Should You Opt For Social Security Lump Sum Benefits?

[MULTIZ321]

Should You Opt For Social Security Lump Sum Benefits?
By Bob Carlson/ Retirement/ Forbes/ forbes.com

Do you know there's an option to receive up to six months of benefits in a lump sum when initiating Social Security retirement benefits?

Not many people do, until they apply for benefits.

While this can be a nice option, too many people are surprised by it when it is offered by Social Security reps. Then, they make a quick decision. The result can be they don’t receive the benefit package that’s best for them because they made a rushed decision and didn't understand the trade offs.

The lump sum benefit option isn’t new. The option's been available when claiming retirement benefits at your full retirement age (FRA) or later. Social Security representatives are required to fully explain this choice to eligible applicants, whether they ask about it or not. That can be a source of confusion, because it often is offered at the last minute to people who weren't expecting it......"

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Don't forget the Lump Sum will be a taxable event.


Richard

 

[WinniWoman]

Never heard of this option.

 

[Talent312]

In effect, it back-dates your start date by the period covered by the lump-sum.
IOW, your monthly benefit going forward will be lower for as long as you live.
They neglected to mention that to my DW, but she still saw thru it.
They said: "It will help reduce SS's future obligations." She said: "No dice."

.

 

[bluehende]

Nice to know. It is an option to allow you to postpone benefits while giving you a safety net if for some reason you need a lump sum of cash.

 

[VacationForever]

It only makes sense if your doctor tells you that you only have a short time left.

 

[DaveNV]

So let's say, hypothetically, I'll turn 66 next July. And let's say I plan to retire then, or perhaps work till the end of the year, and retire from working effective the first of the following year. If I wait till January 2020 to claim SS benefits, and took this six-month lump sum, they'd backdate the benefit amount to July 2019, and give me six months of benefits. Going forward, the monthly amount would be the same as if I had taken benefits in July 2019. Right?

So if I was planning on the amount I'd already be getting in July 2019, and wait six months to get it, isn't the net a wash? If I had received those benefits for that six months, whether it is one month at a time, or all at once, wouldn't I receive the same amount?

Maybe I'm not getting the bigger picture of this.

Dave

 

[VacationForever]

So let's say, hypothetically, I'll turn 66 next July. And let's say I plan to retire then, or perhaps work till the end of the year, and retire from working effective the first of the following year. If I wait till January 2020 to claim SS benefits, and took this six-month lump sum, they'd backdate the benefit amount to July 2019, and give me six months of benefits. Going forward, the monthly amount would be the same as if I had taken benefits in July 2019. Right?

So if I was planning on the amount I'd already be getting in July 2019, and wait six months to get it, isn't the net a wash? If I had received those benefits for that six months, whether it is one month at a time, or all at once, wouldn't I receive the same amount?

Maybe I'm not getting the bigger picture of this.

Dave

It works if your doctor tells you in Dec 2019 that you only have a couple of years to live. This was one of the reasons for people to file and suspend... and then when they are ready to start drawing on SS... if their doctor tells them that they have months/a few years left, it is better to take the lump sum and back date start date.

 

[DaveNV]

It works if your doctor tells you in Dec 2019 that you only have a couple of years to live. This was one of the reasons for people to file and suspend... and then when they are ready to start drawing on SS... if their doctor tells them that they have months/a few years left, it is better to take the lump sum and back date start date.

Thanks, I see that. But if I'm healthy, and don't take the SS benefit till six months after I was already planning to take it, wouldn't I still get the same amount monthly as if I had taken it when first available?

I'm trying to make the choice of whether to:

A) Take benefits when first available (July 2019), and keeping working my daily job till the end of the year. (Entire year and SS is taxable)
B) Take benefits and stop working. (First half of the year is taxable, but the SS would also be taxed)
C) Delay benefits till January 2020 and/or do the six months lump sum they're talking about. (SS wouldn't be paid till after not working in the same year, so taxed amount would be less.)

Yes, I do realize I'd lose the 4% gain by not filing till January 2020 for benefits.

Dave, confused

 

[MULTIZ321]

Thanks, I see that. But if I'm healthy, and don't take the SS benefit till six months after I was already planning to take it, wouldn't I still get the same amount monthly as if I had taken it when first available?

I'm trying to make the choice of whether to:

A) Take benefits when first available (July 2019), and keeping working my daily job till the end of the year. (Entire year and SS is taxable)
B) Take benefits and stop working. (First half of the year is taxable, but the SS would also be taxed)
C) Delay benefits till January 2020 and/or do the six months lump sum they're talking about. (SS wouldn't be paid till after not working in the same year, so taxed amount would be less.)

Yes, I do realize I'd lose the 4% gain by not filing till January 2020 for benefits.

