Seniors can use Social Security as an interest-free loan

Did you know that if you start receiving Social Security early, but change your mind within 12 months and pay all the money back, you can still wait until your full retirement age and collect much larger monthly benefits?

In effect, after you reach age 62, you can use Social Security as a short-term interest-free loan.

Although this option doesn’t make sense for most people, there are situations where it’s a good idea. For instance, a senior who is laid off from a job after age 62, but expects to find a new job soon, could use Social Security benefits to “tide them over” and then repay the benefits from the new job’s salary. This might be smarter than tapping long-term investments or retirement accounts, both of which could result in higher taxes.

Before 2011, it was possible to collect benefits and then declare a “do-over” at any time before full retirement age. The law has since changed so that beneficiaries are limited to a 12-month payback period in order to qualify for full benefits later. Also, beneficiaries are allowed only one “do-over.”

However, even if you aren’t able to pay back all the money within 12 months, if you pay it back at some point before your full retirement age, you can still earn some delayed retirement credits and somewhat increase your ultimate monthly payments.