Resetting Social Security
Research for Online Investors

by John Dalt

This article appeared in MarketToday on 8/30/10

Have you ever heard of “resetting Social Security?”  The Wall Street Journal detailed the procedure on Friday in “How to Game Social Security.”  I have heard references to this reset idea on the internet over the past few years, but had never fully investigated it.

The provision to reset Social Security was written into the law for people that may have started collecting benefits, but had to go back to work.  When they decided to retire again, they could reset their benefits and collect the higher benefits based on their current age.  All they had to do was pay back all the payments they had received.

Now at an older age their benefit calculation raises their monthly payments enough to recover the paid back amount relatively quickly.  This plan is not for everybody, you would want to be in good health because benefits end at your death.  The article gives an example of an unmarried 70-year old female.  She originally filed for Social Security at age 62, so would need to repay the $110,845 received over the last eight years.  She also receives tax credits for taxes paid on her benefits.  This reduces the taxable cost to $87,290

In exchange for paying back the hard cost of $87,290, this person’s benefits would increase $8,568 in the first year.  Future year’s COLA would be based on the new higher benefit amount, so the disparity would increase each year.

Charles Ryan, the author, calculated that the example person could have purchase an annuity with the same amount of money, but it would have only paid $5100 per year in benefits.

You should read the WSJ article to see if this strategy is appropriate for you and your spouse.  Larry Kotlikoff, a Boston University Economics professor has researched the strategy and says, “"Unless you know your death is really close at hand, this is the way to go.  This is the safest, cheapest version of a lifetime annuity, and it's from the government."

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions. It may contain errors and you should not make investment decisions based solely on what you believe you have read here. Do your own research, it is your money. If you lose it, it is your responsibility, not ours or your grandmothers! The editor may or may not have a position in any securities discussed. The editor may have held a position in a security earlier, or in the future.

Investor Resources

Back to Top