Had you simply saved and invested, you would probably be retiring as a multimillionaire. But because you were required to pay into Social Security, now you have to figure out how best to get back some of your money. Being aware of some Social Security loopholes will help you choose between options that differ by as much as a quarter of a million dollars.

Like all government law, Social Security is not a simple piece of legislation. Since the Social Security Act became law in 1935, hundreds of amendments have been added. A worker's Social Security contributions can total up to $440,000. So you want to make sure you have done your homework when beginning to pull this money out. And to make the best decision, you must consider health, income before retirement, income during retirement and taxes. By learning about three Social Security loopholes, you may be able to recoup thousands of dollars.

Three strategies for maximizing your Social Security dollars are available to married couples. You won't find them by reading the government's printed literature or general web pages. And in a time when many families are stretching to make every dollar count, the extra income can go a long way.

The further big government stretches into all areas of civic and economic life, the more savvy U.S. citizens will become in order to "game the system."

The first loophole comes in the form of an interest-free loan provided by Uncle Sam. Many retirees are not aware that they are eligible to repay their Social Security benefits at any time and for any reason in order to claim a higher deferred benefit and at no interest. This ability to undo your selection will raise your monthly payment by 33% at full retirement age and by 76% at age 70. As you can imagine, this payment can be quite hefty if you've waited years before repaying and refiling your benefits. Some savvy retirees have found a benefit by claiming Social Security early and stashing this money in a CD or other fixed-income account. That way they can earn eight years of interest on the money.

Those unsure of Social Security's viability and solvency can use this method to play both options. If benefits are reduced, you will be happy to have filed early. If not, just repay and refile.

This money may be free, but it's not easy. This "File, Repay and Refile" strategy requires you to amend each year of tax filings to recoup the extra taxes and lost interest applied to those earnings. Interested retirees will need to fill out a Withdrawal of Application to begin the repayment process.

The Senior Citizens' Freedom to Work Act of 2000 provides a second loophole that can boost total benefits payments for retirees by as much as 15%. This option is called "File and Suspend." It works well for couples who have a large disparity in their earnings history.

Consider the dilemma of James and Susan who are fast approaching their retirement. James is coming to the end of a long career as an executive in a carpet factory. Susan's earnings history was cut short when she decided to stay home to raise their children leaving a limited personal Social Security benefit.

A loving husband, James would like to maximize the survivor benefit that he leaves Susan. He can accomplish this by delaying his Social Security filing. But neither are sure they will make ends meet during the ensuing years on Susan's limited monthly payment.

Thanks to loophole number 2, there is a way to increase their current income without compromising longevity insurance. When James, the higher earner, reaches full retirement age (FRA) at 66, he files for Social Security but suspends receiving any benefits. Filing only to immediately suspend may sound like silly gymnastics. But this strategy allows Susan to begin collecting a spousal benefit based on James's higher earnings record. And because James delays to accrue a higher personal payout, Susan is guaranteed to inherit the highest possible payments as a survivor.

With this "File and Suspend" method, stay-at-home moms who would typically have to wait for their spouses to file before realizing any benefits can now access their spousal benefits before their husbands retire. It is particularly beneficial when the primary bread winner is expected to have a limited life expectancy. The surviving spouse will inherit the larger benefit that much sooner.

If, instead, we assume that both James and Susan have strong Social Security earnings records and are in good health, they should consider the final loophole.

This third and potentially most profitable loophole is called "Deemed Filing." In this scenario, James and Susan are both 66. James is due a benefit of $2200 per month. Susan is due a benefit of $2100 per month. Typically, Social Security only gives you the higher of your personal benefit or spousal benefit. But those who file after FRA can deem to only collect spousal benefits. If Susan has already filed for her benefit and James is FRA, he can file for spousal benefits. That would entitle him to half of Susan's $2100 benefit. Then at age 70, when his personal benefit has fully appreciated, he can file for his own larger benefit. When appropriate, this "Deemed Filing" approach can add up to $50,000 to joint lifetime income.

These three loopholes all require careful analysis, but their payoff can be well worth the effort and planning for the right individuals. The further big government stretches into all areas of civic and economic life, the more savvy U.S. citizens will become in order to "game the system." Complexity creates a breeding ground for inefficiencies and loopholes. Big government will require even bigger calculators.

To help you understand your options before locking in the wrong choice, attend the nonprofit NAPFA Consumer Education Foundation seminar, "How to Determine the Best Age to Claim Social Security," on April 17, 2010. This free presentation will take place at the Northside Library meeting room in the Albemarle Square Shopping Center from 10 to 11:30 am. Financial advisor Matthew Illian is leading the seminar. For more information, e-mail Charlottesville at napfafoundation dot org.


Marotta Wealth Mangagement, Inc. of Charlottesville provides fee-only financial planning and asset management. Visit www.emarotta.com for more information. Questions to be answered in the column should be sent to questions@emarotta.com or Marotta Wealth Management, Inc., 1000 Ednam Center, Charlottesville, VA 22903-4615.