Social Security is considering shutting down this loophole, so if you want to act on this you will have to move fast. The changes when they occur could happen by means of legislation or my means of regulation. Bear in mind that it is part of the agenda of Social Security Administration to get rid of this provision, which they look at as a loophole.

How profitable would it be for someone to follow this strategy? An example can be given here. Martin is 68 years of age and his wife Mary is 62 years old. They live in Connecticut. Martin went to college and later worked a job in retail. His salary was $30,000 annually. At the time of his retirement he make $168,000. His wife Mary was a stay at home mom and never worked.

The couple saved consistently and accumulated $300,000 in assets and also $600,000 in their retirement accounts. Martin receives $21,489 annually in social security, after applying at age 62.

Mary also receives a social security benefit amount of $9,815. Their combined net spending power, after taxes and Part B Medicare premiums, amounts to $63,505. This represents the amount they can spend in total each year until Martin turns 100 years old. When Martin reaches that age, Mary can have her spending dropped to $39,691, that will still give her a reasonably comfortable living. However, if Martin should repay $117,354 and take the tax deduction when he files his taxes, he will actually receive a 73% increase in his benefits for the following 30 years, that is to age 100.

In this way the couple’s income goes from $63,505 to 72,908, an increase of 13.5%. This represents an increase of 13.5% in living standard each year for as long as they live. If this couple were to achieve this same increase in their living standard in any other way, they will have to find $240,000 from a regular assets source, that is, not from a retirement account. Also, in order to collect any spousal benefits, Mary’ benefit will increase to $13,939; the total spending power of the couple will go from $72,908 up to $74,667.

This increase amounts to finding a total of $310,000 (not just $240,000) by the roadside. What are the implications for the children? If immediately after paying back the $117,354, Martin dies, then all the money is lost. The children and Mary are totally out of the money. However, if Martin dies prior to reaching 100 years of age, his death means that 1 person less will benefit from the Social Security. Mary will get all of the higher benefit that Martin had applied for.

It is interesting that, if Martin should die before he reaches the age of 70, but after he started receiving retirement benefits, Mary will get 100% of his benefit and that will be adjusted to the retirement credit, to the point of Martin’s death. The process of repaying and then reapplying, benefits Mary in the much higher survivor payouts. Had Martin died after reaching age 70, then Mary would receive $37,111 each year for the remainder of her life.

However, if Martin had not processed the repayment and then reapplied, Mary would only have received $21,489 a year for the remainder of her life. So Mary’s interests were well provided for. How do the children benefit? Once the couple achieved the higher living standard of living, they would also be able to give the children any direct gifts they choose. Because of this, the couple may be comforted by the thought that the children will not have to assist them financially in their late life. Their children will be more aware of what they can get from your parents. The process of repaying and then reapplying, proves benefit to everyone in the family.

Be aware that you, and many before you, may be told by your Social Security office that the option to repay and reapply does not exist. They may even tell you that you cannot process the option after they have passed age 70. That is not correct. Until the loophole has been removed or revoked, the option still exists.

Remember that it is not necessary for you to wait to reach 70 to reapply; the maximum benefit is received at the age of 70. If your local Social Security office does not give you the correct information, then have them refer the questions to Social Security Office of the Actuary, and they should get the correct answers. There are a lot of rules regarding Social Security issues, about 2,728 in all.

The Social Security system is quite complex, so be aware that you may get four different answers to four different offices.