There has been talk and some buzz around whether it is possible to take an interest-free loan from social security for up to one year without penalty, and many are wondering if this is in fact true. While we will discuss some of the logic behind this idea, as always, you need to check with your trusted financial planner on what is best for you and your situation. As a rule of thumb, you will always want to seek trusted and sound financial advice when making decisions related to your money, retirement, and well being.
In theory, yes, it seems there is a way to collect social security benefits as a loan without interest- kind of. According to the Social Security Administration’s website, ssa.gov, you are allowed a once in a lifetime benefit to withdraw your decision to receive benefits, granted you pay the received benefits back in full at that time. This means that not only you but any child or spouse that received benefits on your behalf must pay their benefit amount back as well. If other people are involved in receiving benefits based on your eligibility, they may also be required to sign paperwork to the fact that you are withdrawing your decision to receive benefits at this time. However, despite the fact that this can be considered an interest free loan, you can only change your mind within 12 months of filing for social security benefits. If you are unable to pay back your benefits within this 12 month time frame, you will be permanently receiving benefits based on your original filing and losing out on any possible increased income by waiting longer to receive social security benefits (remember, if you delay collecting benefits until 70, you will see an increase in your monthly benefit amount.)
While you are technically able to receive this money as an interest-free loan, it is important to note that this wouldn’t be a lump sum amount handed over to you and expected to be paid back in a year. Because you filed for social security, you will start receiving your benefit on a monthly basis. If a person is in a position to file for social security only because they need a loan, it is likely that by the end of the 12 month period, they will still be in need of the money borrowed and unable to pay it back in full, leaving them stuck with the lower benefit amount for the remainder of their retirement. While it is possible to use this once in a lifetime withdrawal benefit to earn more interest, it is risky for most and not really intended to be used this way. The reason for the filing reversal is to give some flexibility to the filer in the case that their circumstances change or they decide early on that they were not ready to file for social security. It can also help someone who was unaware of the increased delayed filing benefit with a “do over” to their approach to their social security benefit. Social security is the backbone of many people’s retirement plans and should not be taken lightly.
If you are looking for ways to make interest on the money you have put away in savings (the other reason some people report taking out the “loan” from social security), you might try looking for better yielding index or mutual funds to get more out of what you are currently doing. Or pick up a side gig and sock that money away to collect more interest on. Even if you are unable to do much for physical labor or commit to a work schedule, try something like reselling on eBay or reselling vintage items on sites like Etsy. Get creative and look for ways to find money to collect interest on that you won’t need to pay back in a short amount of time. While you may make a bit of income on interest from a social security “loan”, the stress around repayment may not be worth it.