Social Security Eliminates Payback Option

A new rule prevents retirees from repaying benefits and restarting them at a higher rate -- striking down a strategy to maximize retirement income.

If you were wondering whether to take advantage of the strategy to repay all the Social Security benefits you have received so far and trade them in for a bigger monthly check, forget about it. The Social Security Administration announced Wednesday that, effective immediately, the payback strategy is no longer an option.

This little-known tactic has been gaining attention in recent years, thanks in part to a series of articles by Kiplinger that unveiled several ways of making the most of your Social Security benefits (see Secrets to Maximizing Social Security). We explained how readers could withdraw their application for Social Security retirement benefits, repay the total amount that they (and a dependent spouse or minor child) had received over the years, and reapply for a higher payment based on their current age.

Retirees may collect Social Security benefits as early as age 62, but monthly payments are reduced by 25% compared with what they would be if they claimed benefits at the normal retirement age, which is 66 for those who apply for benefits this year. Those who are willing to wait past age 66 can boost their benefits by 8% for every year they delay, up to age 70, increasing annual benefits to 132% of their base amount.

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Some retirees who applied early and took reduced benefits later regretted not holding out for a bigger check. The do-over maneuver allowed them to repay their benefits and lock in a larger base amount for future cost-of-living adjustments. Plus, they were able to maximize lifetime benefits for a surviving spouse.

Although the repayment could cost $100,000 or more, it was cheaper to repay Uncle Sam and secure inflation-adjusted payments for life than it was to buy a similar amount of guaranteed income in the form of an annuity from an insurance company.


But the publicity apparently led the Social Security Administration to rethink its policy. “The agency is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retirement beneficiaries to acquire an ‘interest-free loan,’ ” SSA said in a statement announcing its new policy. Separately, the bipartisan Commission on Fiscal Responsibility and Reform, which included recommendations for shoring up Social Security, called for eliminating what it described as a “loophole for wealthier retirees.”

The new withdrawal policy will still allow retirees to suspend their benefits temporarily and restart them later, resulting in slightly bigger checks to account for the months or years in which payments were not received. But the agency will no longer permit retirees to repay previous benefits. From now on, benefits may be suspended only once in a lifetime and only within 12 months of first claiming them.

The new rules are effective immediately, but the agency will solicit public comments for 60 days and publish another final rule, if necessary, in response to those comments.Larry Grumet, a retiree from Pittsburgh, is particularly disappointed with the announcement. He launched a letter-writing campaign last summer to get the agency to reconsider its proposal to eliminate the payback option. Grumet says his wife, Janice, started collecting a meager Social Security benefit of $820 per month when she turned 62 last year. She had planned to repay the money at age 66 or later in exchange for a higher benefit. Now she can’t.

“This rule has been in effect for decades, and it is not just for rich retirees,” says Grumet, a retired banker. “If Social Security is concerned about this free loan, all it has to do is change that aspect of the rule so the recipient pays a reasonable amount of interest on the money.” He plans to keep writing letters and hopes that other retirees do, too.

You can send your comments to Use the search function to find docket number SSA-2009-0073.

Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance