Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Another SS wrinkle--lump sum
Old 12-06-2012, 04:21 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: E. Wash
Posts: 1,057
Another SS wrinkle--lump sum

Just came across another wrinkle in managing Social Security (SS) benefits via a neat advise service from BottomLine.
The gist of it is to be sure to file for your SS benefits when you are at full retirement age (FRA), even though you do not plan to collect until later years (70?)--the so called file and suspend strategy. By filing and suspending at FTA you are able to immediately start protecting your "lump sum" option. Under this strategy your suspended benefit is accummulated into a lump sum benefit that you can collect whenever you decide to start collecting. This benefit is particularly helpful should you find out prior to say 70, you have an immediate cash need or terminal illness.
The example given was for a person whose SS Benefit at RTA was 2000/month. He files and suspends at FRA (66)but then finds out he has a terminal illness at 69. He requests the lump sum, and gets his three years of suspended benefit (apprx $72K) and two additional months benefit (at the rate he would have gotten at FRA) checks prior to passing.
Net advantage is he would receive $76K, instead of just the $4-5k had he just filed when he received his bad health news.

One things I did notice in this example from Bottomline is that they did not fully account for the higher monthly benefit from delayed filing at the later age but the examples still illustrates the advantage of having the aqbility to access the lump sum

Nwsteve
__________________

__________________
nwsteve is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-06-2012, 04:30 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,410
Very interesting. Never heard of this.

That $76k could be a big help with terminal illness health care costs.

I suppose the lump-sum would be taxable when received, but still a good thing to know.
__________________

__________________
pb4uski is offline   Reply With Quote
Old 12-06-2012, 04:50 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,357
So, this lump sum option nets you, or your heirs mostly, just 2 extra months of benefits? What happens if a heart attack claims you before you can file to collect the lump sum?
__________________
GrayHare is online now   Reply With Quote
Old 12-06-2012, 06:28 PM   #4
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,084
Quote:
Originally Posted by GrayHare View Post
What happens if a heart attack claims you before you can file to collect the lump sum?
Good question for a surviving spouse. I'd not heard of this lump sum option before.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 12-06-2012, 06:36 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: E. Wash
Posts: 1,057
Quote:
Originally Posted by GrayHare View Post
So, this lump sum option nets you, or your heirs mostly, just 2 extra months of benefits? What happens if a heart attack claims you before you can file to collect the lump sum?
Took me a few readings to get it as well GrayHare. This lump sum option gets you $76k more versus not filing when you are eligible at FRA. The contrast being made is if you are going to wait past FRA to collect your SS payment then you DO NOT wait to file until you get ready to draw your SS benefit .
By filing and suspending at FRA, your "suspended" benefit accumulates so you can later take the lump sum. If you did not file and suspend, all you will get is the elevated monthly payment you are due at whatever age you start drawing.
Nwsteve
__________________
nwsteve is offline   Reply With Quote
Old 12-06-2012, 07:05 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by nwsteve View Post
sBy filing and suspending at FRA, your "suspended" benefit accumulates so you can later take the lump sum. If you did not file and suspend, all you will get is the elevated monthly payment you are due at whatever age you start drawing.
Nwsteve
But that benefit will be reduced by having taken the lump sum payment, right? It isn't just a flat out bonus for being smart enough to do this maneuver, is it?

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 12-06-2012, 07:34 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,357
Not $4k more but $76k more? In just 3 years? I find that hard to believe. Sounds instead like SSA is merely holding the payments you would have gotten and sending them via one check, so the total benefit either way after 3 years is about same.
__________________
GrayHare is online now   Reply With Quote
Old 12-06-2012, 08:23 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: E. Wash
Posts: 1,057
Grayhare--the benefit will only be the same if you Filed and Suspended at FRA. If you chose to just wait until 69 in this example to claim your SS benefit , you would only receive the increased monthly benefit. So if you suddenly learn you are terminal, you are only getting higher Monthly payments but nothing for all those months you had previously claimed.
Ha, you are correct regarding the impact on monthly benefit if you take the lump sum--your monthly benefit reverts to your FRA age benefit. But if you are terminal, do you really care?
Nwsteve
__________________
nwsteve is offline   Reply With Quote
Old 12-06-2012, 08:49 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,292
More gold!

