Program allows for lump sum payment of Social Security benefits
Posted By Wesley Goheen, Web Managing Editor - email
By Craig McMorris, TV5 Anchor/Reporter - bio | email
SAGINAW, MI (WNEM) -
It's a program that many people never knew existed. It is the lump sum payment offered by Social Security.
Mid-Michigan resident Ed Roenicke had no idea the program existed. Roenicke is a 90-year-old World War II veteran who served in Europe. He read about a lump sum social security option in the Wall Street Journal. Roenicke thought it was interesting enough to check out.
Roenicke then went to the Saginaw Social Security office to find out more information. He says they were unable to elaborate on the lump sum option.
So the TV5 I-TEAM went to work. TV5 wanted to know what the lump sum option was all about and whether the numbers would add up for most people.
TV5 went to retirement specialist Michael Wilcox for lump sump secrets. He unlocked the key to a very simple transaction you can trigger when you reach the age of 66. But you must be that age to qualify.
"At full retirement age, you tell the social security office that I'm 66, I want to file for my benefits but I want to suspend it, basically saying I don't want it," says Wilcox.
Basically, you apply for your money, then immediately you defer the payments. Then after at least a year, you can call social security to get your big check.
"Tell social security that you're ready to go ahead and take that benefit that was suspended and then what they will do is they'll give you a lump sum of cash and then they will start your benefit payout as if you took it at age 66," says Wilcox.
Here's how it works. If you delay applying for your benefit until after your full retirement age you earn delayed retirement credits of 8% a year. It's not bonus money, it is exactly what you would have received on a monthly basis. When you finally apply, you can accept a monthly benefit that includes all the delayed credits. Or you can accept a lump sum worth six months of retroactive benefits. But keep in mind, your monthly benefit will shrink to the amount you would have received if you had applied six months earlier.
But there's more. If you file and suspend your benefit of $2,000 a month at age 66. At 67, you can request a lump sum payout of one year's worth of benefits, totaling $24,000.
But there is a drawback to taking the lump payment. You will get hit with higher taxes.
If it turns out you're not going to live much longer, it will make sense for you to take a lump sum payment. Again, it all starts with suspending benefits when you are 66.
So in the end, the lump sum option has some strings attached, but it could be key retirement tool if the circumstances are just right.
Experts say it's a good idea to talk to a financial advisor about your retirement options. They also recommend you save as much as you can now, so you have it when the time comes.
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