On December 8, 2010, the very date I wrote about it, the Social Security Buy Back Died (meaning, it is no longer possible).
A Social Security buy back can give you an interest free loan and a very profitable inflation-adjusted government Insured annuity. You simply repay your early retirement benefits and immediately start over with increased benefits.
I began with 5 years in the tax departments of well-known national CPA firms. I then spent a lifetime studying and practicing U.S. income and payroll taxes. Despite this, I often still learn important tax facts, like this Social Security buy back.
The Social Security buy back strategy works like buying a government insured, inflation-adjusted annuity, with a payout higher then what an insurance company would offer to you. If you began taking Social Security benefits early, the Social Security buy back strategy can increase your monthly benefit as much as 50%!
This works if you took Social Security benefits early (before you reached full retirement age) and have the money to repay what you got so far. You can repay benefits you got so far, and instantly reapply, for larger benefits. Of course, if you die shortly after paying back the benefits, you incur a loss, as you would with any life-only annuity. This also may affect your survivor annuity.
The Social Security buy back works because you accumulate delayed retirement credits until age 70. If you start collecting early, paying back benefits resets your benefit to a larger amount, based on your older age. The best time to repay benefits is right before you turn seventy.
Consider the Social Security buy back strategy if you have a long life expectancy, and the money to repay the Social Security benefits you got so far. Like any financial strategy, you want to compare this to other investment alternatives before making a decision.
This can sometime increase Social Security payments by 50% or more. Benefit increases compound with annual inflation adjustments, based on new, higher benefit amounts. The extra benefits can provide a substantial secure increase in your standard of living. It is like buying a government insured, inflation-adjusted annuity with a payout higher than what an insurance company would offer.
For a detailed case study read Double Dipping On Social Security.
Warning: A 2010 Kiplinger article warns that the Social Security Payback Option May Disappear, so if you are considering this, contact Social Security now to see what your buy back amount would be and what your increased benefit amount would be.