To restart their retirement, they would have to fill out a one-page form (No. 521), which is a "request for withdrawal" of retirement benefits, said Kathleen Wiegand, a Social Security spokeswoman in San Francisco.
The agency would then respond with a letter saying how much they'd have to repay in previously received benefits. Once they repaid those benefits, they could "re-retire" and start getting payments at the higher rate.
Importantly, Kotlikoff said, Social Security does not charge interest on the money you must repay. It simply wants the amount it paid you back.
Kotlikoff estimates that his hypothetical couple would each need to write the government a check for $94,556.
However, that payment gets them an extra $620 per month, or about $7,440 per year. If they live at least another 13 years, until they're 83, they're ahead of the game. That would pay back their $94,556 outlay and then some.
If they live into their 90s, they're way ahead, he added. If Peter and Kate both live to age 90, paying back their Social Security benefits generated an extra $100,000 in income.
"People don't have to gamble on Wall Street," he said. "This is like buying an annuity at a great rate from the most creditworthy organization around."
Better yet, you get a current-year tax credit for all the income taxes you paid on your Social Security benefits in years past, he said.
The one caveat: Kotlikoff is not sure how long this loophole will last.
That's because both the Social Security and Medicare systems are financially troubled. If millions of retirees took advantage of this do-over opportunity, the systems could go into the red even earlier than they are projected to now. For that reason, some experts are lobbying to close this loophole before too many retirees squeeze through it.
Until they do, however, it may be a chance to boost your income when cost-of-living increases are scarce.