What would you say if someone told you to give back all the Social Security checks that you have received thus far? You might tell them to go pound sand, or you might consider what advantage you could gain from re-filing for Social Security benefits at an older age. For some retirees, this can be a way to get more money every month from their Social Security payments.
Increase Your Monthly Social Security Check
There is a little known provision in the Social Security law that allows recipients to withdraw the original benefit application that was filed. In order to do so however, benefit recipients must pay back all the money they received from the Social Security Administration (SSA) first. Anyone else who received benefits from your initial filing must also consent in writing to your application withdrawal. The retiree could then file a new application for benefits at an older age, and subsequently receive a higher payment every month.
Social Security Reset
Informally known as a “Social Security reset,” the provision is referred to by the SSA as a “withdrawal of application.” The law was originally intended to assist retirees that had claimed benefits too early and changed their mind for any number of financial reasons. Because of the ramifications such a provision could have on the struggling Social Security system, the SSA is considering revoking the provision. That means retirees wishing to use a reset must act quickly.
Things to Consider
Although the process can substantially increase monthly income, it might not be beneficial or even feasible for every Social Security recipient. Coming up with a lump sum to repay previously received benefits can be daunting. Depending on how long the retiree has been collecting benefits, the sum could be enormous. However, finding a way to come up with the money could be a smart move. Consider the following example.
How to Get the Funds
A 70-year-old unmarried female could see an additional $8,500 in the first year of a Social Security reset if she first filed when she was 62-years-old. A good way to determine the yearly gain is to ad an extra 7% to 8% per year. If retirees can borrow the lump sum for less than $8,500 per year interest, a loan may be a way to repay the benefits to reset benefits.
If the retiree can come up with the money to pay the Social Security benefits back, it can be very useful for those considering an annuity. In return for the lump sum of cash, it provides an immediate supply of lifetime monthly checks. The idea is that the retiree will have an increased income from the reset, which will surpass what the annuity income was.
Potential Loss of Other Benefits
Retirees who benefit from Medicaid might be ill advised to reset benefits. Because Medicaid benefits are based on financial need, the increased income may make retirees ineligible for the Medicaid help. This situation usually applies to those who need long term assisted care. Also, those with terminal illness or life-threatening chronic illness might not have the life expectancy to recoup the added benefits in relation to the payback amount. A reset could also take money away that was set aside for heirs.
The Social Security Administration does not keep track of just how many retirees are taking advantage of the reset provision. The bottom line is that only you can determine if the reset benefits outweigh the costs, based on the details of your own specific situation and need. Of course, a financial planner can help you with the figures to help you make the most prudent decision. But you should act soon, lest the SSA makes changes to the provision.
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