Despite my hatred for Social Security it will continue to be an important part of most retirees world and way back in 2009 I discussed a social security planning opportunity that has recently been taken away by the Social Security Administration.

I was shocked to discover that before December 2010 you were actually able to “pay back” Social Security to fake a delay in receiving benefits and thus subsequently increasing the monthly payout.  For example if I took an early-penalized pay out at 62 and then decided at 68 I don’t need the money, I could pay back all the money I took (interest free) wait another 2 years and take the higher payout at 70.



Well, apparently, the Social Security Administration has figured out that these planning technique wasn’t working out for them and have banned the strategy.  In an article titled, “Social Security Administration Kills ‘do-over’ to Boost Benefits” Forbes sums up the the lengthy Federal Register succinctly,

This `free loan’ is not free,’’ the Federal Register notice lectures. “It denies the (Social Security) Trust Fund and the Federal Government the use of these monies and the potential returns on the use of those funds.” Moreover, the notice argues, the do-over strategy creates a processing burden on the government, and “has the potential to benefit those with the least need. Because a worker must repay previously awarded benefits in one lump sum, without interest, it is unlikely that the average retired beneficiary is in a position to reverse the earlier decision.”

The new rules allow recipients who claim Social Security retirement benefits only 12 months to reverse their initial decision to take a check; allow a reversal only once per recipient; and do not allow any delayed retirement credits for months in which a recipient actually received benefits. Repayments of benefits will still be interest free. (The new rules don’t affect survivor or disability benefits because, the SSA said, under current policies, “applications for old-age benefits are most prone to manipulation for personal financial gain.”)

I don’t know anyone that actually took advantage of the strategy…but it is gone now, at least for those that will have taken benefits for 12 months.