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Social Security Do-Over?

Question: This morning, rushing my kids to get them ready for school and myself to work, I overheard someone talk about borrowing from his/her own social security account, interest free. Please, Is there such a thing? Is there a website? I don't have a crises, though I lived below Houston and to the west of Christie Street when 911 happened, but I never looked for any help related to that. I'm a person in lots of debt, credit card(divorce) and student loan, single mother with two kids trying to start a new career, possibly start a small non-for-profit cultural center - lounge in my neighborhood. A loan such as this could be the answer. Thank you, Malu. Brooklyn, NY

Answer: What you heard was a report by Bob Moon. He looked into what can be called the Social Security "do-over." But it doesn't involve borrowing from your Social Security account.

When people retire early, say, at age 62, they take a reduced monthly benefit. Well, it turns out that you can change your mind, reapply, and get the bigger payments that go to those who wait to collect benefits. The catch? You must send the government a check covering the benefits you've been paid (But that payment is without interest or adjusting for inflation. That's probably where you heard the word "interest".)

For others that are interested in the Social Security do-over, they can check out the website of Laurence J. Kotlikoff, economics professor at Boston University. He's also the head of the financial-planning software company ESPlanner. (It's at www.esplanner.com.)

For instance, he ran numbers for me a while back for a couple who retire at 62, have $300,000 in savings, and an additional $100,000 each in retirement assets. They want their money to last until they're 100. If they apply for benefits at 62, each gets $17,921 a year. Fast-forward eight years. Had they waited until age 70 to file, they would get $31,005 each, for a total of $62,010 a year. To get those higher payouts now, they'd each write a check for $118,957. That's a hefty sum. But the cost of getting that same payout by buying the cheapest commercial annuity would be 40% higher. When you include earnings from the couple's other assets and factor in their 30-year time horizon, Kotlikoff calculates that their annual aftertax spending can go from $58,765 to $70,420.

Your concerns are far different. I would suggest that you get in touch with the National Foundation for Credit Counseling (NFCC) to deal with your debts. It's the largest national nonprofit credit counseling organization. Their website is www.nfcc.org.

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