|
Posted by rick++ on February 18, 2008, 11:22 am
Article claims you can withdraw a previous application
for social security, pay back 100%, then reapply with
updated-age benefits. Thats is, you apply at age 62,
bank the checks, they re-apply at age 65 or 70 and
get a stepped-up penison. Plus keep returns on
banked payments so far.
http://www.chron.com/disp/story.mpl/business/5546299.html
If this is true, I'd like to see this loophole closed.
It gives an advantage to the rich who can afford not to
spend their pensions immediately.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Douglas Johnson on February 18, 2008, 1:12 pm
>Article claims you can withdraw a previous application
>for social security, pay back 100%, then reapply with
>updated-age benefits.
>If this is true, I'd like to see this loophole closed.
>It gives an advantage to the rich who can afford not to
>spend their pensions immediately.
It's true. See
http://www.ssa.gov/OP_Home/handbook/handbook.15/handbook-1515.html
It also gives advantages to the less well off, say someone who starts SS at 62,
then gets a job. Until they reach full retirement age (65-66 right now) money
earned in the job over about $13,000 will reduce the benefit by $1 for each $2
earned. By withdrawing the application, they can avoid this 50% tax on their
earnings.
Apparently, most of the applications are exactly that. In any case, there only
100,000 withdrawal applications per year out of 48,000,000 recipients.
-- Doug
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Mark Bole on February 18, 2008, 5:52 pm
rick++ wrote:
[...]
> If this is true, I'd like to see this loophole closed.
> It gives an advantage to the rich who can afford not to
> spend their pensions immediately.
Social Security is not a pension, it is social insurance (for example,
unlike private pensions, SS is "underfunded" and can only continue to
operate based on collection of current and future taxes).
Is this really the most outrageous "loophole" you can find with SS? I
can think of several others to get more worked up about.
-Mark Bole
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Douglas Johnson on February 18, 2008, 7:16 pm
>
>Am I overlooking something that would make this a good deal for the rich
>like the OP assumes?
Take a look at:
http://www.retireearlyhomepage.com/cheap_annuity.html
In that example, they compare it with a Vanguard inflation adjusted life
annuity. They assume our rich friend starts Social Security at age 62, earning
a total of $131,664 by age 70. Since they are rich, 85% of that is taxable at
25%.
Our rich friend returns the $131,664 at age 70 and gets an $999 per month bump
in SS. They also get a tax credit of $27,979 that year for the returned money,
giving them a net cost of $111,914 for that $999 more a month that will go up
with inflation.
To purchase a Vanguard inflation adjusted life annuity paying $999 a month costs
$167,161 according to the site. That will vary with current interest rates.
So, if our rich friend was interested in the annuity anyway, he saves over
$55,000 by "buying" it from the government.
-- Doug
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Mark Freeland on February 19, 2008, 2:45 pm
> Looking at the example given; $1,000/mo. at age 62 and "starting over"
> at age 70 you would have to give back $96,000, but you would receive an
> increase of $760/mo. benefits.
>
> The way I look at it, you would no longer have the $96,000, which itself
> would generate $400/mo. income (assuming 5% interest) if left untouched.
> Since you no longer have that income, it seems to me that the increase
> in benefits is really only $360/mo. in terms of monthly income.
Only for the first year. Each year, the increase in benefits ($760)
increases to keep pace with wages (CPI-W, not CPI-U). Also, since you're
assuming the $96,000 remains untouched (generating income), we should assume
that the extra benefits ($360+/month) likewise remain untouched and generate
income @5%/year.
http://www.ssa.gov/OACT/COLA/colaseries.html
Let's see what happens over 12 years:
1st payment: $360.00 * (1 + 0.05/12) ^ 144 = $655.15
12th payment: $360.00 * (1 + 0.05/12) ^ 143 = $652.43
13th payment: $382.80 * (1 + 0.05/12) ^ 132 = $662.73
The $382.80 comes from the fact that the whole $760 is inflation adjusted,
while your $400 monthly interest on $9600 isn't, so the difference grows
faster than the inflation rate.
After 12 years, by not spending the extra benefit but saving it, you'll have
$95,474.78. (One extra month will put you over the $96,000 target).
> Also, assuming you are rich and don't need the money, then to repay
> yourself the $96,000 using the entire increased benefit of $760/mo., my
> investment calculator says that it would take almost 9 years (again
> assuming 5% interest and monthly compounding of interest). If only the
> real increase of $360/mo. was used it would take over 15 years.
See above. I too started with $360/month benefit, and to be fair, invested
the proceeds just as you were doing.
> Am I overlooking something that would make this a good deal for the rich
> like the OP assumes?
Yes - the inflation adjustments of the total increase, and the fact that the
average life expectancy for someone aged 70 is around 11 years (i.e. this
pretty much breaks even on average). Finally, you control the choice of
whether to make this "investment". People in relatively healthy conditions
should consider taking advantage of this, since they have a good chance of
beating the odds. (Anyone can die suddenly, but we're talking conditional
probabilities here.)
Mark Freeland
BnetOnewsX@sbcglobal.net
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
| Similar Threads | Posted | | Social Security questions | September 5, 2007, 5:08 pm |
| Social Security Redux | September 24, 2007, 2:35 pm |
| Social Security Confusion | October 11, 2007, 12:24 pm |
| Social Security Rate of Return | January 29, 2007, 5:47 pm |
| SOCIAL SECURITY THREAD CLOSED | February 2, 2007, 1:42 pm |
| Social Security Spouse Benefit | April 26, 2007, 10:42 am |
| Social Security survivors benefit | April 30, 2008, 7:19 pm |
| future Social Security benefits and taxes | December 7, 2006, 10:11 am |
| Optimizing Social Security Benefit withdrawal | February 9, 2007, 12:34 pm |
| Thread Closed (was: Social Security Rate of Return) | February 2, 2007, 8:48 am |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap