Federal Tax Reporting For Ira Over 70 1 2 Old Repay Or Delay Social Security to Increase Your Income and Estate

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Repay Or Delay Social Security to Increase Your Income and Estate

When I tell people, “Increase your overall retirement income by delaying Social Security until age 70.” or “Consider paying back whatever you received in Social Security Payments to increase your monthly amount.” I will usually get a look of confusion and a response of several “But”,

1) “But if I do that I might die and never get anything out of it.”

2) “But if I don’t take Social Security income now I would have to spend my IRA money down to live, I want that money to go to my grandchildren.”

3) “But I need that Money if I need Long Term Care”

4) “But why and how do I do that?”

Looking at Social Security by itself will many times tell you to take the money sooner rather than later. However, by coordinating your planning and using other financial tools, you can ensure that you get the most of your entitlement.

For example, consider a couple who are both 70 years old and claim benefits at age 62, just as more than half of Americans do. They now raise $20,400 each year and have raised about $160,000 each over the last 8 years.

If they waited until 70 to claim benefits, they would be entitled to about $35,000 each year. However, most people look at the income received over the 8-year period from age 62-70 and feel that it is better to enjoy the money while they are alive than to risk receiving nothing.

But you could enjoy your profit more even if you never get a dime of it?!

Let me explain.

Let’s assume our couple filed for benefits at age 62 and has $500,000 in a CD earning 2% interest.

If our couple pays back the benefits they received, they would need approximately $160,000 each to accomplish this.

The $160,000 each had to give up is now out of their accounts. It was spent. Back to Uncle Sam. The income increases however to $35,000 a year each now (an increase of $14,600 a year each) and this continues for the rest of their lives.

Remember here that there is a cost to pay this back. In this case, we have to consider that if we had kept the money and not paid back the benefits and left the money in a CD earning 2%, this couple would still have $6400 of income coming from their cash AND they would still have $320,000 in . their account.

More Income but less money on the bank statement. (Remember the “But”)

The extra income provided by Social Security has the following benefits:

1) Increases annually based on inflation or

2) Will not decrease if there is Deflation

3) Are at least 15% exempt from Federal Taxes

Using these assumptions, a couple implementing this strategy would have an additional $23,268 per year in income and is calculated here:

Extra Social Security Income He $14,600

Extra Social Security Income Her $14,600

Minus Lost Interest Income on $320K $6400

Total Net Increase in income $22,800

If we increase income by $22,800, it will take 14 years to make up for the $320,000 we had to give up. This is unacceptable to most people (“But if I do that I might die and never get anything out of it.”

Let’s Look at the Big Picture.

Get the money back for Healthcare costs, Children, Grandchildren or Charities.

Sure, you’d love the extra income, but it will take 14 years to get the money back from Social Security. What if you could get half of that income for the rest of your life but make sure your estate gets all the money if you pass away?

Here’s a reason to invest in universal life insurance.

Life insurance for a 70-year-old male for $160K costs approximately $6000 per year. A 70-year-old female can purchase a $160K universal life policy for $4,800.

Even with these premiums, this couple has still increased their income by $12,000 per year since the first year and their estate will be the same size when the insurance replaces the amount paid back to Social Security.

The individual does not need to be in the best of health to qualify for these rates. Companies such as Columbus Life Insurance and Penn Mutual have programs that provide normal health assessments to individuals who have some health history through what is known as a table-shaving program.

Some of these life insurance policies have added features such as the ability to use the policy to pay for various health expenses such as Long Term Care. Therefore, the money Social Security provides the pensioner to pay for the policy can be accessed for care as if it were in a savings account.

This type of planning strategy has the following advantages:

1) It increases income immediately

2) It protects against inflation due to cost of living adjustments

3) It preserves wealth for Children or Charities through the use of the Universal Life Policy

4) It reduces taxes from the Social Security Income exemption

5) Refundable Social Security can provide a Tax Credit from prior years because the income would be viewed as never received.

5) It will increase money available for health care costs through the increased income and possibly through the insurances the individual purchases.

The Social Security Administration will gladly take your money back; the life insurance company will be happy to work with you to make sure you get everything. Because their income is guaranteed to pay the premium on the life policy, you have the best of both worlds knowing that you can enjoy yourself more in retirement and ensure that you fulfill your wishes to leave something for your loved ones.

How Do You Pay Back Social Security?

To begin the process, you must file a Request for Withdrawal of Application, Form SSA-521. You can download the form from the SSA website (www.ssa.gov) or pick it up at your local office. Once this is complete, about a month later, you will be reimbursed the Social Security you received, including the Medicare Premiums that were deducted.

2-3 months later, you have the ability to reapply at your current age to start receiving the higher payment amount. (note – if you receive Medicare you will have to pay the premium separately while you wait to receive your new benefit amount)

This is just an example. There are many other considerations that need to be addressed. It would be best to work with a Certified Financial Planner to go over the rules and help you work with the Social Security Administration to find your best alternative.

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