People who receive Social Security payments might be concerned about what changes would be made to the program in the event of a Trump presidency given the unpredictability of presidential transitions.
During his campaign, the president-elect suggested removing taxes on all Social Security benefits. However, since this would drastically speed up the program’s funding depletion, some people are fearing that they won’t be able to receive their benefits in full.
Although it is not truly possible to claim all of your benefits at once, the Social Security Administration (SSA) does allow certain recipients to receive a little payout in one lump sum.
Lump Sum Social Security Benefit Basics
First and foremost, you must be past full retirement age in order to receive a lump sum payment from the SSA. Although you can start receiving retirement benefits at age 62, you must be older than 66 or 67, depending on when you were born, in order to get a lump sum payment.
The second consideration is that you cannot have begun receiving benefits prior to making the lump sum claim. Any beneficiary who has previously requested benefits will no longer have this option.
The third major issue is that you can only receive a maximum of six months’ worth of benefits at a once, and you must wait at least six months past full retirement age to receive the entire six months’ worth in one lump sum.
A sizable payout may be obtained by opting to collect Social Security retroactive payments in one big sum. For instance, collecting six months of retroactive benefits may result in a lump payout of $10,962, given that the average monthly benefit for 2023 is $1,827. However, because your claiming age is changed to reflect an earlier start date, this option lowers future monthly benefits. For example, you will forfeit half of the yearly 8% increase, or 4%, if you claim six months of retroactive benefits at age 68. Your benefits will be computed as though you began at age 67.5. This cut would permanently reduce your benefit to $2,400 if it was $2,500 per month at age 68. A $14,400 lump sum payment, equal to six months’ worth of the decreased $2,400 benefit, would be given to you in exchange.
This is significant because you can earn an additional 8% in benefits for each year between reaching full retirement age and attaining 70, for a total of 24%. For someone with a poor life expectancy, for instance, losing that proportion of benefits can be worth it. It would take 144 months or 12 years for your $100 lower monthly benefits to equal the $14,400 lump sum payment. Having a large cash infusion would be beneficial if you need the money right away or wish to invest in other projects.
The advantages of receiving this lump sum are obvious; the money in your account instantly enables you to make financial decisions that you otherwise would not have been able to, such as paying off debts or making riskier investments that have the potential to provide large returns.
However, there are some unavoidable drawbacks as well, chief among them being that your monthly payout would be permanently reduced. The possibility that the lump sum payment will place you in a higher tax category for the year, increasing your income tax expenses and decreasing the attractiveness of your claim, is another disadvantage that most individuals overlook. The final drawback is that you would have been better served delaying your claim if you chose to invest the funds (or settle debt with a lower interest rate) with a return on investment of less than 8%.