Let’s say you are reaching age 62 and you are worried that your income stream is going to dry up, so you opt to start your Social Security Payments. Everything is going swimmingly and then you come into a large sum of cash at age 64…now you don’t need your social security income anymore! You are saving that monthly amount, getting charged interest on those dollars, and will be stuck with that lower amount since you took it so early.
What to do? You wish you could stop it and delay it so that you could take a higher payout, later on? Sounds like you just have to deal with your need for income years ago… Well, I learned something the other day – You can Pay Back Social Security and delay your social security pay out for a higher amount later on!
Paying Back Social Security?
Why would you want to hand money back to the government? According to the AARP,
Say you retired and began receiving Social Security benefits at age 62. You’re now 70. You can repay the money you’ve already received and then reapply for Social Security. Because you’re older, your new checks will be larger every month.
For example, say you’ve been receiving $13,250 annually. You’ll have to repay $94,556, but your yearly benefit would rise by $7,443 to $20,693. You’d recoup your initial outlay just before you turn 83.
In the example above we are swapping $94,500 for a yearly increase of $7,400, so it really comes down to a simple math problem, where you have to figure out how many months/years will it take to recoup that lump sum in your monthly check. There are calculators out there that will help you figure out the crossover, but they are fee based. That being said, I am sure with some advanced excel tatics you can replicate the result – I would be happy to create one if someone has a real example for me.
Who would Pay Back Social Security?
As stated above, it really comes down to a math problem, but the AARP article provides a nice graphical representation of when it should and shouldn’t be used: