Free Loan from Social Security

Alicia H. Munnell, Alex Golub-Sass, and Nadia Karamcheva in Strange But True: Free Loan From Social Security from the Center for Retirement Research at Boston College examine the law that allows individuals who are collecting Social Security benefits to change their minds and start over.

For example, an individual can claim Social Security at age 62 and then reclaim at age 70 and receive a higher benefit, provided he pays back the benefits he has received. Because the claimant is only required to return the nominal amount of the collected benefits, he could invest the money that he receives and keep the interest.

The claimant, in effect, receives an interest free loan. They point out that the strategy involves a loss if the recipient dies before reaching average life expectancy. However, this strategy always dominates simply delaying benefits to age 70 because of the interest return on the earlier payments.