Dave, confused

Hi Dave,

Let's say you wait till you are 70-years old to start taking Social Security and hypothetically the amount you would receive monthly would be $3,000.
However, you tell Social Security that you want to receive a lump sum payment. Social Security says ok - they roll back your retirement date 6 months and tell you
you will now receive $2,885 starting the same month you would have received the $3,000 payment. So now, because of your lump sum payment, you are receiving $115 less per month than you would have received if you did not take the lump sum payment. It would take approximately 12.5 years for you to break even and then be ahead of the game money-wise.

There's no clear cut answer to which is the right choice - depends on your finances and how long you think you will live.

Good luck with your decision.

Best regards

Richard

 

[Blues]

So let's say, hypothetically, I'll turn 66 next July. And let's say I plan to retire then, or perhaps work till the end of the year, and retire from working effective the first of the following year. If I wait till January 2020 to claim SS benefits, and took this six-month lump sum, they'd backdate the benefit amount to July 2019, and give me six months of benefits. Going forward, the monthly amount would be the same as if I had taken benefits in July 2019. Right?

So if I was planning on the amount I'd already be getting in July 2019, and wait six months to get it, isn't the net a wash? If I had received those benefits for that six months, whether it is one month at a time, or all at once, wouldn't I receive the same amount?

Maybe I'm not getting the bigger picture of this.

Dave

You've got it, Dave. It's exactly as if you started taking benefits in July 2019. But there's one wrinkle you may not have taken into account. In the case where you wait until Jan 2020 and get 6 months worth of back benefits, that "back pay" is paid in 2020. For tax purposes, you'll get 18 months of SS payments in 2020. That could goose up your gross income, resulting in a bigger tax bite than if you had just filed in July 2019.

 

[pedro47]

Thanks for sharing this information. There are pros & cons on this subject.

 

[bogey21]

Social Security payments do add up over time. I retired about 18 years ago at the then normal retirement age of 65. Quick back of the envelope calculation says I have already received over $350,000 in benefits deposited with never a problem into my Bank Account on the 3rd Wednesday of the month....

George

 

[SmithOp]

You've got it, Dave. It's exactly as if you started taking benefits in July 2019. But there's one wrinkle you may not have taken into account. In the case where you wait until Jan 2020 and get 6 months worth of back benefits, that "back pay" is paid in 2020. For tax purposes, you'll get 18 months of SS payments in 2020. That could goose up your gross income, resulting in a bigger tax bite than if you had just filed in July 2019.

I think he’s considering he won’t be working in 2020 so his gross income will be lower to offset it. If he needs a lump sum its an option to consider. Six months is not going to be that big of a drop in payments 4%?

There is also an option to aggregate lump sum SS payments over several tax years. I had to deal with it this past year for a disabled person that finally got approved by SS, they sent him over $100k as lump sum back to when he first filed for SSADI. It wouldn’t help Dave because the prior year incomes have to be lower.

https://www.irs.gov/faqs/social-security-income/back-payments/back-payments


Sent from my iPad using Tapatalk Pro

 

[DaveNV]

Thanks, all. You've got it sorted. I'm healthy, and do plan to retire next year, more or less. But the question is, which month? Simple question, but with a complicated answer. It seems the questions and answers I see posted online are either for those who are thinking of retiring before their full retirement age, or who will be retiring at 70. Every time I think I understand the options, I see something that makes me question myself.

Do I flat-out retire at the first eligible month? Do I keep working but claim SS? Do I keep working till the end of the year, and wait to file for SS in 2020, to get the higher rate? It seems I'll owe taxes regardless, so it isn't so much about taxes as it is what gives me the best options.

This lump sum wrinkle seems like it might be more than the 4% increase. If I file for benefits in 2020, the monthly rate will also be higher. If it's a 3% increase between 2019 and 2020, (arbitrary number), then that six-month lump sum thing means a 7% difference in monthly benefits, which is not chicken feed.

It seems I can't find a definitive answer to my questions online, and it's very frustrating. I'm planning to go in to the SSA near me and ask specifics. Hopefully they can help me get it figured out. If anyone has a good online resource, or knows what's what, please let me know.

Dave

 

[Talent312]

Do I flat-out retire at the first eligible month? Do I keep working but claim SS? Do I keep working till the end of the year, and wait to file for SS in 2020, to get the higher rate?...

Some folks time their retirement & SS claims to maximize their post-retirement income.
I timed mine to occur when it would let me to keep my current lifestyle (w/o draws from my portfolio).
.

 

[WinniWoman]

Crazy, but I know and elderly couple who liked working and both worked up until they were 80 (him full time; her part-time)! So at 70 they both claimed their SS and now had salaries and SS coming in for 10 more years. When his employer closed down, it was perfect timing for him to collect unemployment when it was a 2 year allowance that was instituted! So he was collecting max SS and the unemployment in his early 80's! And his wife also collected unemployment after her job ended and her max SS at 80..

I keep telling them how lucky they are that both of them are still alive and have 2 SS checks coming in! But- liek I said- they both claim they liked working.

All this SS information, though, gives me a headache.

