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Social Security limits do-overs

By Jennie L. Phipps ·
Sunday, December 12, 2010
Posted: 10 am ET

Another retirement planning strategy has bitten the dust.

Social Security published new rules this week limiting what is known as do-overs.

The agency had previously put the word out informally that it intended to put an end to the policy that allowed recipients to file for Social Security, collect for a while, then change their minds, pay back the money they had already received, and then refile for higher benefits at their current age and level.

These do-overs were formulated as a way for people who took early retirement and regretted it to change their minds and go back to work.

But apparently people had been using the opportunity differently. They'd  file early for Social Security, invest the money, and let it earn interest until they'd reached 70, the maximum age for increasing benefits. Then they'd pay back only what they were required -- the amount of benefits received -- refile for higher benefits and keep the interest on the original payments.

It was too good a deal. "The agency is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retired beneficiaries to acquire an 'interest-free loan,'" a statement from Social Security announcing the policy change said.

The new policy limits redos to the first 12 months after someone files for benefits, and it permits only one application withdrawal per lifetime. "The 12-month limitation period is a financial disincentive," the new rules said. "There is little to be gained by investing benefits for only 12 months."

While the new rules are effective immediately, there is a 60-day public comment period for people who see this issue differently. So if you object, speak your piece.

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Richard Jacques
January 29, 2011 at 1:46 am

There is an easier, and might I say FAIRER, fix for this. If you collect SS and have earned income over a certain level (~$15,000 ?)you are penalized one dollar for each two dollars over that limit. If you have UNEARNED income (investment) over that limit there is no penalty. I am guessing those who can invest there total SS income for years fall into this category - they don't need the SS to live and do take it as a zero interest loan. The simple solution - treat unearned income the same as earned, and possibly raised the cutoff point.

David C
January 21, 2011 at 7:53 am

Effective IMMEDIATELY. There should have been a future date that this was going to be implemented.

OR, there should be a grandfather clause, so it doesn't apply to those who have already been collecting S.S. retirement.

I doubt there has been, or going to be, abuse of the "do-over" system.

I just turned 70, and now have the money to do the "do-over". I HAD to retire at 62 at reduced benefit. Now I have sold my house and have the cash. I would like the opportunity to re-apply for my S.S benefit.

Please consider this.

Thank you for your time

January 13, 2011 at 4:23 pm

Here's my question is it possible to work from 17 years of age until 62 and only be eligible for $780.00 per month..In addition I worked a job for two years after retirement unfortunately I was terminated. When I signed up for unemployment insurance they told me I would have to pay a penalty because I was recieveing social security and had retired early. As a result the State of Illinois Unemployment Office takes $91.00 of my enemployment benefits leaveing me with a net benefit of $11.00 per week..Is all this correct?

John Carroll
January 07, 2011 at 7:11 am

I would agree with the premise that some early retirement recipients who refile later to obtain a higher benefit are playing the system for an interest free loan. There are those people, however, who need to collect early benefits for financial reasons. Their cicumstances may change which could provide an opportunity to refile at a later age and receive a greater benefit. Why not retain the do-over provision to age 70 but impose an interest rate charge on the payback amount? There could also be a limit to the refiling of income tax returns for the prior years affected by a payback. These provisions would reduce the opportunity to "play the system" yet leave the door open to correct a situation a recipient may have been placed in by unforeseen circumstances.