How You Can Use Your Social Security Benefits as an Interest-Free Loan

If you claimed Social Security benefits early, but are having second thoughts, or if you need a short-term interest-free loan, you may be able to get a do-over from Social Security. 

If you start taking Social Security benefits before your full retirement age, your benefits will be permanently reduced. In general it is better to wait until your full retirement age or beyond. However, many people begin taking benefits early, either because of necessity or because they do not understand the full consequences.

One little-known Social Security retirement benefits rule is the so-called “do-over rule.” Under this rule, an individual 62 years or older can start collecting benefits but stop the benefits within 12 months of the start, repay the benefits collected, and then still be eligible for their higher benefit amount when they collect at full retirement age or older.

What’s the advantage if the benefits must all be immediately repaid? The strategy can work as a short-term interest-free loan. It makes sense, for example, in cases where an individual has a need for income in the immediate short term, due to an emergency such as a sudden loss of employment, but anticipates income within the year that would allow for full repayment, i.e., finding a new job or collecting a pension. Many individuals in their early 60s have most of their assets tied up in retirement and investment accounts, and withdrawals from these accounts would trigger hefty penalties. After “emergency” liquid funds run out, the do-over rule offers a short-term solution. In addition, by drawing on a Social Security “loan” instead of investments, you allow your investments to continue growing.

What if you are unable to pay back the benefits after the 12 months are up? You may still be able to suspend your benefits and increase your ultimate pay-out amount. For example, if you start collecting at 62 but no longer need the income at 66, you could suspend benefits until 70. Then, between the ages of 66 and 70, you would earn delayed retirement credits which would increase the ultimate benefit amount when you collect at age 70.

For more information on how to collect, suspend and pay back benefits, contact or visit your local Social Security district office. You can click here to find your local office.