Moderators, please put this in a permanent place!
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 12-06-2012, 08:50 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Sounds like an option that would be worth preserving at least. It can't be that hard to file and suspend.
__________________
Animorph is offline   Reply With Quote
Old 12-06-2012, 09:00 PM   #11
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,084
Quote:
Originally Posted by Animorph View Post
Sounds like an option that would be worth preserving at least. It can't be that hard to file and suspend.
+1

Seems like a no-brainer.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 12-06-2012, 09:57 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,037
Quote:
Originally Posted by nwsteve View Post
Ha, you are correct regarding the impact on monthly benefit if you take the lump sum--your monthly benefit reverts to your FRA age benefit. But if you are terminal, do you really care?
Nwsteve
But it sounds like your survivor's spousal benefits would revert to the monthly benefit as if you started collecting at FRA, not the survivor benefit based upon the additional years beyond FRA. Would work for singles but affect the amount of benefit for survivor??
__________________
RE2Boys is online now   Reply With Quote
Old 12-06-2012, 10:10 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by nwsteve View Post
Ha, you are correct regarding the impact on monthly benefit if you take the lump sum--your monthly benefit reverts to your FRA age benefit. But if you are terminal, do you really care?
Nwsteve
Thanks, I just wanted to be sure. Yes I agree, this would give cash where none would exist, and this procedure seems cost free.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 12-07-2012, 08:10 AM   #14
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
Originally Posted by RE2Boys View Post
But it sounds like your survivor's spousal benefits would revert to the monthly benefit as if you started collecting at FRA, not the survivor benefit based upon the additional years beyond FRA. Would work for singles but affect the amount of benefit for survivor??
That's a problem for joint benefits for married folks.

Each (couple) needs to complete a worksheet and see if the lump sum would cover the loss of stepped-up benefits for the remaining lifespan of the survivor.

I did a quick worksheet, plugging in our actual numbers at FRA and my benefit at age 70 (primarily for the benefit of DW). We're the same age (same FRA date - within a few months). However, based upon DW's FRA benefit which is much less than mine, and assuming she will live to at least age 85 (highly likely, based upon lifestyle and family history), it makes sense to not execute the lump sum option, and revert her future benefits based on my FRA benefit which is just under $1k less than she would get, assuming I pass on my 70th birthday.

We're talking about just under a $180K difference in benefits between age 70-85 for her (more if she lives longer).

The other thing that must be considered is taxes. Receiving a lump sum from SS (regardless of the amount) may put the survivor in a higher tax bracket for the year they receive it, and reduce the net value vs collecting future benefits over many years.

I'm not saying the option should not be considered, but I would recommend that a couple considering this option should "work the numbers" to see what the possible outcome (positive or negative) may be. In fact, I'll file/suspend in October just to keep the option open "just in case", for the unknown future.

For a single person? It's not as much of a quandary and has more of a possibility of working out well since it may make their remaining life more comfortable. Spousal survivor benefits are not a concern. And we all know that money is for the living - not the dead. A single person (who had defered SS) should make the most of the benefits available for their remaining life.

Just my comments on the thread subject.
__________________
rescueme is offline   Reply With Quote
Old 12-07-2012, 09:02 AM   #15
Full time employment: Posting here.
 
