Tulsa World: Re-retiring could boost payments from Uncle Sam

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Re-retiring could boost payments from Uncle Sam

By KATHY KRISTOF Tribune Media Service
Published: 11/8/2009 2:22 AM
Last Modified: 11/8/2009 4:26 AM

The Social Security Administration recently announced that retirees would get no cost-of-living adjustments this year — and maybe not even next year — because the inflation measure it uses to determine them has declined for the first time in more than three decades.

Congress and the administration are working on legislation to provide seniors a $250 consolation prize, a one-time check that would amount to about 2 percent of the average senior's benefits. But retirees may be able to do far better than that by taking advantage of a loophole in the Social Security law. Using this loophole, which allows you to "restart" your retirement benefits years after you've retired, can be risky. But if you're healthy, have some savings and are under age 70, it may well pay off in spades.

Someone who originally retired at age 62 and "re-retires" at 70, for example, would boost monthly benefit payments by 76 percent, said Brett Horowitz, a certified financial planner with Evensky & Katz in Coral Gables, Fla.

The catch? You have to repay what Social Security has given you so far.

Sound crazy? It would be if you're in poor health. That's because Social Security payments die with you. Unless you live past age 82, you are likely to have repaid more than you got back in monthly income, said Larry Kotlikoff, an economics professor at Boston University.

Moreover, if you don't have more than enough in savings to repay the benefits in a lump sum plus some money left over to cover emergencies, you shouldn't do it, Horowitz said. That's because you can't go back. Re-retiring is like buying a lifetime annuity with your savings. Once purchased, you can't get your principal back. You bought yourself a stream of monthly payments. You don't have the option of deciding that you'd like to have the money in the bank instead.

That said, the typical retiree's biggest risk is outliving his or her savings. This allows you to ensure against declining living standards when you're old.

"The biggest risk old people have is living to 100," said Kotlikoff, who is also coauthor of the 2008 book on retirement planning called "Spend to the End." "You can't count on dying on time."

Kotlikoff said re-retiring "is like buying an annuity at a great rate from the most creditworthy organization around."

Better yet, you get a current-year tax credit for all the income taxes you paid on your Social Security benefits in years past, he said.

The one caveat: Kotlikoff is not sure how long this loophole will last.

That's because both the Social Security and Medicare systems are financially troubled. If millions of retirees took advantage of this do-over opportunity, the systems could go into the red even earlier than they are projected to now. For that reason, some experts are lobbying to close this loophole before too many retirees squeeze through it.

Until they do, however, it may be a chance to boost your income when cost-of-living increases are scarce.

Contact Los Angeles Times staff writer at Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St. 90012, or e-mail kathy.kristof@latimes.com. By KATHY KRISTOF Tribune Media Service

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