Build Wealth with the Social Security Reset Option

As part of a strong retirement plan to build wealth, you hope to achieve income from taxable (401K plan), tax-free (muni-bond type), and tax advantage funds (capital gains) in addition to social security. Many people with depleted resources are trying to squeeze every drop of income from what they have and the Social Security reset option is ideal for some.

Very few people know about the Social Security reset option. As more people are wary of  stock market investments to build wealth, this is becoming a valid option for additional social security income. This is how the social security reset option works. You basically withdraw your original application for benefits and refile at age when you would be able to receive higher income (say age 70). When you refile you have to repay all the money Social Security has paid you. Then your new benefit amount is based on your current age not the age at which you originally applied for social security.

Ok, before you say- that’s not for me, I don’t have that kind of cash around. Think about this example by Charles Ryan, a CFP who calculated the reset for a a client who was an unmarried, 70 year old female. She originally file for benefits at age 62. Now she is getting after-tax benefits that increased her income by $8,568 in the first year. Sounds good to me.

Of course, she had to replay $110,845 in benefits she had already received. When she repaid those funds, she also earned tax credits for the taxes she paid through the years on her benefits. According to Mr. Ryan’s calculation, her net repayment was only $87,290. She could have invested or purchased an annuity at that age ( the most conservative option) which would not have given her that much extra income plus the security of a USA pension compared to relying on an insurance company for extra income.

This option isn’t for everyone. If your mortality expectation is short you won’t likely recoup the added benefit. And if you intend to leave a lot of money to heirs, it wouldn’t work for you. Who knows how long this little known loophole will be around, but I think this social security reset option is definitely a tool to get more income. Look for a fee-only advisor who has access to a computer program called ESPlanner that can help you make this important decision to build wealth.

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