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Need Money in the COVID-19 Crisis? Here’s How Social Security Could Serve as a Short-Term Loan

By Maurie Backman - Mar 29, 2020 at 8:04AM

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It may be possible for you to effectively borrow money by claiming Social Security and then undoing your benefits afterward.

Millions of Americans are being affected financially by the COVID-19 crisis. Hours are being cut left and right, while countless small businesses are shutting down temporarily in an effort to promote social distancing.

If you're out of work right now, or have had your hours reduced, you may be entitled to unemployment benefits for the time being -- but that may not be enough income to cover your essential bills. And while you can apply for a loan to make up that difference, doing so can be time-consuming and costly. But if you're at least 62, there may another way for you to access money in the near term: claiming Social Security and then undoing your application afterward.

Older man with serious expression holding document while talking on phone


How Social Security can work as a loan

Your Social Security benefits are calculated based on the earnings paid to you during your 35 most profitable years in the workforce, and you can claim them in full once you reach full retirement age, or FRA. FRA is either 66, 67, or 66 and a specific number of months, depending on your year of birth. Meanwhile, you're allowed to file for benefits as early as age 62, but for each month you do so ahead of FRA, your benefits get reduced permanently.

But there's a way around that permanent reduction, and it's if you undo your filing after the fact, which the Social Security Administration (SSA) will allow you to do once in your lifetime. To undo your filing, you withdraw your application for benefits and pay back all the money you received to the SSA. You have up to 12 months to undo your benefits, and once you do, you'll then get the option to apply again at a later age -- and avoid a lifelong reduction in those payments.

Here's how this strategy might work in practice: Imagine you're 62 and are now out of a job because your employer had to shut its doors. You're eligible for unemployment, but still need money for immediate expenses. You can file for Social Security right away and start collecting benefits, albeit at a reduced rate. Then, if your employer manages to open back up five months from now, and you're able to sock away money from your paychecks once you're back to full-time work, you can withdraw your benefits application, repay the SSA all of the money you received from it, and file for benefits at a later age when you want or need to.

Of course, the danger of employing this strategy is that it's too soon to tell when the current crisis will be done with, and when businesses will be in a position to reopen. If you file for benefits now with the intent to cancel and repay them later on, you may not be in a financial position to do that within a year. But if you're in a tough spot now and are desperate for money, it does pay to consider claiming Social Security if that option is on the table.

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