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Social Security...I didn't know that


John Ranalletta

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John Ranalletta

As everyone knows, one can collect early at age 62, full at age 66 (my case) or late, age 70. However, if a person retires early, he can return all the SS payments they've collected and begin collecting the larger amount.

 

Let's say the retiree starts collecting $1,736 at age 62, by re-paying $83,328 on his 66th birthday, the retiree can begin collecting $2,327/month. While that may not seem like a good deal, an early retiree who isn't working can use (invest) the money, keep the interest and return the principal without penalty. This assumes the retiree doesn't need the SS payment for living expenses.

 

Calling RightSpin to the white telephone...

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While that may not seem like a good deal, an early retiree who isn't working can use (invest) the money, keep the interest and return the principal without penalty. This assumes the retiree doesn't need the SS payment for living expenses.

And that he doesn't lose the money due to investment losses.

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Joe Frickin' Friday
While that may not seem like a good deal, an early retiree who isn't working can use (invest) the money, keep the interest and return the principal without penalty. This assumes the retiree doesn't need the SS payment for living expenses.

And that he doesn't lose the money due to investment losses.

 

The significant thing is that repayment is not required; if you don't/can't pay it back, you just get reduced SS payout from then on, instead of the larger payout. Someone who does this is engendering risk (of lower future payouts), to be sure, but it's not necessarily a financial catastrophe/bankruptcy if the money isn't paid back on the 66th BD.

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John Ranalletta
Free money will get my attention every time...did not know that...My hunch is that rule will change before I get the opportunity to exploit it.. :grin:

Here's the form.

 

You know social security payments are subject to income tax, depending upon how much of the retiree's total income is from other sources; so, it's not such a sweet deal as it looks on the surface.

 

In my original example, assuming a tax rate of 15%, the tax would be $12,500. It would take 25 months to "get even" assuming a 15% tax on the increase.

 

This is not a tactic to consider for the retiree who's primary source of income is his SS payment. Only rich people need apply. Carry on.

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SS is basically an annuity and (regardless of whether or not one likes the government-mandated aspect) a boring but secure source of fixed income is an important leg of any retirement strategy. If you have enough resources so that you know you'll never need SS income then I suppose there's no harm in amusing yourself with this gambit but I don't think it would be a very wise move for anyone else. This last year demonstrates the potential downside all too clearly.

 

This capability has been around a long time and isn't a secret yet I don't know of any reputable financial advisors who would suggest it, nor do many people take advantage of it. I wonder why.

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John Ranalletta

Seth, I wouldn't suggest it either, but I've read that, in certain circumstances, repaying SS payments to achieve higher payments in the future is a better deal than purchasing an immediate annuity. As more baby boomers find they have to work well into their 60s, it's not likely many will use this approach.

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but I've read that, in certain circumstances, repaying SS payments to achieve higher payments in the future is a better deal than purchasing an immediate annuity.

Yes it can be under certain circumstances but when I ran the numbers for my situation (no small feat but my PC came to the rescue) the small benefit didn't seem worth it vs. the risk. Several things (investment income. life expectancy, etc.) had to line up to really come out ahead (but that's not saying that they couldn't of course.) Plus there's always the risk that the benefit will be disallowed before you can pay back. There would probably be some kind of grace/grandfathering period if that were to happen but it still might end up forcing your hand at an inconvenient time. And if it were a winning strategy for a significant number of people I think we'd see more taking advantage of it. Or perhaps people are just loathe to mess with one of the only (nearly) sure things we have these days. Well, sure for people our age at least, all bets are off for the Gen-Xers.

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Let's say the retiree starts collecting $1,736 at age 62, by re-paying $83,328 on his 66th birthday, the retiree can begin collecting $2,327/month. While that may not seem like a good deal, an early retiree who isn't working can use (invest) the money, keep the interest and return the principal without penalty. This assumes the retiree doesn't need the SS payment for living expenses.

