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Social Security Gets Rid of the Pay Back Option

Despite my hatred for Social Security it will continue to be an important part of most retirees world and way back in 2009 I discussed a social security planning opportunity that has recently been taken away by the Social Security Administration.

I was shocked to discover that before December 2010 you were actually able to “pay back” Social Security to fake a delay in receiving benefits and thus subsequently increasing the monthly payout.  For example if I took an early-penalized pay out at 62 and then decided at 68 I don’t need the money, I could pay back all the money I took (interest free) wait another 2 years and take the higher payout at 70.



Well, apparently, the Social Security Administration has figured out that these planning technique wasn’t working out for them and have banned the strategy.  In an article titled, “Social Security Administration Kills ‘do-over’ to Boost Benefits” Forbes sums up the the lengthy Federal Register succinctly,

This `free loan’ is not free,’’ the Federal Register notice lectures. “It denies the (Social Security) Trust Fund and the Federal Government the use of these monies and the potential returns on the use of those funds.” Moreover, the notice argues, the do-over strategy creates a processing burden on the government, and “has the potential to benefit those with the least need. Because a worker must repay previously awarded benefits in one lump sum, without interest, it is unlikely that the average retired beneficiary is in a position to reverse the earlier decision.”

The new rules allow recipients who claim Social Security retirement benefits only 12 months to reverse their initial decision to take a check; allow a reversal only once per recipient; and do not allow any delayed retirement credits for months in which a recipient actually received benefits. Repayments of benefits will still be interest free. (The new rules don’t affect survivor or disability benefits because, the SSA said, under current policies, “applications for old-age benefits are most prone to manipulation for personal financial gain.”)

I don’t know anyone that actually took advantage of the strategy…but it is gone now, at least for those that will have taken benefits for 12 months.



  1. I wonder who took advantage of this benefit? If it were the rich, they were taxed, so that was not so bad! I doubt poor people were able to take advantage of it. I have a bigger problem with the government using the money for other than the recipients.

    • You had to be wealthy enough to write the check to the gov’t so definitely wasn’t the poorer individuals

  2. Well that seems like a good move. I must say, I like the idea of social security, it just should be revamped. No more paying benefits to millionaires. Reduce the burden of high taxes (by limiting paying the rich – in retirement).

    I would hope I would save enough to be one of those excluded (or get reduced benefits) from receiving benefits based on the reduced social security model I would propose. Just because a wise policy for the country would harm me is not a good reason to appose it (in my opinion).

      • Look the math is pretty easy, there are limited options:

        1) Greatly increase taxes to pay the benefits promised under the current plan. This is a very bad options in my opinion.

        2) Increase the age at which benefits can start and the age at which maximum benefits can be received. This is a very good idea. Since we didn’t do this 30 years ago, we need to either a) raise taxes a lot to pay for those that didn’t have the age raised when it should have been b) change the rules – so say someone 60 now is told they can’t retire until 75 instead of 62 when then planed c) stop paying millionaires d) pay benefits out of general tax revenue e) some combo of all that…

        3) reduce benefits (just pay less – either right away or looking decades into the future). Doing this right away is problematic. Doing it decades away may well make sense (especially if we don’t increase the age nearly enough).

        4) Admit it is welfare and not have to raise taxes to pay rich people welfare late in life. I can understand people not wanting to lose promised benefits. Given the alternatives reducing benefits to the rich seems a fine option to me. But there isn’t much interest in actually reducing benefits.

        A few politicians talk about it but they vote to increase benefits not reduce them. And this isn’t some USA idea. Look all over the globe, by and large they just promise we can afford to pay benefits to everyone with a hand out and never have to pay a bill. We definitely can chose to continue to pay the rich SS benefits. That just means we need to have the government program be larger than it would have to be if we limited the payouts to those who are not rich.

        But as I say don’t worry. I have lots of ideas that are not likely to be supported for reducing government spending. And this is down the list of those making it really unlikely.

        • Your list of options seem about right, I think I just disagree which is more palatable for me.

          As it is those that make over the maximum are getting killed on return on “investment” but to relabel the program as welfare would cause havoc.

          I think everyone should have to suffer with either a later start date or lower benefits not just those that make $250K (just making up a number).

          I wish they would just let me opt out of the whole f’in system.

          • I strongly support a later start date – this should have been done much more aggressively 20 years ago. I would be fine making it 75 for people that are now under 30. I doubt they will.

            I would also support lowering benefits (especially for work histories under 30 years).

            I would also like to reduce the tax rate paid for Social Security. And I would have it paid on all earned income (not just the first $121,000 or whatever it is now).

            The truth is that medicare is a FAR FAR bigger problem though. Social security is really not that hard to fix and we have even done ok, with are half hearted attempts so far.

            I agree, there is no chance that it will be re-labeled welfare.

    • I think there are 3 reasons why I dislike Social Security
      1) I am young and haven’t really seen people who absolutely need it to live.

      2) I am only 29 and it makes me sick to my stomach that for the next 37 (probably 40) years the gov’t is going to continue to take 6.5% (or 13% from my wife as she is self employed)

      3) I don’t think it will be there for me in the same form in 40 years.

  3. Had the SS funds not been “borrowed out”, stolen or whatever you want to call it, the fund might have been much healthier today.

    • Jane,

      While I can agree that the social security program is not “healthy” I don’t know if borrowing from it had anything to do with that. I mean the money used has a general obligation from the US Gov’t so its going to be paid out.

  4. If you think there is a special fund for SS, you are mistaken. Look it up, The Supreme Court has ruled that there is no guarantee that anyone will ever receive a check from SS, even though they have paid into it their entire working life. They also stated there is no fund set aside for SS benefits. That fund we have heard about is a myth and does not exist.

    • I don’t believe there is a fund in the traditional sense of the word (a sealed off account). I don’t think I indicate otherwise.


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