Another SS wrinkle--lump sum

[nwsteve]

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

 

[pb4uski]

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.

 

[GrayHare]

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?

 

[Alan]

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.

 

[nwsteve]

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

 

[haha]

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

 

[GrayHare]

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.

 

[nwsteve]

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

 

[Ed_The_Gypsy]

More gold!

Moderators, please put this in a permanent place!

 

[Animorph]

Sounds like an option that would be worth preserving at least. It can't be that hard to file and suspend.

 

[Alan]

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.

 

[RE2Boys]

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??

 

[haha]

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

 

[rescueme]

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.

 

[FANOFJESUS]

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.

 

[rescueme]

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.

 

[Bestwifeever]

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.

 

[Bram]

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?

 

[rescueme]

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 ...

 

[FANOFJESUS]

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.

 

[braumeister]

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.

Break even varies with individuals. It may very well be in the early 80s if your assumption is that you spend it as soon as you receive it. If you're investing it, the break-even point could be quite different.

 

[gerntz]

Help me out, please.

I thought a surviving spouse could receive a maximum of your FRA benefit, not a greater total benefit you are receiving by having delayed taking you benefit past FRA. Correct/wrong? Thanks.

 

[rescueme]

Help me out, please.

I thought a surviving spouse could receive a maximum of your FRA benefit, not a greater total benefit you are receiving by having delayed taking you benefit past FRA. Correct/wrong? Thanks.

Wrong.

The surviving spouse will get an adjustement to their benefit, increasing the amount to what the non-surviving spouse currently gets, based upon the benefit of their last day of life:

Widow or widower, full retirement age or older --100 percent of your benefit (not basic) amount, per Survivors Planner: How Much Would Your Survivors Receive?

Of course, if your benefit is higher than your spouse when they pass, there will be no adjustment to your monthly benefit.

You are probably thinking of the rule if you have not yet reached FRA. In that case, the amount will be different. As you can see from the link, there are a lot of different situations that must be covered and can only be confirmed with SS after the fact of the death of a spouse.

This can become confusing, so here another (non-SS site) that addresses your question:

http://retirementrevised.com/retirement-benefits/faq-social-security-spousal-and-survivor-benefits

The key paragraph states "What is the survivor benefit? When a spouse dies, the survivor is entitled to receive the greater of his or her own benefit or 100 percent of the spouse’s benefit, including any cost-of-living increases earned along the way. Again, if the higher-earning spouse delays filing until the FRA or beyond, then the surviving spouse’s lifetime benefits will be increased substantially."

This is the technique that I/DW are currently doing. While we can both collect early SS, DW will claim in 18 months, when she reaches FRA age. At that time, I'll claim 50% of her benefit while delaying my SS claim till age 70. Assuming I pass after age 70 and she gets an adjusted benefit based upon my SS for the rest of her life, she will have an SS income close to twice of hers alone, at FRA. Of course, if I die before the age of 70, she will still receive an adjusted amount of my then current SS benefit (collecting or not). At least that's the plan (at least we have one).

 

[gerntz]

^ Thanks, rescue.

I also plan to claim 50% of DW's FRA benefit at my FRA - in 17 months. She's starting to claim her own benefit 7 months before FRA this month (She's 10 SS months older than I am.). Her spousal benefit at 50% of my FRA benefit is about $250/mo. more than her own FRA benefit.

Two things: 1) I presume her future spousal benefit will slightly reduced from 50% of my FRA amount by starting taking her own benefit before her FRA (I'm assuming my PIA & FRA benefits are the same after age 66. Yes? Article actually says 1/2 of PIA. OR, is my PIA what I actually receive by delaying my benefits to age 70 & she'll get near-50% of that?). 2) Since her first SS benefit for this month won't be received until Jan, 2013, I presuming that income counts for 2013, not 2012. Correct? We don't want this income to count in 2012.