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http://bucks.blogs.nytimes.com/2010/12/09/social-security-se...

The Social Security Administration published new rules this week that limit the ability of Social Security recipients to essentially receive interest-free loans from the agency. The rules took effect immediately.

Under the old policy, people who decided to take their Social Security benefits early could change their mind at any time and withdraw their application for benefits, as long as they repaid the full amount of the benefits received, with no interest charged on the money. They could then also reapply for benefits later on and receive higher benefits.

</snip>


intercst
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I was sorry to learn about this, having held out some hope that the former policy might remain intact at least another couple years.

Elsewhere in the linked article, it is stated that there is a 60 day comment period and the SSA will then publish a final rule. It seems like a longshot that they will relax this week's new rule after the comment period but if they were to 'grandfather' anyone's eligibility to use the procedure -- people who are already drawing retirement benefits, for example -- I'd be delighted.

hirundo
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FYI:

According to the local SSA office, 8 Dec 2010 was the LAST day they accepted any "Request for Withdrawal of Application"!

http://www.socialsecurity.gov/online/ssa-521.pdf

[Yepppers, they admitted it was "during" the comment period & might be changed after that period.]


sunrayman
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Big deal. That "loophole" wasn't really a loophole, IMHO.

Once you sit down and throughly analyze the numbers, there's probably less than 1% chance that it is truly beneficial to you. All the excitement was just empty blathering by folks who got all excited that you could exchance a dollar for TEN !!!! dimes. Wow!! What a deal--give one thing and get ten things back.
So most people who did this saw zero substantive benefit.
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Big deal. That "loophole" wasn't really a loophole, IMHO.

Once you sit down and throughly analyze the numbers, there's probably less than 1% chance that it is truly beneficial to you.



i saw it more as only about 1% could take advantage ..


i needed my SS to live on..
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Yeah, once again the younger generations get the short end of the stick.

#29
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Once you sit down and throughly analyze the numbers, there's probably less than 1% chance that it is truly beneficial to you. All the excitement was just empty blathering by folks who got all excited that you could exchance a dollar for TEN !!!! dimes. Wow!! What a deal--give one thing and get ten things back.
So most people who did this saw zero substantive benefit.


intercst showed the math on his website. There was a real benefit and it likely was much higher than 1% for me.

PSU
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intercst showed the math on his website. There was a real benefit and it likely was much higher than 1% for me.

I didn't say the benefit was only 1%. I said that much fewer than 1% of the people could benefit from it.

I saw his math, and I went over the numbers. IIRC, the original article was titled "Where can a 70-year-old buy the least expensive life annuity". When you work thru the numbers rigorously, that is just about the ONLY case where it made sense. And really, the number of people who met all the criteria was IMHO vanishingly small.

Most of the people who got all excited about it were focussed on the fact that you could pay the money back without interest and keep any earning you'd made in the meanwhile. While this was true, it was also kinda dumb---because you re-exposed yourself to mortality risk. They looked at the benefits but ignored the risks.

Also, of course, this worked only for people who didn't need the SS money to live on. So the only people who could get this benefit were people who were financially extremely well off. That was what SSA (rightly) saw as an abuse of the system.
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Rayvt writes,

Most of the people who got all excited about it were focussed on the fact that you could pay the money back without interest and keep any earning you'd made in the meanwhile. While this was true, it was also kinda dumb---because you re-exposed yourself to mortality risk. They looked at the benefits but ignored the risks.

</snip>


How does it "re-exposed yourself to mortality risk"?

My analysis showed that it actually gave the retiree a second bite at the apple with regard to mortality risk.

If you wait until age 70 to collect SS (the advice of many financial planners to their wealthy clients), you could come down with cancer by age 69 and be dead by age 70. On the other, had if you take SS at age 62 with the plan to do the Withdrawal of Application at age 70, you can reevaluate that decision at age 69 when you get the cancer, and not do the Withdrawal of Application -- collecting 8 years worth of SS instead of zero.

Of course , it's all a moot point now.

intercst
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How does it "re-exposed yourself to mortality risk"?

It is a wash for the individual who takes early retirement, but it might be risky for their spouse. A wife, for example, who gets more by taking half of her husband's benefit than her own, gets half of the reduced benefit from early retirement. If the husband dies before paying back and re-starting at the larger rate the wife is left with half of the reduce rate forever.
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because you re-exposed yourself to mortality risk. They looked at the benefits but ignored the risks.

Since a number of my family members have lived into the 90s and sometimes the 100s, I was willing to take the risk.

Also, of course, this worked only for people who didn't need the SS money to live on. So the only people who could get this benefit were people who were financially extremely well off.

Isn't saying extremely well off kind of extreme?
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So the only people who could get this benefit were people who were financially extremely well off.
Of course it depends on your definition of "extremely well off". One did need the money available to pay back previously received benefits and also funds to support themselves while the suspension and re-applying was in process. IMO this is not necessarily one who is extremely well off.
To me the big advantage of the process was to establish a higher benefit amount for a surviving spouse at some future time.

Bob
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So the only people who could get this benefit were people who were financially extremely well off.

