There is a little known secret that individuals who began receiving social security in their early 60s might be able to use to their advantage. If you are one of these people, you know that your benefits are much lower than if you had waited until age 66 or even later to apply for social security. Your decision was to collect smaller benefits for a longer period of time. Unlike other retirement decisions that are irreversible, this decision is reversible. Under the Social Security Act, if you received early-retirement benefits from social security, you can withdraw your application, repay the benefits you received and reapply for higher benefits calculated at your current age.

 This could provide you an incredible opportunity to increase your income due to these facts:

• You may receive up to a 76 % increase in benefits.
• You do not pay interest of the benefits you repay to social security.
• Any taxes you paid on prior benefits may either be claimed as an itemized deduction or a tax credits (whichever will provide a larger advantage to you) toward future tax returns.

 Other reasons to consider this option might be:

• If you are in the hunt for an immediate annuity, whether it be variable or fixed, increasing your social security benefits will most likely be much less expensive and will guarantee inflation adjustments. The downfall: there is no death benefit to anyone other than your spouse.
• If you are 62 you could apply for social security as a savings plan. You can invest the benefits and later repay these benefits, keep the interest and income accrued from these investments over the past 8 years and reapply for increased benefits at age 70.
• If you are in your early 60s, supporting elderly parents and need the income to assist your motives. You can repay these benefits with the cash assets from your parent’s estate and reapply for increased benefits at age 70.

 Here are the rules: If you apply for social security before age 66, your benefit is reduced for every month you take it early. For every year you wait to apply for social security after age 66, your benefit increases 8% until you are age 70. So… if you are 62 years old and apply for social security, your benefit will be 75% of what it would be had you waited until age 66. Yet if you wait until you are 70 years old, your benefit will be 132% of what it would have been if you applied at age 66. Since that sounded thoroughly confusing, let’s put some numbers into play:

 Suppose your social security benefits at age 66 is $1000 per month; however, you decide to apply at age 62. You will receive 75% of your full benefit, which is $750 per month. In order to reapply for social security at age 70, you will pay back $72,000 (plus the inflation adjustments for each year) to social security and receive 132% of your full benefit or $1,320 per month. This is $570 more each month in benefits plus the inflation adjustment.

 So back to that immediate annuity hunt; if you decided to take this route, you just purchased an inflation-adjusted life annuity with an annual payout beginning at 6.5% including the cost for paid-back annual inflation adjustments.¹

 Out of millions of retirees in the United States, less than 100 individuals increased their social security benefits in 2008. This is probably because many don’t know about this process and it does involve a lot of number crunching to make sure it is the best option for each individual’s circumstances. There could be other alternatives that would provide better benefits for you. Paying the government back the amount you have received in social security over the years to receive a higher benefit means having the cash available to do so and might not prove to be advantageous or even possible. There is definitely not a cookie-cutter set of circumstances – there are no 2 situations alike. If this is something you think you might be able to take advantage of, I strongly recommend you work with a well-informed advisor of the procedure to analyze any possible weaknesses, as well as opportunities for your unique situation.

^1. The History of COLA 2001-2008. www.socialsecurity.gov