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" or "Consider paying back everything you have received in Social Security Payments to increase your monthly amount.
" I will typically get a look of confusion and a response of several "Buts", 1) "But If I do that I may die and not ever get anything from it.
" 2) "But If I don't take income from Social Security now I would have to spend my IRA money down to live on, I want that money to go to my grandchildren.
" 3) "But I need that Money in case I need Long Term Care" 4) "But why and how do I do that?" Looking at Social Security by itself you will many times tell you to take the money earlier than later.
However, by coordinating your planning and using other financial tools you can make sure you get the most out of your entitlement.
For example, consider a couple who are both age 70 and claimed benefits at age 62 just like more than half of Americans do.
They now collect $20,400 each a year and have collected roughly $160,000 each over the last 8 years.
If they had waited until 70 to claim benefits, they would be entitled to around $35,000 each a year.
However, most people look at the income received over the 8 year period from age 62-70 and feel its better to enjoy the money while they're alive than take a chance in not getting anything.
But you could enjoy your benefit more even if you never receive a dime of it?! Let me explain.
Lets assume our couple did apply for benefits at age 62 and has $500,000 in CD's earning 2% interest.
If our couple repays the benefits they received, they would need roughly $160,000 each to accomplish this.
The $160,000 each had to give up is now out of their accounts.
It has been spent.
Back to Uncle Sam.
The income increase though to $35,000 per year each now (an increase of $14,600 per year each) and this lasts the rest of their life.
Keep in mind here there is a cost to paying this back.
In this case, we need to consider that if we held onto the money and did not repay the benefits and left the money in CD's earning 2%, this couple would still have $6400 of income coming from their cash AND they would still have $320,000 in their account.
More Income but less money on the bank statement.
(Remember the "Buts") The extra income Social Security Provides has the following benefits: 1) Goes up each year based on inflation or 2) Will not decrease if there is Deflation 3) Is at least 15% exempt from Federal Taxes Using these assumptions, A couple implementing this strategy would have an additional $23,268 per year of income and is computed here: Extra Social Security Income Him $14,600 Extra Social Security Income Her $14,600 Minus Lost Interest Income on $320K $6400 Total Net Increase in income $22,800 If we increase income by $22,800, it will take 14 years to make up for the $320,000 we had to give up.
This is unacceptable to most people ( "But If I do that I may die and not ever get anything from it.
") Lets Look at the Big Picture.
Getting the money back for Health Care Costs, Children, Grand Children or Charities.
Sure, you would love the extra income but it will take 14 years to get the money back from Social Security.
What if you could get half that income for the rest of your life but make sure your estate gets all the money back if you pass away? Here is a reason to invest in a universal life insurance policy.
A life insurance policy on a 70-year old male for $160K costs roughly $6000 per year.
A 70 year old female can purchase a $160K universal life policy for $4,800.
Even with these premiums, this couple still has increased their income by $12,000 per year starting in the first year and their estate will be the same size as the insurance replaces the amount repaid to Social security.
The individual does not need to be in the best health to qualify for these rates.
Companies like Columbus Life Insurance and Penn Mutual have programs that provide normal health ratings to individuals who have some health history through what is known as a table shaving program.
Some of these life insurance policies have added features such as the ability to use the policy to pay for various health costs like Long Term Care.
Therefore, the money Social Security provides the retiree to pay for the policy can be accessed for care as if it were in a savings account.
This type of planning strategy has the following advantages: 1) It increases income immediately 2) It protects against inflation because of the cost of living adjustments 3) It preserves wealth for Children or Charities through the use of the Universal Life Policy 4) It reduces taxes from the exemption on Social Security Income 5) Repaying Social Security can provide a Tax Credit from previous years as the income would be viewed as never received.
5) It will increase money available for health care costs through the increased income and possibly through the insurance policies the individual purchases.
The Social Security Administration will be happy to take back your money; the life insurance company will be happy to partner with you to be sure you get it all back.
Since their is income guaranteed to pay the premium on the life policy, you have the best of both worlds knowing you can enjoy yourself more in retirement and make sure you accomplish your desires to leave something for your loved ones.
How do You Pay Back Social Security To start the process, you file a Request for Withdrawal of Application, Form SSA-521.
You can download the form from the SSA website (www.
ssa.
gov) or pick it up at your local office.
Once this is complete, about a month later, you repay the Social Security you have received including the Medicare Premiums that have been deducted.
2-3 months later, you have the ability to reapply at your current age to start receiving the higher payment amount.
(note - if you are receiving Medicare you will be required to pay the premium separately while you wait to receive your new benefit amount) This is just an example.
There are many other considerations that must be addressed.
It would be best to work with a Certified Financial Planner to go over the rules and help you work with the Social Security Administration to find your best alternative.
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