Ask Bud - Restart Social Security at a Higher Payment Level

  • Question
  • Is there a benefit in paying back all of my previous Social Security payments and starting again at a higher payment level?

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Answer from Bud

  • Have questions for an expert?

    The short answer is that almost always there is a benefit for a married couple--and usually for a single person who has the money in a taxable (not an IRA) account for the payment and who also expects there is at least a 50% chance of living past 80.

    Understand that you have to pay back the gross, not net, amount you have received. This means that if you have already had deductions for withholding or Medicare Part B or D, you will have to pay back more than the sum of your checks. You can get the withholding back by filing amended returns for the past years or by claiming the tax differences as a deduction on your current return.

    There are several programs on www.analyzenow.com that will help you determine whether the benefit is significant for you.

    There is a free program for single people to experiment with the Social Security pay-back alternative that is limited to those who are not yet 62 and is meant to investigate Social Security pay-back as a strategy.

    For those single people who have already started Social Security, they can use another program on the site, the Free Pre Retirement Planner, by running one case with continuing the same Social Security payments and then run another case with higher SS payments and a reduced investment balance.

    It gets to be more complex for a married couple, not only in the analysis, but also in the implementation when one spouse has already started taking a spousal benefit dependent on the spouse who wants to repay the Social Security. You can use the Free Pre Retirement Planner again by running two separate cases, but this will not bring out what may be the most important benefit of paying back SS. The most important case may be the spouse’s survival benefit.

    To simulate the survival benefit, you have to use a more comprehensive program like the Pre and Post Retirement Planner on www.analyzenow.com. This program already displays two cases simultaneously, so you don’t have to make two separate runs for the comparison. You can have the Base Case to represent results for simply continuing current payments and the Alternative case for the pay-back. You enter the pay-back cost on the Special tab. The other programs are free, but the Pre and Post Retirement Planner uses some licensed material that requires that I charge a nominal amount for its password.

    I recommend that in any case where a spouse has already started spousal benefits that they go over the assumptions with someone in their local SSA office as well as to call the national SSA phone number and get a second answer. People have written to me about the inconsistent answers they get from these two sources and the difficulty in getting them resolved. If you don’t do this, you might get a result that’s not consistent with what you assumed would happen.

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H. K. Bud Hebeler is author of J.K. Lasser's Your Winning Retirement Plan, Getting Started in a Financially Secure Retirement, and retirement articles on www.analyzenow.com. He is often quoted in The Wall Street Journal and other financial publications.

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