Benefit: The social security pay back strategy used to allow you to get an interest free loan from the government. You could collect benefits for years, then pay them back, and restart your benefit at a new higher amount. As of December 2010, you are only allowed to do this if you "change your mind" and pay back benefits within the first 12 months of starting your social security retirement benefits.
Works if: In December 2010, a New Social Security Rule was enacted which stopped wealthier retirees from taking advantage of the social security pay back provision. Details on how it used to work are below. As this pay back option is no longer allowed, it is yet another reason to consider delaying your social security benefits.
The best annuity you could buy used to be one from the U.S. Government. If you started taking social security benefits early (before full retirement age) you could pay back the benefits you had received so far, and then instantly reapply, receiving a higher benefit level. Of course if you should die shortly after paying back the benefits you would have incurred a loss… just as you would with any life-only annuity.
The social security pay back strategy is no longer allowed unless you do it within your first twelve months of beginning your social security retirement benefits. This means before starting your social security retirement benefits you need to seriously consider the effect of delayed retirement credits which you accumulate when you defer your social security retirement up until age seventy.
Example: For a detailed case study on how the social security pay back strategy used to work read Double Dipping On Social Security.
Readers, I had this warning listed in regards to this strategy: In a 2010 article, Kiplinger warns the Social Security Payback Option May Disappear, so if you are considering this, contact social security now to see what your pay back amount would be and what your increased benefit amount would be.