Can You Borrow Money From Social Security? Not Officially, But Sort Of

You may reach a point where you need a lump sum of money, whether to fix up your car, deal with a home repair, or address another need. At that point, you have options. You could talk to lenders about tapping your home equity or turning to a loan that’s unsecured. But you may want to consider borrowing the money from Social Security if you’re old enough to take benefits.

How to take out an unofficial loan from Social Security

Social Security will not give you a loan or let you borrow against your future benefits. You can’t, for example, ask to borrow $5,000 and then simply have Social Security deduct that sum from your benefits once you start collecting them.

What you can do, however, is file for Social Security early and then undo your claim after the fact. This strategy might allow you to effectively borrow money from Social Security, but it’s not without risk.

You’re entitled to your full monthly Social Security benefit based on your earnings history once you reach full retirement age (FRA). That age is 67 if you were born in 1960 or later.

Meanwhile, you’re allowed to sign up for Social Security once you turn 62. But for each month you claim Social Security ahead of FRA, your monthly benefit is permanently reduced.

There’s an exception to that rule, however, and it’s if you manage to undo your Social Security filing within a year of taking benefits. In that case, if you withdraw your application for Social Security and also repay all of the benefits you received within 12 months, you’ll get a do-over and will be able to file for Social Security again at a later age. In doing so, you can avoid a permanent hit to your monthly benefit, all the while getting access to the money you need.

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Here’s how this tactic might work. Let’s say you’re 62 years old with an FRA of 67, you’re still working, and you need a few thousand dollars but don’t want to take out a loan.

In that case, you can file for benefits, take your money and use it to address whatever your need for cash entails, and then spend the next bunch of months banking your paychecks. You could then withdraw your benefits application within a year of your filing, repay the Social Security Administration what it paid you, sit back, and claim benefits at age 67, thereby avoiding a lifelong reduction.

A risky move, but an option nonetheless

The danger in claiming Social Security early and planning to undo your filing is that you might end in a situation where you can’t repay the money you borrowed. That could lead to a permanent reduction in your monthly benefits – something that might seriously upend your retirement.

But if you’re confident you’ll be able to repay the benefits you’ve received, then this strategy could work to address a near-term need for money. And that way, you can avoid racking up interest on a loan. At a time like this when borrowing rates are up across the board, that’s not such a bad thing.