=======
Isn't saying extremely well off kind of extreme?



perhaps ... i'd have said "extremely well off or well off and very frugal"


but then, "ALL is relative" ...

"extremely well off" often just means "way better off than me"


isn't it that for something like 50% of retirees their ONLY assets are SS and their house .. compared to them, i'm "very well off" /but couln't touch the intercst Loophole™
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RHinCT analyzes,

<<How does it "re-exposed yourself to mortality risk"?>>

It is a wash for the individual who takes early retirement, but it might be risky for their spouse. A wife, for example, who gets more by taking half of her husband's benefit than her own, gets half of the reduced benefit from early retirement. If the husband dies before paying back and re-starting at the larger rate the wife is left with half of the reduce rate forever.

</snip>


Actually, the surviving spouse can do the Withdrawal of Application by paying back all the SS benefits the husband collected before he died. She would then get the higher benefit.

However, since she would only get half the husband's monthly benefit (and in dollar terms, "half" of the increase of doing the Withdrawal of Application), this is one of the few cases where it makes more sense to buy an annuity from a commercial insurance company. See this link:

http://www.retireearlyhomepage.com/cheap_annuity.html

The husband in this example collected $103,685 in benefits after taxes and $17,393 in investment earnings for a total of $121,078 after taxes.

The wife could buy an annuity with a $500/month benefit (half the $999 increase the husband would get) for about $90,000 if she's the same age as the husband (70) -- meaning the Withdrawal of Application strategy still leaves the surviving spouse over $30,000 ahead.

intercst
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How does it "re-exposed yourself to mortality risk"?

Rayvt maybe looking at the large sum it costs you when you withdraw/re-apply!!

Using 2006 male mortality rates, and 3% interest return on that SS income from age 62 if you reapply, there is about a 40% chance you would not recover your "costs".

And - If you are fortunate enough to squeak out the average stock market rate (S&P CAGR) the chances of you getting eaten by a shark are greater than earning back the money.

We can play with the numbers - inflation/cost of living, investment returns, additional employment between 62 and 70, or even adding in the probability of default of Social Security and do what ever to make it look like a good deal or a crappy deal--- but it appears that your wealth will have additional exposure to your mortality..

d(Mortal)/dT
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How does it "re-exposed yourself to mortality risk"?

This is pretty simple. I take my payments at 62, say I get $1500 a month ($18,000/yr). At age 65, I will have collected $54,000.

Oops, I say, I want to give it all back and start over, so I go through the application process, write a check back to the government for $54,000, and stand in line for my new, improved benefit of around $2,000 ($24,000/yr).

I die the next day. My estate is $54,000 poorer. In fact, just to catch up, since I'm only getting an "extra" $500 a month, it takes quite a while to break even.

The numbers in the chart below are cumulative. By re-starting at age 65 you get a bigger payout, but it takes you to age 73 to break even. If you die at any point before age 73, you (or rather, your estate) is behind.

Year Start at 62 Start at 65

1 $18,000
2. 36,000
3. 54,000
4. 72,000 $24,000
5. 90,000 48,000
6. 108,000 72,000
7. 126,000 96,000
8. 144,000 120,000
9. 162,000 144,000
10. 180,000 168,000
11. 198,000 192,000
12. 216,000 216,000


Of course this ignores any interest you might have gotten with the $54,000 during those first three years, but in today's climate that amount can pretty much be ignored.
 
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Goofyhoofy:

Your table does not address one important point.

For years 1 - 3 of the "take it at 62" scenario, you are not removing $18,000 each year from your savings/IRA/401K. It continues to grow if it is properly invested.

For me, 62 vs 66 until I am dead at 86:

62 @ $18,576 = $464,400 at 86
66 @ $24,624 = $517,104 total payout at 86

Leaving the $18,576 in my IRA each year for the 5 years with no other additions becomes $455,069 when I am 86 using 8% appreciation.

$464K + $455K > $517K any day of the week.

Gene
http://www.taylortel.net/~gdett2/
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One did need the money available to pay back previously received benefits and also funds to support themselves while the suspension and re-applying was in process. IMO this is not necessarily one who is extremely well off.

Well, according to my neighbors who are getting SS, this *is* a good description of e"xtremely well off." And this is a solid middle class to upper-middle class area.

Figure it out. Age 62 to 66 = 48 months at approx $1200-$1500/mo = $65,000. To age 70 = 96 months = $134,000.

So, yes, anyone who can write a check for $65,000 to $134,000 is very well off. And very rare.
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Rayvt maybe looking at the large sum it costs you when you withdraw/re-apply!!

Using 2006 male mortality rates, and 3% interest return on that SS income from age 62 if you reapply, there is about a 40% chance you would not recover your "costs".


I was really just thinking a of the fact that you'd pay back a whole lot of money (ca. $130K) for the SS benefits you collected for 8 years (62 to 70)....and that the life expectancy of a 70 year old is a lot lower than that of a 62 year old.

The risk is really that of an SPIA--you pay them 100K+, collect higher benefits for a couple years, then drop dead.

Of course, as the original article said, the "loophole" was essentially an SPIA.
But all the breathless excitement only talked about the "zero interest" loan aspect, which is a lot more sexy and a lot more misleading than the SPIA aspect.

