Using a perfectly legal switcheroo, advisors can help Social Security-eligible clients get a twofer: an interest-free loan from the federal government, plus higher Social Security benefits.
"There is a provision in Social Security for withdrawal of benefits," says Bruce Schobel, a chartered life underwriter and vice president with New York Life. "Very few do this but it can be clever."
A person can start collecting at age 62 on a reduced basis, or less than the 100% benefit he or she would collect at 66. The benefit then continues to rise to a maximum of 132% of the benefit at age 70. At some point, the person can withdraw her claim, repay the money received to date and begin collecting the much higher benefit.
"The problem is, you need to be able to pay back all the money received and many people do not have that amount available," Schobel says. "But if you do, you have gotten an interest free loan to live on and now get a much higher benefit for the rest of your life."
Schobel spoke this week during a webinar on Social Security sponsored by the American College Alumni Association.