Using Your Social Security Benefits as an Interest-Free Loan

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 fee 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 they anticipate income, i.e. finding a new job or collecting a pension, within the year which would allow for full repayment. For many individuals in the their early 60s, a majority of their assets are 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.

(Note that up until December 2010, it was possible for you to collect benefits and repay at any time. The law has since changed so that you are limited to a 12-month pay back period. You are also only allowed one “do-over.”)

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.