When I said, "re-expose to mortality risk" I was referring to people who thought they were getting a zero interest loan.
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Your table does not address one important point.

For years 1 - 3 of the "take it at 62" scenario, you are not removing $18,000 each year from your savings/IRA/401K. It continues to grow if it is properly invested.


No. You double counted. You counted $1500/mo from SS for living expenses, but you also counted that you saved that same $1500 in order to be able pay it back.
You can't both save it and spend it.

In fact, when I mentioned this refile technique to my retired neighbors last year, they laughed in my face. They said, "Yeah, and where are we going to find $60,000 to pay SS back? Stop eating for 4 years?"
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Rayvt writes,

One did need the money available to pay back previously received benefits and also funds to support themselves while the suspension and re-applying was in process. IMO this is not necessarily one who is extremely well off.

Well, according to my neighbors who are getting SS, this *is* a good description of e"xtremely well off." And this is a solid middle class to upper-middle class area.

Figure it out. Age 62 to 66 = 48 months at approx $1200-$1500/mo = $65,000. To age 70 = 96 months = $134,000.

So, yes, anyone who can write a check for $65,000 to $134,000 is very well off. And very rare.

</snip>


Maybe not so rare?

About 5 million households in the US have $1 million or more in investable wealth (i.e., the funds you have beyond the equity in your home and the value of any employer-sponsored retirement plan) and 45% of those 5 million households is headed by a retiree.

http://www.retireearlyhomepage.com/healthcarereform.html

Someone with a million dollar investment portfolio could surely write a $134,000 check if he thought it was a compelling deal.

intercst
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Someone with a million dollar investment portfolio could surely write a $134,000 check if he thought it was a compelling deal.




and someone with a million, a house and a pension is about 4 times better off than me .. fits *my* def. of very well off (though less rare than i would have guessed)



-b
..... but very sad for them they can no longer get an interest-free loan from the SS
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RayVT,

Not sure what you meant by double count.

Basic scenario, retire at 62 with or without immediate SSA.

Let's say at 62, I start recieving SSA payments of $16K each year.

I get those payments for 4 years (62 - 65). I have been "given" $64,000.

If I wait until 66 to get SSA, I will have had to draw down my savings by $64,000 to live on because I did not get from SSA.

The net result is taking SSA at 62, leaves money in your IRA/401K/savings.

Of course, continuing to work from 62 to 66 changes all the numbers.

Hope that explains my point.

Gene
http://www.taylortel.net/~gdett2/
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Leaving the $18,576 in my IRA each year for the 5 years with no other additions becomes $455,069 when I am 86 using 8% appreciation.

Where in the world are you getting 8% a year, every year for 14 years?

For the past 10 years you've gotten essentially zero. If you go back past that you're likely negative if you held through the tech crash.

(And my example wasn't 5 years, it was 3 - retirement at 62 instead of 65. And even at 8%, the amount only totals to $140,000. You don't get to keep adding the $18,000 every year, since it's supplanted by the $24,000 three years later. You only get the first three years cumulative, plus interest in the comparison.)
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Since 1991, I have averaged a little over 14% annual return on my invested money, which includes 2001 and 2008/9.

This allowed me to retire 5 years ago at 55 instead of 66 or 62 even though I "gave up" 80% of my company pension and healthcare benefits to retire early. My savings have paid for everything.

The 5 years referred to was in "my" earlier post, 62 - 65 is 4 years not 5 that I had put in my post.

In the list below, I start with $18,576 that stays in my IRA instead of being withdrawn. In year 2, an additional $18,576 is put in plus gains at 8%.

I dropped all gains on the first year, so the end number is now lower even though it is currently invested and would have the full first year appreciation.

$18,576
$40,124 +
$63,396 +
$88,530 +

No additional money in from here to the end, only investment gains of 8% annually.
$95,612
$103,261
$111,522
$120,444
$130,080
$140,486
$151,725
$163,863
$176,972
$191,130
$206,420
$222,933
$240,768
$260,030
$280,832
$303,299
$327,562
$353,767
$382,069
$412,634
$445,645

This assumes:
1. I was able to live comfortable on the $18,576 + other normal sources.
2. That I actually leave the saved money invested and do not "drain" it.

If I switch from 8% to 6%, the end result is $288,321.

Incidently, in my planning, I use 6% for investment appreciation so that I plan for a pessimistic future. It was just tested in the 2008/9 sag without any problems.

Gene
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Since 1991, I have averaged a little over 14% annual return on my invested money, which includes 2001 and 2008/9.

My congratulations on doing twice as well as Warren Buffett.
 
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My congratulations on doing twice as well as Warren Buffett.

But only half as well as kahunacfa.
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My congratulations on doing twice as well as Warren Buffett.
LOL!

But only half as well as kahunacfa.
LOLROTFPIMP!!

Um, if you can reliably make 8%-14% then why in heck would you even consider doing a SS payback?

I harken back to something a professional trader said after the 2001-2002 meltdown. "Anyone who says that he didn't lose big last year is either a liar or has been taking foolish risks." Never confuse luck with genius.
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