Get a Do Over

Kiplinger magazine has an article on a great way to borrow money from the government on an interest-free basis and, then pay it back and start getting extra benefits.  This method applies to all people who apply for social security.  It allows them to start their benefits at age 62, collect and invest the money until age 70.  If they do not need the money to live on, they can invest the monthly payments, collect interest and then simply pay the principal back.  Once they pay the principal back, they can then start receiving a much larger monthly benefit

For example, assume someone starts social security at age 62, receiving $750 per month.  From 62 to 70, they would receive a total of $72,000.  If they invest this at 8%, they would have a total of $101,000 at age 70.   To complete the do-over, they would repay $72,000, have a profit of $29,000 and start receiving a  new monthly benefit of $1,320.  If they live to age 85, they would get total benefits of about $237,600 with the do-over versus about $135,000 without.

The amount that they pay back also qualifies for an income tax deduction.  This provision has been around since at least the 1940’s, however, with the Baby Boomers starting to retire, this will become much more prevalent.

If you have started social security or are approaching retirement age, please review this option with your financial advisor.