 

[DaveNV]

All this SS information, though, gives me a headache.

Yes. And the hassle for me is that I want to make an informed decision, but can't figure out the straight answers to my questions. It doesn't seem like what I'm asking is that complicated. Arrggh!

Dave

 

[Talent312]

I want to make an informed decision, but can't figure out the straight answers to my questions...

It's almost as complicated as determining the best use of a TS system.
.

 

[bluehende]

You've got it, Dave. It's exactly as if you started taking benefits in July 2019. But there's one wrinkle you may not have taken into account. In the case where you wait until Jan 2020 and get 6 months worth of back benefits, that "back pay" is paid in 2020. For tax purposes, you'll get 18 months of SS payments in 2020. That could goose up your gross income, resulting in a bigger tax bite than if you had just filed in July 2019.

It also works the other way. If your income is much lower in retirement it could lower the rate on it.

 

[magmue]

I'm healthy, and do plan to retire next year, more or less. But the question is, which month? Simple question, but with a complicated answer. It seems the questions and answers I see posted online are either for those who are thinking of retiring before their full retirement age, or who will be retiring at 70.

There's also the path of retiring, but waiting to file, which is what I just embarked on. I'm almost 68 and worked half time the last year and a half, fully retired as of last month. I'm healthy, and family genetics suggest a possible long old age (my dad is 104!). My plan is to postpone filing for SSI until I turn 70 - I'll tap into retirement saving to carry me through if need be. My eventual SSI benefit will increase by 8% every year until 70 - my IRAs and 401K/404b's can't compete with that guaranteed rate of return.

 

[MULTIZ321]

Yes. And the hassle for me is that I want to make an informed decision, but can't figure out the straight answers to my questions. It doesn't seem like what I'm asking is that complicated. Arrggh!

Dave

Hi Dave,

Use the Social Security Benefit Calculators and put in your various scenarios to determine how much you would get in each senario.

https://www.ssa.gov/benefits/retire...oUAYM5zDUhO7D_Y8v00ktdtmPqFVipi0aAhcKEALw_wcB

Richard

 

[DaveNV]

Hi Dave,

Use the Social Security Benefit Calculators and put in your various scenarios to determine how much you would get in each senario.

https://www.ssa.gov/benefits/retire...oUAYM5zDUhO7D_Y8v00ktdtmPqFVipi0aAhcKEALw_wcB

Richard

Thanks, Richard. I've done that, and pretty sure I know what amount I'll get at various times. I may be overthinking things, or maybe even making it more complicated than it needs to be. My questions are more about "when" it's best to do something, and not so much "what," or "how much." As an IT guy, I'm used to seeing clear diagrams that say, "If you do this, you'll get that" kind of thing. With Social Security, it seems it isn't that simple. Or maybe it is, and I'm just not catching on to it.

The biggest thing I'm trying to get answers to is a clear understanding of exactly what happens when, and how to decide which direction to go when deciding which option to take.

Dave

 

[VacationForever]

@DaveNW Answers to your questions depend on your personal situation. Your age, your tax bracket etc. Don't forget that even if you were to work and draw on SS after you reach Full Retirement Age, all money earned through working will increase your future SS payout and it is recalculated at the end of every year. If you have not reached FRA, then whatever you earn from working, may lower your SS payout for the same year depending on how much you make but the end result remains that it will increase your future SS payout by working.

 

[cgeidl]

Thanks, all. You've got it sorted. I'm healthy, and do plan to retire next year, more or less. But the question is, which month? Simple question, but with a complicated answer. It seems the questions and answers I see posted online are either for those who are thinking of retiring before their full retirement age, or who will be retiring at 70. Every time I think I understand the options, I see something that makes me question myself.

Do I flat-out retire at the first eligible month? Do I keep working but claim SS? Do I keep working till the end of the year, and wait to file for SS in 2020, to get the higher rate? It seems I'll owe taxes regardless, so it isn't so much about taxes as it is what gives me the best options.

This lump sum wrinkle seems like it might be more than the 4% increase. If I file for benefits in 2020, the monthly rate will also be higher. If it's a 3% increase between 2019 and 2020, (arbitrary number), then that six-month lump sum thing means a 7% difference in monthly benefits, which is not chicken feed.

It seems I can't find a definitive answer to my questions online, and it's very frustrating. I'm planning to go in to the SSA near me and ask specifics. Hopefully they can help me get it figured out. If anyone has a good online resource, or knows what's what, please let me know.

Dave

 

[cgeidl]

I was a certified financial planner for many years and I would not begin to attempt answering your questions. I would not go to a Social Security office and accept their answers without checking the Social Security rules thoroughly. Ask to see the pertinent regulations. Your other alternative is to find someone who just specializes in being an advisor of planning for using Social Security and schedule a visit. I have found that the security administration answers to questions are much like when you ask a question to IRS. Only about half the time do you get the correct answer and they are not responsible for incorrect answers.