How to Raise Your Social Security Paycheck

Social Security benefits participants can elect to stop and repay their previous benefits if they desire. This article shows you how you may be eligible to cash in, and whether or not this strategy could benefit you.

Things You'll Need

• Form 521 (Request for Withdrawal of Application)
• Internet access

Instructions

1. A little-known provision in the Social Security code can allow participants to pay back all of their previously collected benefits interest-free and reapply for a new, higher benefit. "But wait," you say. "That could cost a fortune!" It could, but it may be worth it. For example, a retiree that has to repay $100,000 in benefits could still come out ahead over time if he or she receives a substantial increase in benefits that could last for many years to come, and would also be paid to their spouse once they are deceased.

2. A time value of money calculation may be required in order to determine whether or not this is beneficial. There are several variables that must be considered in this equation, such as the amount that must be repaid, interest earned on the repayment balance, life expectancy and the amount of increase that you will receive in your benefits. But if you are 70 years old and have received benefits for four years of $1,300 per month jointly, then your total repayment would come to $62,400. But if that repayment allows you to receive a future benefit of $2,000 per month as long as one of you is living, then you would receive an additional $168,000 in benefits, assuming either you or your spouse live to age 90.

3. If you decide to go ahead with this, be prepared to forego Social Security benefits for a few months while the process is completed. The automatic deductions that cover your Medicare premium will also stop, and you must cover this amount out of pocket.

4. Be sure to claim either a tax deduction or tax credit for any taxes that you paid on your Social Security income that you repaid. For more information, consult your tax advisor or consult IRS Pub. 915.

Tips & Warnings

• There are several websites available that can help you determine whether reapplication is a good idea, such as The Retire Early Home Page (see Resources below). Your financial advisor can also provide valuable insight on this matter.

• You must carefully consider your life expectancy in your calculations. It is important to determine how long you must live in order to recoup your repayment amount.

Resources

• Social Security Online
• Retire Early