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How to Get a Social Security Lump Sum Benefit

This little-known goodie comes with some drawbacks


You probably don’t know it, but Social Security can give you a big, lump-sum check for $40,000 or $50,000 or even more — a bonus, like winning a lottery. Should you take the bucks?

It’s a complex business and depends on your age, your health, whether you are married and how much money you have in the bank or your stock portfolio. One more thing: If you take the lump sum, you may be giving up an even bigger retirement check from Social Security for the rest of your life.

The lump-sum bonus is a gift available to people who reach what’s known as Social Security’s Full Retirement Age without having begun collecting benefits. (Full Retirement Age, in 2015, is 66 if you’re between age 61 and 72; 67 for those age 55 or younger and somewhere in between 66 and 67 for people age 56 to 60.)

The File-and-Suspend Strategy for a Lump Sum

One way to get the lump sum from Social Security is by doing what’s known as “file and suspend.”

That means claiming your benefits after you reach Full Retirement Age and before age 70, but not taking them. Meantime, you’ll be accruing an 8 percent bonus in the size of your monthly checks, until age 70 — those are called delayed retirement credits. If, after you suspend benefits, you decide you’re ready to start collecting, you can get a lump sum from Social Security for the amount you would’ve received between the date you filed and now.

If you take the lump sum, you may be giving up an even bigger retirement check from Social Security for the rest of your life.

There’s also a lump-sum benefit for people who don’t use the file-and-suspend strategy, but it’s less generous. If you delay taking Social Security and, before age 70, decide you want or need to begin claiming benefits, your lump sum will be a retroactive benefit of no more than six months worth of payments.

Here’s a file-and-suspend example: Cynthia is entitled to a $2,100-a-month Social Security benefit at 66, but files and suspends, letting the money pile up while she continues working. At 68, Cynthia retires and applies for the lump sum payment for those two years between ages 66 and 68. She’ll get a lump sum of $50,400 — the $2,100-a-month for that time period.

The Drawbacks of the Strategy

Now for the drawbacks:

When you get the lump-sum payment, you forfeit the delayed retirement credits you accrued. In other words, your lump sum is based on the smaller benefit you would’ve received at Full Retirement Age. This is also true for your lifetime monthly benefit and benefits for your survivors.

Also, going the file-and-suspend route keeps you from collecting spousal benefits while you postpone your own benefit.

And a lump-sum payment from Social Security might increase the amount of your benefits that are taxable. (IRS Publication 915 has the rules on this.)

Deciding Is Tricky

Taking a lump sum can have repercussions when life throws a curveball.

Shirley B. Whitenack, president of the National Academy of Elder Law Attorneys (NAELA), had a 66-year-old client who was a university professor with a younger spouse. He filed and suspended for benefits. When the professor turned 67, the couple decided to put an addition on their vacation home. “He took the lump sum and ended up with a big chunk of change,” said Whitenack. “Then, four months later, he got an infection and was dead in four days.”

He had already collected the lump sum. Now the reduced benefit belonged to his widow.

Whether to take a lump sum benefit is a personal and complex matter. “It has to do with making bets on how long you will live,” said Whitenack, a partner at Schenck, Price, Smith & King in Florham Park, NJ. “It’s always a crapshoot.”

That’s why the advice of any expert should be tempered by your personal and family history, says Avram Sacks, a Chicago-based lawyer who’s a Social Security expert and member of NAELA. “There is no one who can tell you in all cases, ‘take the lump sum or don’t take the lump sum,’” said Sacks.

Sacks offers this example showing how tough decisions can be on widows and widowers: John Smith is entitled to a Social Security check of $1,700 a month at 66, for a yearly income of $20,400. He files and suspends, looking forward to the big monthly check he’ll start receiving at 70. But he is struck with brain cancer at 68.

He can reclaim the two years of benefits and get a lump sum of $40,800 before dying. But will that be a good deal for his wife, Pat, 66, soon to be his widow?

Because John took the lump sum, the monthly Social Security check for Pat is cut back to $1,700 a month, the amount he would have collected at age 66.

John and Pat could have instead decided to skip the lump sum so Pat would collect a bigger survivor’s check of $1,972 a month. It would take 12 years, at $1,972 a month, for her to collect an amount equal to the lump sum of $40,800. If the women in Pat’s family typically live into their 90s, it may be best for John and Pat not to get that lump sum.

Things get even more complicated, Sacks says, when there are children involved because they might be entitled to survivors’ benefits, too.

Where to Get Claiming Help

Sacks suggests using a computer program that you can find on sites such as Social Security Timing (10-day free trial) or Maximize My Social Security ($40)  to see what your Social Security benefits might be in various situations. But, he cautions, no calculator accounts for all of the rules governing Social Security benefits.

You can also estimate Social Security benefits at the Social Security site and watch a video from the National Academy of Social Insurance explaining why it often pays to wait to collect benefits.

“Given the sums of money at stake, a worker close to retirement may wish to consult with an adviser who understands well the Social Security retirement program,” says Sacks.

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