Q:  I'm approaching 70 and am thinking about a form 521 Social Security "Buyback" in which I would repay past Social Security benefits and start again at 70.  Could you help me out?


A:  There are several programs on www.analyzenow.com that will do this for you if you have Excel.  The Pre & Post Retirement Planner will let you compare two alternative plans side-by-side.


Here’s a simple way to make a calculation without a computer.  Of course you have enough savings to be able to pay back the amount.  If either you or your spouse will live past 80, this is likely to be a good deal. You can evaluate it yourself by first adding all of the gross Social Security (SS) receipts (not the sum off the actual checks after Medicare and any tax deductions) since you started SS.  That's your "cost" of the investment because that's what you'll have to pay back.  Then calculate the gross difference between Social Security you'll get at 70 and what you are getting annually now.  Now go to a site such as www.vanguard.com and see how large the payments will be from an immediate annuity with inflation adjustments for an investment equal to your “cost.”  (You will have to call them for a quote.)  If those annual payments from the annuity are less than the gross difference between SS payments, then the 521 SS is very likely to be the better deal unless you could otherwise get very high returns on the money you would use to buy more SS.


If you are in one of the higher tax brackets, your SS income has been taxed.  You can get back those taxes by re-filing each year or taking a tax deduction on this year's return in the amount of the SS income tax.  Your "cost" for the investment should actually be reduced if you can get any income tax back.


A tax accountant or CFP can do the calculations for you if you feel you can't do this competently.  For many, this is a no-brainer, but you or your spouse must live past 80 to make it a good deal, and you should not have to reduce your retirement savings so much that you don't have enough for emergencies and monthly bills, nor should you take the money from a qualified savings account that would have you pay income tax on the withdrawal.  There is also some uncertainty as to SS changes in the future to reduce SS unfunded liabilities.  My own view is that most alternatives to reduce unfunded liabilities won't affect your decision one way or the other, but I could be wrong.


Remember too that this step is a hedge for an uncertain future if the security markets have slow growth and/or we have high inflation.  In the unlikely event that you could maintain savings growth above 10% for most of your retirement, it would be better not to restart SS.