Social Security Ends Do-Overs
By Ric EdelmanA dumb, little-used program is killed. Good riddance.
Say you begin taking 80% of your Social Security benefits at age 62. Years later, you give back to the Social Security Administration all the money you’ve received and restart your benefits based on your new, older age — and when you return that money to SSA, you don’t have to pay any interest on the money you’d received. Wow! An interest-free loan from the government!
If that sounds like a great deal, it is. Or rather, was — because the Social Security Administration has killed the program. Starting this year, you may now withdraw your application for Social Security benefits only once — and you must do so within 12 months of the date you begin receiving benefits. The agency says it changed the rules because the media reported that some financial advisors were promoting the do-over as an “interest-free loan” when it was actually designed to help people who retired and then went back to work. It felt the advisors’ recommendations constituted a misuse of limited Social Security resources.
I agree. Even if it weren’t a bad use of government resources, you shouldn’t have tried it for a simple reason: You might have died the day after you repaid SSA. Say you collect $1,000 a month for five years, for a total of $60,000. Further, say you give back the 60 grand and begin to receive $1,200 per month — a 20% increase in monthly income, plus you get to keep the profits you earned by investing that $60,000. If you live a long time (well, more than a decade), the strategy might work to your advantage. But if you die sooner — worst case, the day after you return the money — your heirs are out $60,000. Is it really worth such a gamble? Give back $60,000 in exchange for an extra $200 per month? We say no.
That’s why we encourage you to begin Social Security benefits as soon as you’re eligible, even though the benefits are reduced. This does not apply if you are still earning an income.
And let’s applaud the end to a silly program that served little useful purpose.