Preparing for Change: Important Steps to Take with Your Social Security Checks Before Trump Takes Over
People who receive Social Security payments may be perplexed about the modifications that will be made to the program in the event that Trump is elected president because of the instability that would result from a change in the president.
During his campaign, the candidate for president mentioned that one of the options he could pursue was to eliminate taxes on all Social Security benefits.
However, given that this would significantly speed up the rate at which the program funds are depleted, some people are becoming increasingly concerned about whether or not they will be able to claim their benefits in their entirety.
The Social Security Administration (SSA) does provide some beneficiaries with the opportunity to claim a small lump sum of payments, despite the fact that it is not really possible to claim all of your benefits in a single lump sum.
Basics of the Social Security Benefits Received in One Sum
In order to make a claim for a lump payment from the Social Security Administration (SSA), you must first be over the age of full retirement.
This is the first thing you need to keep in mind. As early as 62 years old, individuals are eligible to make a claim for retirement benefits; but, in order to get a lump payment, they must be at least 66 or 67 years old, depending on their year of birth.
You must not have been collecting benefits prior to submitting your claim for the lump payment, which is the second item you need to keep in mind. In the event that a beneficiary has previously requested benefits, this option will no longer be available to them.
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 the average monthly benefit for 2023 of $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.
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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.
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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%.