Just running some numbers to be sure that I'm not missing anything... using the example above, if you simply banked the payments (to take out the risk factor) you'd make $5,309 in interest (at 3%) over the four years. It would then cost you $83,328 to get your extra $591/month back (as if you had first filed for SS at age 66.) Right now an immediate annuity for the $591 difference at age 66 would cost $79,900 so with the interest earned you'd be about even (not counting any tax ramifications.) There is one advantage in buying the additional SS coverage over the simple annuity in that the SS coverage includes COLA adjustments, not sure how much that would add to an annuity's cost but still I don't think the advantage of going one way or the other would be all that enormous.

 

Of course why settle for mere interest on a bank account... you could always take the money and invest it in the stock market for four years... then you know you'd come out ahead... :grin:

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I've seen this and similar articles before and what I can't seem to verify are the huge savings they claim over doing the same thing with an annuity. An advantage does surface when you include a spouse in the picture, sometimes a significant one depending on how you place your bets, but even then not nearly as large as the articles claim plus you have to figure in the tax consequences. I may well still be missing something (as I am wont to do on occasion) but it seems far from the slam dunk that is often represented. I would suggest getting some annuity quotes if you haven't already, perhaps you have or will discover something that differs from my results. If so please throw a note my way because I have been intrigued by this ever since I learned about it a few years ago and would love to know what someone else's research turns up.

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As everyone knows, one can collect early at age 62, full at age 66 (my case) or late, age 70. However, if a person retires early, he can return all the SS payments they've collected and begin collecting the larger amount.

 

Let's say the retiree starts collecting $1,736 at age 62, by re-paying $83,328 on his 66th birthday, the retiree can begin collecting $2,327/month. While that may not seem like a good deal, an early retiree who isn't working can use (invest) the money, keep the interest and return the principal without penalty. This assumes the retiree doesn't need the SS payment for living expenses.

 

Calling RightSpin to the white telephone...

 

don't forget that for most retiress a portion of social security (up to 85% of the amount rec'd) is considered taxable. need to factor that in to the payback. i'd also suggest one gets familiar with the earned income limitations at age 62-66. may have to pay it back anyway.

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Another retirement fact that many people are not aware of is that you can take early withdrawals from your 401K with no penalty and no requirements to show need. The only hook is that you have to take the money out in the exact same increments every year (not more and not less) and once you begin you have to continue to take the payments until full retirement age.

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Another retirement fact that many people are not aware of is that you can take early withdrawals from your 401K with no penalty and no requirements to show need. The only hook is that you have to take the money out in the exact same increments every year (not more and not less) and once you begin you have to continue to take the payments until full retirement age.

 

code sec 72 and there's a bit more to it than that. also, planning is important as you can separate your IRA's and restrict the amount that is being annuitized by each IRA.

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SS is basically an annuity and (regardless of whether or not one likes the government-mandated aspect) a boring but secure source of fixed income is an important leg of any retirement strategy.

 

 

 

I think it's more like a Ponzi scheme than an annuity. The money ain't really there. They just tell ya it is. And they gotta continually get more money from more peeps in order for it to work.

 

Madoff prolly got his ideas from SS.

 

I'm proud to be sending money for others SS. :dopeslap:

 

 

Dummy

 

 

 

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John Ranalletta

The treasury collects money and puts it in the right pocket. It then borrows the money, replacing it with IOU's, i.e. treasury bills. It puts the cash in the left pocket out of which it pays some the government's obligations.

 

SS' store of treasury IOUs should be worth more now than ever.

 

Typical of government thinking, SS is in a zero some game. If it sold treasuries to capture capital gains, it would drive interest rates up increasing its cost of borrowing. It would seem to make more sense to invest in instruments not of its own making,

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Dave McReynolds

John, am I correctly translating "instruments not of its own making" to mean stocks, bonds, real estate, etc., that were issued (or owned in the case of real estate) by private companies, similar to how CA PERS invests its funds? While that sounds like a fine strategy to me, I'm surprised that it does to you. Given what I think I understand about your philosophy, I'm surprised that you would advocate a larger ownership of private enterprise by the government, especially of the magnitude needed to make much of a dent in SS's ownership of US Treasury obligations. If I were to guess, if your only two choices were to fund the SS obligation with private equities or to do away with the treasury charade and just fund the social security payments year-by-year from taxes, I would have guessed that you would choose the latter as the lesser of two evils.

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