Question: If I take Social Security at age 62 and then pay back the benefits within 12 months to erase the penalty for claiming early, is it true I get to keep the interest I earned while I had the money?
Answer: Yes, but don’t get too excited. Prior to 2010, when Social Security imposed the 12-month limit for withdrawing an application and repaying benefits, it was often advised that people who didn’t need the money use this “do over” procedure to get what amounted to an interest-free loan from the government. If you claimed benefits at 62 and repaid them at 66, you might be playing with $100,000 or more of “house money.” The 12-month window restricts that opportunity. Also, note that if you receive benefits in one calendar year and pay them back in the next, you’ll likely have to pay tax on the benefits in year one. You can recoup the tax, but it’s complicated.
[QUESTION2]I understand how delayed-retirement credits boost Social Security benefits by 8% for each year that one delays claiming between age 66 and age 70. But do cost-of-living adjustments during the years you wait amplify the advantage to more than 8% a year?[QUESTION2END]
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.
Answer: Yes. COLAs are built into benefits starting at age 62, the earliest age at which you can claim benefits, even if you don’t claim at that time.
Here’s an example worked up for us by Baylor University professor William Reichenstein, head of research for consulting firm Social Security Solutions. Let’s say your benefit at age 66 is estimated at $2,000 a month, but you decide to wait until age 70 to claim. You’ll get eight years of compounded COLAs based on the full retirement age benefit of $2,000—bringing the monthly benefit up to $2,533, assuming an average annual COLA of 3%. You’d also get four years of 8% delayed-retirement credits calculated on the $2,533 benefit. That extra 32% brings the total monthly benefit at age 70 to $3,343. (Yes, a 3% COLA may seem high considering 2016’s 0% and 2017’s 0.3%. But the annual average COLA since automatic adjustments started in 1975 is 3.8%.)
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
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.
