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Interest-Free “Loans” No Longer Available Through Social Security

Social Security is something that people tend not to think much about until they start to get closer to retirement age. So if you haven’t yet done your research you may not be aware of the fact that the amount of your benefit can vary based on when you choose to apply for Social Security.

Your full retirement age is connected to the year you were born. For those who were born between 1943 and 1954 the full retirement age is 66. If you were born in 1955 your full retirement age is 66 years and two months. For those born in 1956 the retirement age is 66 years and four months, and in this manner it increases by two months per year through 1960. For those born in 1960 and later the full retirement age is 67.

You can choose to accept reduced Social Security benefits when you are as young as 62 years of age. Just how much less you would receive also depends on the year of your birth, but for those who fall into that 1943 to 1954 category the lifetime benefit would be reduced by 25%. When people who were born in 1960 and later reach the age of 62, should they choose to apply for early benefits they would be reduced by 30%.

On December 8th the Social Security Administration instituted a new rule that put an end to an interesting opportunity. In the past retirees could accept a reduced benefit at the age of 62 then pay back everything they had received at age 70, reapply for Social Security, and receive the maximum possible benefit.

One could invest that money for eight years and benefit from its growth, pocket the earnings, and pay back what amounted to an interest-free loan from Uncle Sam. This will no longer be allowed as applications for Social Security may now be withdrawn only within a 12 month period after the initial filing and this can be done just a single time. Social Security Loans are no longer available.

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