Your opinion: Letter to the editor Two ‘little-known’ SS Strategies

June 19th, 2015 9:25 am

First Posted: 12/21/2013

Most people I talk to are unfamiliar with the two following Social Security strategies, the “Lump-Sum payout” Rule and the “Reset Payback” Rule. Both are very good insurances to be familiar with for your Personal Retirement Plan.

“Lump-Sum” Payouts: What happens if you need a sum of money while you are suspending your social security benefits? When you reach your Full Retirement Age (FRA) of 66 you can “File & Suspend” your benefits (if you have not already started receiving them). By doing so, you are on record with the Social Security Administration that you have filed for benefits, but you are not yet receiving them. “Filing & Suspending” allows your benefits to grow by 8 percent annually, guaranteed, while you defer receiving benefits anywhere from ages 66 to 70. The following is a breakdown of percentages you will receive at each starting age: age 66 (100 percent), 67 (108 percent), 68 (116 percent), 69 (124 percent) and 70 (132 percent).

However; you may want to make that special purchase like a boat or a classic car you’ve always dreamed of; a timeshare somewhere warm to escape our NEPA winters; perform home improvements or make an addition; or you may face an illness and need extra money to recover with the amazing medical technology we have at our disposal. As long as you have “Filed and Suspended” you can collect a retroactive lump-sum of your benefits.

Here is an example: let’s say you’re 68, and in need of a sum of money, and have already “Filed & Suspended” at age 66. With a Full Retirement Age (FRA) benefit of $1,000 per month, you can “look-back” two years and receive a “Lump-Sum” of two years’ worth of benefits- this would equal $24,000. At the same time, you can begin receiving your benefits of $1,000 per month. Your two years of guaranteed 8 percent growth in your benefits would just not apply because instead, you took a lump sum payout.

Another example, you can “look-back” only one year, and receive $12,000 in a lump-sum payout, and take advantage of one year of guaranteed 8 percent growth in your benefits, giving you a lifetime social security benefit of $1,080/month. Again, if you pass-away at any time with a larger benefit than your spouse, your benefit will transfer to him or her as a Survivor Benefit.

Reset-Payback: If you’ve started receiving your benefits, and you find you need more income on a monthly basis- you have the option of resetting your benefits to a larger amount. You can pay back the benefits you’ve already received interest-free over time, and reset your benefits to begin growing again and earn guaranteed annual growth in your S.S. benefit of 6.25 percent between ages 62 to 66 or 8 percent between ages 66 to 70. This can only be done if you’ve received 12 months or less in benefits, after that, this option is unavailable.

For example, if at age 62 you began receiving an early benefit of $750 per month, and after 12 months find you need a higher monthly income - you can pay pack the $9,000 you’ve received, and “Reset” your benefit to the age 63 amount of $800 per month. Divide your new annual benefit of $9,600 by the $9,000 you paid back interest-free, and you have a Lifetime Investment Yield of 6.7 percent.

Mike Dillon, Retirement Specialist

116 N. State St., Clarks Summit