Sunday, December 12, 2010

Social Security "payback" and "restart", which amonted to a free loan for "unneedy", terminated summarily

According to a story on p B5 of the Saturday, Dec. 11 New York Times, the Social Security Administration has just published rules limiting what amount to “interest free loans”. This was the practice of retirees paying back Social Security the entire amount they had received and restarting at a later age with higher benefits, especially if they go back to work (or expect to live longer).

There had been objection to the idea that social security recipients could have invested the money nd kept the profit, but paid no interest to the government.

Starting now Social Security will allow the practice only once, during the first twelve months of benefits.

Here is the link to the “new rules” from the Federal Register.

The New York Times blog entry by Jennifer Saranon Schultz is dated Dec. 9 online and the link is here.
The comments online are interesting, especially the long missive about the way taking social security benefits early penalizes unmarried women.

In print, there was a comment that people who took advantage of the “scam” (the interest-only “loan”) don’t even need Social Security and that the system should be saved (e.g., means tested) for those who “need” it.

Larry Swedroe has a similar article on Moneywatch, "The End of Social Security's Interest-Free Loan", link here. The Center for Retirement Rearch at Boston College ("Strange but True: Free Loan from Social Security" by Alicia H. Munnell, Alex Golub-Sass, and Nadia Karamcheva had noted that the "loan" had cost Social Security between $5.5 and $8.7 billion (PDF link).

Remember, the IRS never forgives interest (just penalties).  So maybe Social Security shouldn't either.

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