What Is Double Dipping in Retirement Systems?

Retirement systems, including Social Security, have loopholes that allow the business-savvy retiree to utilize the system to his advantage. Double dipping in retirement systems allows the retiree to collect money twice, usually with retiring and rehiring. This casual term applies to different types of double recovery in retirement benefits, but each requires the cooperation of others to make it work.

State retirement systems have the greatest potential for double dipping, and California and Florida both have dealt with this issue. With double dipping, retirement is on paper only. The worker retires and begins work for the same employer the following week. Permanent new hires may start a new retirement fund; temporary employees collect retirement while employed. "USA Today" reported in 2008 that states were cracking down on double dipping.

This practice adds to the tax burden of citizens. States like California near bankruptcy are looking twice at double dipping as an acceptable practice. Capitol Weekly, a California government and politics newspaper, recommends a six-month delay before public-entity retirees are rehired. Proponents of the double-dipping practice claim that rehiring retirees is cost effective because they already know the job. Positions named by "USA Today" where double dipping occurs include police chiefs, university presidents, school superintendents and elected officials.

The Social Security retirement system allows a retiree to collect Social Security benefits, change his mind and pay the entire amount back after several years, according to the National Center for Policy Analysis. Once the payback occurs, the retiree can apply for Social Security benefits at his current age and receive benefits at a higher rate. This requires the retiree to have liquid assets in the amount necessary to make the payback. This is also called a "do-over."

The AARP discussion of double dipping in Social Security involves a couple, both of retirement age. Here's how it works: Collect benefit on your spouse's work history and let your own retirement funds grow, then change over and collect on your own benefits at 70. You may receive less for a few years, but the personal benefit will increase because you are not drawing from your own work history.

After paying back a large amount to Social Security, the retiree has no guarantee he will live long enough to collect the benefits again.

"USA Today" reports that double dipping is meeting opposition in state legislatures. New York and New Jersey limited double dipping in 2008. By the end of 2009, Utah, Arkansas, South Dakota, New Mexico and Florida were looking at curbing or ending double dipping with state retirement, CBS News reported. Double dipping may end or be limited in your state soon. Consider what might happen to your employment and retirement in the face of new legislation.