If you were wondering whether to take advantage of the strategy to repay all the Social Security benefits you have received so far and trade them in for a bigger monthly check, forget about it. The Social Security Administration announced Wednesday that, effective immediately, the payback strategy is no longer an option.
This little-known tactic has been gaining attention in recent years, thanks in part to a series of articles by Kiplinger that unveiled several ways of making the most of your Social Security benefits (see Secrets to Maximizing Social Security). We explained how readers could withdraw their application for Social Security retirement benefits, repay the total amount that they (and a dependent spouse or minor child) had received over the years, and reapply for a higher payment based on their current age.
Retirees may collect Social Security benefits as early as age 62, but monthly payments are reduced by 25% compared with what they would be if they claimed benefits at the normal retirement age, which is 66 for those who apply for benefits this year. Those who are willing to wait past age 66 can boost their benefits by 8% for every year they delay, up to age 70, increasing annual benefits to 132% of their base amount.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Some retirees who applied early and took reduced benefits later regretted not holding out for a bigger check. The do-over maneuver allowed them to repay their benefits and lock in a larger base amount for future cost-of-living adjustments. Plus, they were able to maximize lifetime benefits for a surviving spouse.
Although the repayment could cost $100,000 or more, it was cheaper to repay Uncle Sam and secure inflation-adjusted payments for life than it was to buy a similar amount of guaranteed income in the form of an annuity from an insurance company.
UNWANTED ATTENTION
But the publicity apparently led the Social Security Administration to rethink its policy. “The agency is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retirement beneficiaries to acquire an ‘interest-free loan,’ ” SSA said in a statement announcing its new policy. Separately, the bipartisan Commission on Fiscal Responsibility and Reform, which included recommendations for shoring up Social Security, called for eliminating what it described as a “loophole for wealthier retirees.”
The new withdrawal policy will still allow retirees to suspend their benefits temporarily and restart them later, resulting in slightly bigger checks to account for the months or years in which payments were not received. But the agency will no longer permit retirees to repay previous benefits. From now on, benefits may be suspended only once in a lifetime and only within 12 months of first claiming them.
The new rules are effective immediately, but the agency will solicit public comments for 60 days and publish another final rule, if necessary, in response to those comments.Larry Grumet, a retiree from Pittsburgh, is particularly disappointed with the announcement. He launched a letter-writing campaign last summer to get the agency to reconsider its proposal to eliminate the payback option. Grumet says his wife, Janice, started collecting a meager Social Security benefit of $820 per month when she turned 62 last year. She had planned to repay the money at age 66 or later in exchange for a higher benefit. Now she can’t.
“This rule has been in effect for decades, and it is not just for rich retirees,” says Grumet, a retired banker. “If Social Security is concerned about this free loan, all it has to do is change that aspect of the rule so the recipient pays a reasonable amount of interest on the money.” He plans to keep writing letters and hopes that other retirees do, too.
You can send your comments to www.regulations.gov. Use the search function to find docket number SSA-2009-0073.
-
Take Charge of Retirement Spending With This Simple StrategyTo make sure you're in control of retirement spending, rather than the other way around, allocate funds to just three purposes: income, protection and legacy.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
Medicare Basics: 11 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2025retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
