Restarting the Social Security clock

Sample Social Security card


Tess Vigeland: How soon should you start taking your Social Security benefits? Start early, your check will be a lot smaller. Hold off and you can boost the payout by around 8 percent for every year you wait until you're 70.

But there are risks. As Marketplace's Bob Moon reports, when it comes to Social Security, it is your prerogative to change your mind.

Bob Moon: If you're kicking yourself now for starting your benefits too early, here's what you may not know: You can magically restart the clock at a higher rate.

Laurence Kotlikoff: It's like finding money on the street. This is really what we're talking about.

Boston University economics professor Laurence Kotlikoff writes about this is a new book called "Spend 'til the End." He says you can return what you've already received and the government will call things even.

Kotlikoff: A Social Security redo is what it is. It's quite amazing. They don't charge interest and you can deduct the repayment from your income taxes.

Sound too good to be true? It may be for those who just aren't able to give it all back.

Pat Kropp is a Social Security beneficiary in Chapel Hill, North Carolina. When we approached her with this idea, she initially counted herself out.

Pat Kropp: I mean, I would have to come up with $45-50,000 just for myself and that's excluding if my husband wanted to do that and I don't know that I want to dip into my retirement money to do that.

Fair enough. Our experts say it's a good idea to consult with a financial planner or use special software that's available to crunch the numbers and make sure you'll really benefit. But Professor Kotlikoff says retirees shouldn't be afraid to draw from their investment nest egg to lock in what amounts to a sure-thing insurance policy. It's cheaper than buying an annuity and less risky than keeping the money in a 401(k).

Kotlikoff: It's going to be safer, for sure. You know, the stock market is a wild ride. If they have most of their money coming in the form of an annuity and a small amount that they invest in the stock market, well, economists would view that as kind of a safe allocation. But if they have most of their resources in the stock market, that's a pretty risky option.

Think about this even if you don't have the means to repay the Social Security money you've already spent. T. Rowe Price financial planner Christine Fahlund says in the long run, it might be worth finding a way.

Christine Fahlund: If the younger generation is concerned about maybe someday having to support their parents financially, they might be willing to help out with this trade, as it were, because in the end, the family could end up winning financially.

Social Security beneficiary Pat Kropp decided the idea is worth running past her financial planner -- and her brother, who happens to be approaching his eligibility age.

Kropp: Somebody that's really clever could do this when they're 62 and put the money away and not use it and earn income on that and then say, "Okay, I'm going to send it back."

Professor Kotlikoff agrees -- it could be worth taking Social Security early just to use it as an interest-free loan. But one word of caution:

Kotlikoff: The risk here is that the government may change the rules. It may get to a point where so many people do this that the government says, "Hey, we're losing money on this and we're going to shut this down."

For now, Kotlikoff says the main benefit is for those already drawing Social Security who can substantially boost their real income and guarantee a higher lifelong payout to whichever spouse lives the longest.

Kotlikoff: Even for people age 63 to age 75, in that range, there's a significant gain to living standard to be had here.

Benefit recipient Pat Kropp is intrigued by all this, but she's still wondering what many of us might be: Is it really worth paying back such a big lump sum?

Kropp: I don't know, I may not live that long. So there's always that question.

Christine Fahlund at T. Rowe Price understands that kind of skepticism.

Fahlund: You know, it's like so many financial decisions, in fact, I would say most financial decisions. There are trade-offs to be made. We leave money on the table every day when we buy homeowners' insurance and our house doesn't burn down, but we think that's a good thing.

Clip from "Young at Heart": And if you should survive / To a hundred and five / Think of all you'll derive / Out of being alive / And here is the best part / You have a head start...

I'm Bob Moon for Marketplace Money.

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When I heard this program I immediately made an appointment and went to the SSA office to meet with a lady who gave me my entire history. I analyzed it and offered to repay the money I had received ten years ago when I elected to take early benefits. I wanted to gove back the first three years of benefits to, in effect, restart the clock as of my full retirement age, which would have been 65 (I'm now 72). Using the info they gave me, I calculated that if I gave back the first three years' benefits and restarted the clock as of my 65th birthday, I could repay $35K and have credit for lower benefits received in years 65-72 of about $25K, thus would pay SSA about $10K net, increasing my current benefits about $300/mo. I put all this in a detailed letter to SSA together with an Excel spreadsheet supporting my calculations. I received a note back with a confusing printout of a policy decision titled GN 00204.030 Retroactivity - Title II, saying that they no longer allow retroactivity (whatever that is) for more than six months, reduced 5/5/2008 from 12 months prior to 1/1/78. This all doesn't seem relevant to my issue, but I wasn't able to understand any of it. The nice lady from SSA (Sanford NC) couldn't tell me any more than "sorry". I need some help on this, and don't know where to turn. You can call me at (910)235-0326

responding to Booby Dunn's comments. After you pay them back, you do get the taxes that were imposed on the money from received from Soc Sec.According to page 15 of IRS Publication 915 you can recover such tax payments at the time you repay your benefits by either a) deducting the benefits you repay in the year you repay them (i.e., by including them with your other itemized schedule A deductions) or b) figuring out the extra taxes you paid each year in the past on the past benefits you are paying back, add them up, and taking them as a tax credit. Whichever method results in lower taxes is the one you get to use.

I have been collecting social security benefits since I turned 65. When I heard about the buy-back option, I went to a social security office for details. I was told the amount that I would have to pay back but also that I would only be able to collect 6 months of higher payments after I would have turned 70. I am 72.
Since the clerk was helpful but seemingly not
well-informed, I would like to know if
this is true.

I had a friend whose husband did this. It came time to repay the money and they contacted Social Security ready to give the government back $50k. Even the people at Social Security had no idea what they were talking about. Pretty remarkable.

Great story need more information.

You did forget, if you refund dollars that have been taxed what happens to the Tax? I am sure you do not get a tax rebate.

Some how there has to be IRS involvement, as much as I think

Please....I would like more information on how this concept works. I am a widow and able to draw my ss benefits at age 60....although my full retirement age is age 66.
Please contact me with more information on how to do this "pay back"?
Thank you kindly,

I have search the Social Security website and can not find any information on redo of benefit payments. Nor can I find a website where the special software is available to crunch my numbers. Please advise on where to find follow up information on this subject.

Some polititians what to drill off shore for domestic oil. I've heard reported that it would take a decade to develop those wells. What I haven't heard said is that the price of oil from those wells will be a market prices (I'm sure current Alaska and Texas oil is selling at $135/barrel. (bet that's not clear to everyone; they think: "Oh, domestic oil; we will save big over the middle east stuff") (and would west coast oil be consumed in the US or in Asia?) Also, how much oil supply increase would it take to actually impact prices? I guess a lot more than the Sudies have proposed. And say our production momentarily lowered prices...couldn't middle east producers just say: not enough $ for us:we're going to decrease production by that same amount. (I think you need to cover some of these issues-- ask these questions -- in your articles about US production. (Or, put anohter way: how has our current Alaska supply impacted the price?

How do I apply for this? Why is there no mention of anything about HOW to do this? The SSA.GOV site mentions nothing about a "redo", "loan", or any type of borrowing.


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