Join Date: Jul 2007
Location: ST LOUIS
Posts: 993
Maybe I am reading this wrong but if that is the case a person may as well take SS at FRA it is the same thing. Because your benefit does not grow after FRA by doing this. You could do the same thing they do by putting it in the bank once you hit FRA.
__________________
Proverbs 15:22 Designs are brought to nothing where there is no counsel: but where there are many counsellors, they are established.
rec7 is online now   Reply With Quote
Old 12-07-2012, 09:25 AM   #16
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
Originally Posted by rec7 View Post
Maybe I am reading this wrong but if that is the case a person may as well take SS at FRA it is the same thing. Because your benefit does not grow after FRA by doing this. You could do the same thing they do by putting it in the bank once you hit FRA.
The problem as I see it (disregarding any spousal/survivor calculations) is that you are "giving up" the 8% annual increase (and also include annual COLA adjustments) for the period of age 66-69 (assuming age 66 FRA).

If you find out you are terminal at age 69 (for instance) you can claim "back pay". However, if you live a longer lifespan, you've given up the additional mortality credits you "earned", just by living longer.

If you can match/exceed that 8% (plus COLA)? Fine; file at FRA and put it in the bank.
__________________
rescueme is offline   Reply With Quote
Old 12-07-2012, 09:44 AM   #17
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,372
Quote:
Originally Posted by rec7 View Post
Maybe I am reading this wrong but if that is the case a person may as well take SS at FRA it is the same thing. Because your benefit does not grow after FRA by doing this. You could do the same thing they do by putting it in the bank once you hit FRA.
If you don't need the lump sum you just never take it and your benefits will continue to grow after FRA. It's probably a no-brainer to file and suspend just to have the option.

What if, before claiming any SS, one spouse passes away say when the other is 67 and then the other has a terminal illness at 69. Why not file then, take the FRA level of payments, and also take the lump sum to pass along?

I am sure it is the same thing actuarially to the SS folks but it wouldn't be the same for our doomed hypothetical couple.
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
Bestwifeever is offline   Reply With Quote
Old 12-07-2012, 10:04 AM   #18
Recycles dryer sheets
Bram's Avatar
 
Join Date: Dec 2006
Posts: 214
Quote:
Originally Posted by GrayHare View Post
What happens if a heart attack claims you before you can file to collect the lump sum?
Interesting info. I'm wondering about the answer to this question?
__________________
.
.

Every step of the journey is the journey.
Bram is offline   Reply With Quote
Old 12-07-2012, 10:12 AM   #19
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
Originally Posted by Bram View Post
Interesting info. I'm wondering about the answer to this question?
Simple.

If you are single and dead, you don't need the money ...

If you are married, your spouse will receive 100% of the SS you were eligible for, on the last day of your life (assuming over the age of 60, and assuming the deceased spouse has a benefit greater than your own). Under the age of 60 (with/without childern) is subject to other rules.

Under the age of 60 and/or with minor childern (below the age of 18), survivor benefits would come into play, depending on the situation. Usually the spouse will receive 75% of the decedents current benefit (based upon accrued benefit of the last day of life) until the youngest child turns 16. The childern (regardless of number) will receive 75% of the deseased parents benefit until they turn 18.

Again, money is for the living - not the dead. There are a lot of different results depending on marital status, age of spouse, and age of childern.

As in all situations, there is no single answer to a question - more so when the federal government is involved ...
__________________
rescueme is offline   Reply With Quote
Old 12-07-2012, 11:18 AM   #20
Full time employment: Posting here.
 
Join Date: Jul 2007
Location: ST LOUIS
Posts: 993
Quote:
Originally Posted by Bestwifeever View Post
If you don't need the lump sum you just never take it and your benefits will continue to grow after FRA. It's probably a no-brainer to file and suspend just to have the option.

What if, before claiming any SS, one spouse passes away say when the other is 67 and then the other has a terminal illness at 69. Why not file then, take the FRA level of payments, and also take the lump sum to pass along?

I am sure it is the same thing actuarially to the SS folks but it wouldn't be the same for our doomed hypothetical couple.
Thanks good info. One more question if I die at 76 (many in my family do) I am guessing that collecting at 62 would be the best move? I read somewhere the break even point was 82.
__________________

__________________
Proverbs 15:22 Designs are brought to nothing where there is no counsel: but where there are many counsellors, they are established.
rec7 is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 12:37 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.