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Social Security News
Older Senior Citizens Should Consider Withdrawing
from Social Security and Reapplying for Higher Benefit
A way to buy an inflation-adjusted annuity for a
price that beats anything offered by the financial industry – says
financial expert
By Tucker Sutherland, editor & publisher,
SeniorJournal.com
|
“Incredibly, a
recipient can ‘undo’ his decision to take Social Security
retirement benefits early simply by paying back - without any
interest or inflation adjustment - the benefits he's received.
He can then re-apply for Social Security and claim the bigger
monthly checks paid to those who wait until an older age to
claim benefits.” Laurence
Kotlikoff, a Boston University professor. Read more below |
 Feb. 26, 2008 – A seldom noticed provision in
Social Security allows senior citizens, who began taking their
benefits early, to pay the money back and reapply at their current age
and
get a much higher income for life. Many experts who have looked at the
idea think is is great.
We first noticed it in a column by Scott Burns, the
syndicated business writer at the Dallas Morning News. The headline on
the Burns column was “Reapplying for Social Security may be a good
idea.”
Burns, who often addresses topics of importance to
senior citizens, wrote -
“If you're retired and are interested in having a
higher income for as long as you live, you have two main options.
One he says is to buy a life annuity which does
provide life-long income but nothing for heirs. Or, the second option
offered by Burns, is buy “a variable annuity with a variety of
living-benefit provisions.” The income is less but there may be
something for the heirs.
“Fortunately,” writes Burns, “there is a simple
alternative. It will work nicely for retirees in their late 60s or early
70s who opted, years ago, to take Social Security benefits at a
relatively young age. That's millions of people.
“If you did this, you know your benefits were
reduced because taking benefits early meant Social Security would have
to pay benefits for more years.
“But you easily can reapply from scratch.”
Burns says go to Social Security and “make use of a
little-known and seldom-exercised provision - request a ‘Withdrawal of
Application.’ By filing an SSA Form 521, Social Security will treat you
as if you had never applied for benefits. It will let you immediately
reapply for benefits - at your current age.”
There is one big catch he points out, “You must
repay every dime you've received in past benefits. But because Social
Security charges no interest, reapplying turns out to be a really good
deal. It represents a way to buy an inflation-adjusted annuity for a
price that beats anything offered by the financial services industry.”
(To read the complete Burns column at Boston.com,
Click Here.)
Have your retirement cake and eat it, too
Shortly after the Burns column, Sandra Block of USA
Today followed with, “Turning 62: Have your retirement cake and eat it,
too.”
She approached the subject from the viewpoint of
the current crop of Baby Boomers just now reaching age 62, when you can
opt to start receiving early Social Security benefit payments.
She writes that Baby Boomers are beginning to face
the decision almost all senior citizens have faced before them -
“whether to claim their Social Security benefits early.”
“A little-known Social Security option, though,
gives early retirees a way to have their cake and eat it, too,” she
says.
“Here's the quandary: If you claim benefits at 62,
you can retire while you're young enough to enjoy it, but you'll receive
reduced benefits for the rest of your life. By contrast, waiting to file
until at least full retirement age (66 for boomers who turn 62 this
year) will increase your monthly payments, reducing the risk that you'll
run out of money in your old age.
“For many boomers, though, that means working
longer — a hard pill to swallow if you hate your job and want to spend
more time with your grandchildren.
“What most retirees don't realize is that they can
change their minds. Under the Social Security Act, individuals who
receive early-retirement benefits from Social Security can withdraw
their application, repay the benefits they've received and refile for
higher benefits at a later date.”
She quotes Laurence Kotlikoff, a Boston University
finance professor and developer of ESPlanner, a financial-planning
software program, who offers the following example of how this can work.
“A 70-year-old retiree has $400,000 in regular
assets and $200,000 in retirement savings. She claimed early-retirement
benefits and receives $11,556 a year. Had she waited until age 70 to
file, her benefits would total $20,000 a year.
“To withdraw and reapply for benefits, the retiree
would have to repay $79,305. But even with that payment, reapplying for
Social Security would raise her standard of living by 14%, Kotlikoff
says.
“This strategy, he says, would provide her with the
equivalent of an inflation-indexed annuity — a contract sold by an
insurance company that guarantees regular payments for life — for about
40% less than the lowest-cost annuity available on the private market.
Read the complete report by Block in USA Today –
Click Here.
More about the strategy by Kotlikoff
An even longer and more detail coverage of the
strategy promoted by Kotlikoff is in Forbes, which was probably the
first to report on this strategy. The title is “Trade in Your
Social Security Check.”
Click Here for story online.
Kotlikoff has a Website to promote his financial
planning tool – the ESPlanner - and has several presentation on how he
has used this tool to solve financial questions.
Click here to his detailed report on reapplying for Social Security.
He has lots of detail on how to do it and where to find more
information.
>> For the ESPlanner home page –
Click Here.
>> Before beginning this process senior
citizens should talk with an adviser at their local Social Security
office. To locate your local office,
Click Here, and enter your Zip Code.
>> This links goes to an explanation by
Social Security on withdrawing from the program.
Click Here.
>> The form needed is Form 521, “Request
for Withdrawal of Application,” which is available at
www.ssa.gov. To go direct,
click here.
>> Here is an explanation in the form:
“IMPORTANT NOTICE - This is a request to cancel
your application. If it is approved, the decision we made on your
application will have no legal effect, all rights attached to an
application, including the rights of reconsideration, hearing, and
appeal will be forfeited, and any payments we made to you or anyone else
on the basis of that application will have to be returned. You must then
reapply if you want a determination of your Social Security rights at
any time in the future but any subsequent application may not involve
the same retroactive period. This procedure is intended to be used only
when your decision to file has resulted, or will result, in a
disadvantage to you. Your local Social Security office will be glad to
explain whether, and how, this procedure will help you.”
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