4 secret Social Security jackpots

Rothenhoefer thinks it's a sweet deal. He concedes the strategy could backfire if both he and his wife were to die before they recoup their investment, which will take about 10 years. Still, he says, "it's worth the gamble," particularly because his wife stands a good chance of living into her 90s, as her mother and grandmother did.

There's another financial downside: You may have to go without Social Security benefits for a few months while the agency sorts out how much you have to repay and while you reapply for benefits. When your benefits stop, so do the automatic deductions that cover your Medicare premium. You'll have to pay the Part B premium yourself -- currently $96.40 a month for most retirees -- until your Social Security benefits resume.

Crunch the numbers

Boston University economics professor Laurence Kotlikoff says repaying and reapplying for Social Security benefits is a "fantastic option" for some people. But it can involve a lot of number crunching to determine whether it's the right decision for you. Kotlikoff offers case studies on his Web site. For $149, you can access his sophisticated financial-planning software, which lets you create your own comprehensive retirement plan, including an analysis of the pros and cons of a decision to pay back your Social Security.

John Greaney, who started the Retire Early Home Page, says members of his online community were aware of the repayment strategy but treated it as an urban legend. When Greaney took the time to research it last summer, he realized that it was an even better deal than he had first thought. That's because when you repay your Social Security benefits, you can claim either an itemized deduction or a tax credit (whichever results in bigger savings to you) for the taxes you paid on your benefits in previous years. The calculations are complicated, but you can get all the details in IRS Publication 915, "Social Security and Equivalent Railroad Retirement Benefits."

The idea of boosting your Social Security benefits may be enticing, but you still have to figure out how to pay for it. Kotlikoff's case studies weigh the pros and cons of using other assets to repay the benefits. Greaney created a spreadsheet that assumes you collect benefits early and invest all the money, then repay the benefits with earnings to spare. The spreadsheet also factors in the tax refund.

But Rothenhoefer had another idea. With his mortgage paid off, he decided to take out a home-equity loan and use the extra income from the bigger monthly Social Security benefit to repay the loan. "I didn't have to touch my savings, and I'll get a tax deduction on the interest," says Rothenhoefer, who lives in Ellicott City, Md.

One word of caution: Although this strategy can work well if you are already collecting benefits and like the idea of starting over at a higher monthly rate, it's riskier to plan to collect reduced benefits now with the intention of repaying them later. For one thing, you might not live long enough to take advantage of the repayment strategy. In that case, your spouse would be left with a reduced survivor benefit. Plus, there's no guarantee that Congress won't tinker with the provision when it eventually turns its attention to Social Security reform.

• Calculator: Plan for your retirement

Tactics for couples

Two other income-boosting strategies give couples a way to maximize their Social Security benefits. A recent paper by the Center for Retirement Research recommends that the spouse who is eligible for lower benefits collect them early while the higher-earning spouse delays taking benefits until they are worth more. Then, when the primary breadwinner dies, the spouse with the lower benefit will step up to a much higher survivor benefit as the smaller retirement payment drops off.

In the past, it wasn't always possible to implement such a strategy. For example, a wife with little or no work history would have to wait until her husband actually started collecting Social Security to apply for spousal benefits based on his work record, equal to half of his monthly check.

Continued: No longer the case

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