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Social Security May Offer A Borrowing Option For Those In Need Of Cash, But With Risks Involved

Social Security
Social Security ( Photo: Ohio Department of Aging )

Social Security can be an option for borrowing money if you need a lump sum of cash to address an immediate need, like fixing your car or dealing with home repairs.

Social Security

Social Security ( Photo: PBS )

Social Security will not give you a loan or let you borrow against your future benefits

Instead, you can file for Social Security early and then undo your claim after the fact to effectively borrow money from Social Security.

The full monthly Social Security benefit based on your earnings history is available once you reach full retirement age (FRA), which is 67 years old for those born in 1960 or later. You can sign up for Social Security at age 62, but your monthly benefit is permanently reduced for each month you claim Social Security ahead of FRA. However, there is an exception to this rule. If you undo your Social Security filing within a year of taking benefits and repay all of the benefits you received, you can avoid a permanent reduction to your monthly benefit and file for Social Security again at a later age.

Here’s an example of 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. You can file for benefits, take your money, and use it to address your cash needs. Then, you can withdraw your benefits application within a year of your filing, repay the Social Security Administration what it paid you, and claim benefits at age 67.

The danger in claiming Social Security early and planning to undo your filing is that you might end up in a situation where you can’t repay the money you borrowed

This could lead to a permanent reduction in your monthly benefits, which could 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 avoid racking up interest on a loan.

In conclusion, Social Security can be a viable option for borrowing money if you need a lump sum of cash to address an immediate need. However, it’s important to consider the risks involved and ensure that you can repay the benefits you’ve received to avoid a permanent reduction in your monthly benefits.

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