Borrowing Money From Social Security Interest-Free

A loophole that basically let you get a loan from the SSA was closed.

Social Security cards
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It was once possible to start collecting Social Security (SS) benefits at 62, the earliest possible age, and then, at the age of 70, repay all the money you'd received from the Social Security Administration (SSA) and refile for benefits as if you'd never gotten a single check. Because you were now older, the amount of your monthly check would be higher, and all the cash you had received over the years from the SSA was like an interest-free government loan.

That loophole was closed in 2010 so you can no longer "borrow" money from the SSA for a number of years. You now have only one year after you start receiving benefits to decide to repay them and put off collecting them again until a later date.

File and Suspend

Another way of gaming the system and getting extra money from the SSA—this one involving a married couple—was permitted for a few more years. In this practice, known as "file and suspend," the higher-earning spouse would apply to receive SS benefits as soon as they reached their full retirement age (FRA). Doing so would enable their spouse to begin collecting spousal benefits—half of the filer's benefits. The filer would immediately suspend his application to receive benefits, but the spouse could still continue to collect the spousal benefits. At the age of 70, the original filer would begin collecting their benefits at a higher rate.

Your FRA is 65 if you were born in 1937 or earlier, 66 if you were born in 1943 to 1954, and 67 if you were born in 1960 and after. For the years in between those periods, the FRA is 65 or 66 and some number of months. For example, if you were born in 1938, you would have to be 65 years and two months old to be considered at FRA. If you were born in 1959, your FRA would be 66 years and 10 months.

"File and suspend" enabled a couple to come out many thousands of dollars ahead partly because spousal benefits reach their maximum value at the spouse's FRA, unlike an individual's own benefits, which reach their maximum value at age 70. Wealth management firm CliftonLarsonAllen gives two examples of how a married couple would have benefited from filing and suspending—one in which the person receiving spousal benefits was at FRA and one in which they were not.

The Bipartisan Budget Act of 2015 prevented retirees from filing and suspending by making it so a spouse's benefits were automatically suspended at the same time as the person making the suspension request.

Current Withdrawal Requirements

The 2015 law still enables retirees to stop taking SS payments if they desire. Perhaps you got a lucrative new job or inherited a lot of money and so decided to give up your monthly SS check—and your spouse's—until you reach the age of 70 in order to receive a larger benefit at that time. To withdraw your application to receive SS payments, you must have reached your FRA but not yet be 70 years old.

You have to file form SSA-521 with the SSA to begin

the withdrawal process. You may do so only within 12 months of your request to receive the benefits and, as before, you must repay all the benefits you and your family received based on your initial retirement application, including money withheld from your SS check for Medicare Part B, C, or D premiums; voluntary federal income tax withholding for closed tax years; and any garnishments, such as for child support. You can withdraw your application for benefits only once in your lifetime. And you have only 60 days to change your mind once your withdrawal application has been approved.

Penalties for Receiving Payments Early

You can begin taking SS payments at the age of 62, but they will be reduced based on the number of months that will have to pass before you reach FRA:

If your FRA is ... ... and you start taking SS payments at age ... ... your benefits will be reduced by ...
66 62 25 percent
66 63 20 percent
66 64 13.3 percent
66 65 6.7 percent
67 62 30 percent
67 63 25 percent
67 64 20 percent
67 65 13.3 percent
67 66 6.7 percent

The rationale for the reduction in monthly payments is that someone living to the average life expectancy will receive the same total amount of money regardless of when they retire.