Social Security

A Social Security Do-Over?

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Retirement hasn't always been a planned life event for the American worker. In the past, many reached a certain age, realized they could no longer work, but lacked the income needed to stay out of poverty.

The Social Security Act, signed by President Roosevelt in 1945, guaranteed a continuing monthly income to retired workers over age 65. Social Security was designed as a safety net, giving workers a retirement income. The program has become part of modern life and many rely on it as a key income stream. Americans receive a social security number, and count on their benefits as they see Social Security taxes withheld from their paychecks.

However, in today's economy, with earlier retirement ages coupled with longer life expectancies, the elderly are more afraid of running out of money than of death. Many senior citizens are worried they or their spouse will find themselves out of cash in what was supposed to be their golden years. When and how much you receive in retirement income is becoming more important.

Receiving Social Security Payments

You can begin receiving Social Security benefits at age 62. However, the Social Security Administration's (Administration) actual retirement age is between 65-67. That means that if you choose to receive your retirement benefits before that age, your monthly benefit payment is less.

A Social Security Do-Over

Some retirees who started collecting their benefits early realized they're in effect losing potential benefits. As a result, the government now allows them to apply for a Social Security "do-over." The result? Higher benefit payments over the long run.

However, there is a catch. They must repay all of the past benefits they've received, and it often adds up to more than $100,000. While this is often a large figure for most to pay, it's tax deductible and the new pension provides larger monthly benefits. This gives retirees added protection against outliving their retirement money and keeping ahead of inflation.

Who Should Do This?

For those retirees who received early payments of Social Security and can afford repaying benefits, this do-over can be a great decision.

However, it's not for everyone. If you're healthy and are expecting to live beyond the average life expectancy, this makes sense.

Also, if you're married and were the higher earner, and there is a strong possibility that your spouse will outlive you for many years, this option makes sense. Your spouse will receive the larger Social Security benefit for the rest of his or her life.

Either way, you should consult with your financial planner and tax adviser.

Who Should Not Do a Do-Over?

If your health isn't great this option makes less sense. Also, if you've been receiving Social Security payments for many years, it means you'll be making a big one-time payment to the government. If your spouse is much older and was the higher wage earner, chances are that you'll receive his or her benefit upon death.

Looking at a Do-Over Example

To see how a do-over will work, see the example below, taken from the The Wall Street Journal:

  • Let's say there is a husband and wife - he's 68, she's 62. He started collecting benefits at age 62
  • He's now getting about $21,489 a year in Social Security payments (the wife gets spousal benefits of $9,815 because she also collected at 62)
  • He withdraws at 68, waits two years, and then reapplies at age 70
  • He repays the Administration $117,354 for the benefits he has collected
  • At 70, his new yearly benefit amount comes to about $37,111, over a 70 percent increase
  • This raises their sustainable spending (how much the couple can spend each year assuming he lives until 100) from $63,505 to $72,908, a 13.5 percent increase1

The difference in monthly income could make a real difference in your lifestyle and spending. You may not have to face issues such as thinking about a part-time job to make ends meet or lowering living standards. Look at your options and take advantage of a rare second chance on a big life decision.


1Lisa Scherzer, Repaying Social Security Can Be a Good Deal, SmartMoney at the Wall Street Journal, July 16, 2010, available at, Visited August 13, 2010

Questions for Your Attorney

  • What forms do I have to fill out to take advantage of the do-over?
  • Are there any other restrictions on who can take advantage of the do-over?
  • Will this decision affect my children's inheritance?
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