Double Dipping Your Social Security Benefits

by Junior Boomer on January 28, 2009

social-security-retirement-benefits1

Deciding when to take social security retirement benefits have many baby boomers puzzled.  Do you start at 62 or wait till normal retirement age?  Whether you need the money or not, it’s still a pressing question that leave many distressed.  What if you could retire early and still get the full benefits of Social Security?  Would you believe it? That doesn’t even sound right, does it?  Well, in fact, you can.  It is not a new concept.  It is just that a lot of boomers aren’t aware of it.

Basics of Social Security

The current Social Security system allows individuals to claim reduced early retirement benefits beginning at the age of 62.  Individuals who wait until their full retirement age to collect receive about 30% more in monthly benefits.  If they wait until age 70 to collect, their benefits will be about 60% larger than age 62.  Okay, we know that already, right?  But how do you get full benefits by still retiring early?

Time To Double Dip

The method I’m getting ready to describe is not necessarily cut and dry.  If one’s life expectancy is not normal due to illness or bad luck or particular not so good genes, a lower retirement age will look more attractive than others. That’s pretty basic.  But for those boomers that are relatively healthy, then deciding when to take can be a chore.  Well, how about having your cake and eating it too?

eating-cake

Just follow these steps:

  1. You can retire at age 62 and take the reduced Social Security Benefit.
  2. If you don’t  need the money, you can invest it into a high yield savings account like WTDirect Savings Account. or Earn 2.45% APY* with HSBC Direct Online Savings.
  3. At the age of 70, you can then pay back the benefits received (interest free mind you) to the IRS and reapply for the higher Social Security benefit.

It’s that simple!  Does that even sound legal?  Absolutely.  Keep in mind that repaying Social Security and reapplying for a higher benefit does entail the risk of not living long enough to recover the amount of the benefit repayment, of course.

Should You Do It?

Should younger retirees consider taking the benefits early, banking the money, repaying at age 70, and then reapply for benefits?  There could be some advantages to doing so provided you have the liquidity to pay the extra income taxes that will be assessed from the ages of 62 to 69 because of the receipt of those benefits during those years.  As always, consult with a Certified Financial Planner or CPA to make sure this strategy might work for you.  But doesn’t it sound nice to get a tax free loan from the government for a change?

photo by peyri

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{ 2 comments… read them below or add one }

Kaye January 28, 2009 at 8:52 pm

Excellent advice. I try to stay up on these kinds of things and missed this one totally. Thanks for the information :) I’ll definitely be passing it on.

Kaye’s last blog post..Boomers & Seniors Blog Carnival- Take 2

Wayne Abbott April 11, 2011 at 4:55 pm

You can no longer use the payback method.

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