online/ssa-521.pdf [7/03]