Nov 4, 2009

Gaming Social Security

Until fairly recently the rules about collecting social security were straightforward: Defer benefits if you can, because doing so means you can collect more at the back end. If you start taking your benefits at age 62, the earliest possible age, your monthly benefit will be 25 % lower than what you'll collect if you wait until 66 (the full retirement age) or later.

Today, there's a cottage industry devoted to analyzing how people can optimize their social security benefits, taking into consideration marital status, taxes, financial status and a slew of other complex factors. Strategies can get pretty complicated, too. For example, a recent article in Newsweek describes this strategy for retirees who have sufficient savings to live off of: Claim and collect benefits at age 62 and invest those benefits. Then, at age 70, withdraw the Social Security application and pay back the total amount received in benefits, minus the interest. Re-apply and collect the higher benefit at age 70. Voila!

This is only one of the many strategies savvy seniors are employing to optimize their social security benefits. Of course, those who absolutely need their benefits to survive financially cannot afford to do this kind of planning. And others, fearful that the entire social security system will not be solvent, just want to take the money and run.

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