i believe you can still pay it back and have your SS payment reset to the higher amount....
usually it makes sense if you are only a couple of years into SS..and it assumes you have the cash to repay it (i would consider any health concerns as well)
see this example...(now if your husband's name is peter, i would say this article is for you! <gg>)
<edit>you only have one more year to do this...although aarp is petitioning for an extension
blogs.forbes.com
Double Dipping on Social Security
by Laurence J. Kotlikoff
Social Security's handbook contains 2,728 rules. One of these — Rule 1516 — permits Social Security recipients to repay all benefits received in the past on their earnings records and reapply for much higher benefits from scratch.1 Social Security charges no interest on the repayment, and the IRS allows the recipient to deduct the repayment or take a tax credit for the extra taxes already paid because of past receipt of Social Security benefits.
Yes, this is hard to believe. But it is true. Repayers need to file Social Security Form 521, and IRS Publication 915 discusses the tax deduction/credit.
The gains from taking this option can be sizeable. Take Peter and Kate, who are 70-year-old retirees with $200,000 in regular assets and $200,000 each in retirement accounts. They invest all these regular and retirement account assets in safe assets yielding 3 percent after inflation. Peter and Kate will each receive $13,250 this year in Social Security retirement benefits.
Peter and Kate took Social Security when they were age 62 and have been kicking themselves ever since. Had they waited until now to apply, they would each be eligible for $20,693 per year — their full retirement benefit adjusted by Social Security's Delayed Retirement Credit; that is, they would be receiving 56.2 percent more in real Social Security benefits this year and every year in the future.
But dreams can come true, and thanks to Rule 1516, Peter and Kate can secure this benefit increase. True, they will each have to repay $94,556 in past benefits received. But it is worth it. Their sustainable consumption expenditure rises, on balance, by 21.7 percent! Based on the notion of consumption smoothing, sustainable consumption expenditure per equivalent adult represents the highest possible living standard that can be achieved over time based on a family's existing assets, current and future labor earnings, current and future housing expenses, federal and state income taxes, Social Security benefits, investment return expectations, special expenditures, bequests, and more. This calculation is based on ESPlanner (Economic Security Planner), a financial planning program for individuals and financial advisers.2
How else could Peter and Kate raise their living standard by 21.7 percent? Well, they could find $220,000 lying on the street. With $420,000 in regular assets rather than $200,000, they would be able to sustain the same living standard through age 100 as they would by simply repaying and reapplying for Social Security — something that will take them all of an hour.
How much one gains from repaying and reapplying for Social Security is sensitive to one's circumstances. In this couple's case, had they had zero retirement account assets, their living standard would have risen by 29.0 percent!
What Age Groups Stand to Gain from Repaying and Reapplying?
Table 1 shows how Peter and Kate would fare from repaying and reapplying if they were the ages specified. The results for age 70 are those just discussed. The results for the other assumed initial ages indicate that households ranging from their mid-60s to mid-70s may gain significantly from this option. For example, if Peter and Kate were 76 years old, their sustainable increase in spending would be 8.9 percent. This gain is smaller than the 21.7 percent they would enjoy were they 70 years old because they have to pay back more benefits and have fewer years remaining (to their maximum ages of 100) to enjoy the higher benefits. Still, enjoying a permanent 8.9 percent living standard rise for essentially no effort is a major opportunity for the 76-year-old couple.
Beats Buying a Commercial Annuity
The $94,556 payment can be viewed as the price of buying from Social Security an annual inflation-indexed annuity of $7,443 ($20,693 less $13,250). Buying a $7,443 inflation-indexed annuity at the best price of which I am aware would cost about 40 percent more. Were Peter and Kate to each purchase annuities paying $7,443 after inflation, they would enjoy a 10 percent higher living standard. This calculation shows two things: Buying inflation-indexed annuities from a reliable, low-cost provider can raise one's living standard. But buying such annuities from the safest and lowest cost provider, namely, Social Security, can raise one's living standard by a lot more.
Millions of Retirees May Be Able to Benefit from Rule 1516
There are millions of retirees in their mid-60s to mid-70s who could potentially significantly raise their living standards by withdrawing and reapplying. Yet, from my checking with local Social Security and discussions with top Social Security officials, I found that approving this request is routine. The recipient can go to the office, fill out the form, hand the Social Security Administration a check, and then reapply on the spot to start receiving the higher benefit. Social Security's attitude is that this is a legitimate option for people to consider and that if it makes them better off financially, they should use it.
Repaying Social Security and reapplying for a higher benefit does, of course, entail risk for your client — the risk that your client dies right away and does not live long enough to recoup this investment. But the big risk, financially speaking, is not dying early but dying late — living longer than one expects and, as a result, running out of money. Annuities, particularly inflation-indexed annuities, are a marvelous way to hedge this very significant risk.
Take Benefits Early and Plan to Reapply?
Should a client who is 62 and retired take benefits early with the intent of repaying and reapplying at a later age? My answer is maybe; the government may decide to close down this option or start adding actuarial interest to the amount needed to be repaid.
If your client does decide to take benefits early with the intent of repaying and reapplying, he or she should fill out, but not file, a separate tax return each year that does not include Social Security benefits. The difference in taxes on this extra return and the actual return filed represents the extra tax payments that should be recoverable as a tax credit when your client ultimately repays and reapplies. And keeping past actual tax returns and these annual alternative returns will provide your client with documentation to substantiate the tax credit.
The Gain from Taking Benefits at 62 and Repaying and Reapplying at 70
If Peter and Kate are age 62, what are their living standard gains from taking their benefits at age 62 and then at age 70, repaying them and reapplying for higher benefits? Taking their benefits at age 62 and never repaying entails a sustainable spending level of $50,410. Taking their benefits starting at age 70 offers an 11.8 percent higher level of sustainable spending. But taking them early, at age 62, and then repaying and reapplying at 70 offers an even better deal — a 15.8 percent higher sustainable spending level than simply taking benefits at age 62. But again, this third option will only be an option if Social Security preserves Rule 1516!
Laurence Kotlikoff is professor of economics at Boston University and president of Economic Security Planning, Inc. He is co-author with Scott Burns of Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard — Today and When You Retire.
Table 1. Increase in Social Security Benefits and in Sustainable Consumption from Repaying and Reapplying for Social Security at Specified Ages
Table1
Notes: Calculations are based on ESPlanner. Illustration assumes a married couple living in Massachusetts with $200,000 in regular assets. Each spouse has $200,000 in a 401(k) account. Maximum age of life is 100. Couple has a $300,000 home with $3,000 in annual property taxes, $1,000 in homeowners' expense, and $1,000 in annual home maintenance expense. Couple is enrolled in Medicare and pays Part B premiums, assumed to rise at a 4.6 percent real rate each year. Couple earns 3 percent after inflation on its assets, including its retirement accounts.
1. I first learned of this rule from "The 62/70 Solution," Forbes Retirement Guide (11 November 2007).
2. ESPlanner imbeds economics' approach to financial planning. See Laurence J. Kotlikoff, "Is Conventional Planning Good for Your Financial Health," in The Future of Life Cycle Saving and Investing, 2nd ed., edited by Zvi Bodie, Dennis McLeavey, CFA, and Laurence B. Siegel (Charlottesville, VA: Research Foundation of CFA Institute February 2008).
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