When to claim Social Security is one of the most important decisions Americans make when approaching retirement. Currently, retirees can choose between claiming at the Full Retirement Age and receiving full benefits, claiming as early as age 62 but receiving reduced benefits, or delaying retirement to as late as age 70 and collecting higher monthly benefits. The reductions and the delayed retirement credits are approximately actuarially fair for the person with average life expectancy. Early retirement benefits are lowered by an amount that offsets the longer period for which they will be received. The delayed retirement option offers higher benefits but for a shorter remaining lifetime. Thus, on average, workers will receive the same lifetime benefits regardless of when they claim between the ages of 62 and 70. Recently, several unconventional claiming strategies have come to light that have the potential to pay higher lifetime benefits to some individuals and increase system costs. This brief focuses on one of these strategies, which we call the “Free Loan from Social Security” strategy. The first section outlines the procedure and incentives of employing this strategy. The second section, using data from the Health and Retirement Study, presents estimates of the cost to Social Security under three different scenarios and describes who would gain. The final section concludes that the estimated annual $6 billion to $11 billion cost of allowing free loans from Social Security is likely to increase substantially over time.
