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Cheap Annuity, No More
-- Social Security "Withdrawal of Application" Strategy to End?

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This article was first posted on September 1, 2010.

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The Social Security Answer Book

Three years ago Retire Early outlined a Social Security strategy that effectively allowed you to buy an inflation-adjusted life annuity from the Social Security Administration at a big discount to what a commercial insurer would charge for the same benefit. (See, Where can a 70-year-old buy the least expensive life annuity?, September 2007.) Social Security records show that over a thousand well-to-do retirees who have the $100,000 to $200,000 in ready cash required to pay back their Social Security benefits have taken advantage of this option in the past three years.

In a recent article on the Kiplingers web site, Mary Beth Franklin reports that the Social Security Administration is contemplating a change in the rules.

The proposed rule would limit the filing of a Withdrawal of Application to the 12 month period immediately following your first Social Security check. This would end the Social Security Withdrawal of Application strategy that allows you to claim your Social Security benefit at age 62, save and invest the money, and then payback those benefits eight years later (without adjusting for inflation) at age 70 to get a sizeable increase in your monthly benefit. The Office of Management and Budget would have to approve the proposed rule before it takes effect.

If you are in your late 60's and currently evaluating doing a Withdrawal of Application, it may make sense to decide quickly.

If started to collect your Social Security benefit at age 62 with the plan of doing a Withdrawal of Application at age 70 to reset at a higher benefit, you'll need to reevaluate. If you believe you'll continue in good health and have long-lived genes, it may make sense for you to do a Withdrawal of Application now, before the rules change, and then wait until age 70 to reapply for your benefit.

Links for additional information

Financial Advisor Magazine - Little known rule lets you restart Social Security 02/29/2008

www.analyzenow.com -- Ask Bud Hebeler when to take Social Security Benefits? 01/04/2004

Andrew Tobias column of 04/11/2006

Vanguard Group - Social Security: Does it pay to delay? 07/23/2007

Morningstar Conversation #55481 -- The "risk" of waiting to take Social Security 12/18/2006

Morningstar Conversation #45213 -- OT When to take Social Security? 11/14/2005

Morningstar Conversation #32377 -- When to take Social Security Benefits? 01/04/2004

Charles Schwab -- When should you take Social Security? 02/21/2007

CS Monitor -- When does it pay to take Social Security benefits early? 06/04/2007

CNN Money -- When taking Social Security benefits early is a mistake 06/06/2007

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Copyright 2000-2010 John P. Greaney, All rights reserved.

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