A Little-Known Social Security Strategy, Ep #158

What happens if you start collecting Social Security payments but feel like you’ve made a mistake or taken it too early? Did you know that you can stop or suspend the benefits? Secondly, when you start collecting Social Security there’s an option for a lump-sum payment. Learn more about this little-known Social Security strategy in this episode of Retirement Made Easy! And as a bonus, I’ll answer three listener questions! 

You will want to hear this episode if you are interested in…

  • [2:08] Submit a question at RetirementMadeEasyPodcast.com!
  • [6:19] Using Subsidies for Retirement Plans to Fix Social Security
  • [12:45] Social Security withdrawal options 
  • [15:26] Social Security’s lump-sum option 
  • [17:36] Listener Question #1: Should I roll a 403B into an IRA?
  • [21:25] Listener Question #2: Should I roll over my 401k at 57?
  • [24:50] Listener Question #3: How does disability work with life insurance? 

Using Subsidies for Retirement Plans to Fix Social Security

Social Security puts out reports every year about how the Social Security trust fund is doing. In 2023, the report said that the Old-Age and Survivors Insurance Trust Fund would be depleted in 2034. If Congress does nothing, we’ll be faced with a 20% cut in Social Security benefits. The longer we wait to fix the problem, the worse off things will get. Something needs to be done soon. 

A new proposal was published in January by The Center for Retirement Research (written by Andrew Biggs and Alicia Munnell). The proposal would do away with the tax cuts that people file on their taxes for contributions to traditional 401Ks and IRAs. Why? 

Because it won’t impact how much someone will save for retirement. The people who are going to save are going to save it regardless of whether they can deduct it on their taxes. They believe Federal income tax savings would reach around $185 billion, which could be diverted into Social Security to bail the system out. This proposal is gaining a lot of attention.

Social Security withdrawal options 

If you start collecting Social Security at 62, you’ll get far less than if you collect at age 70. The difference is a whopping 76% increase in Social Security benefits for your lifetime. It’s a big decision to make. What if you feel like you made the wrong decision? These are some of your options: 

  • Stopping your Social Security benefit: If you’re under your full retirement age, you have 12 months to stop it—but you have to pay it all back. 
  • Suspending your Social Security benefits: Once you turn your full retirement age, you can suspend your benefits at any time. You’ll get deferral credits for every month you wait to turn it back on. 

Side Note: If you’re on Medicare and want to keep Medicare but stop Social Security, you’ll have to submit an SSA 521 form. 

But there’s one other little-known option—the lump-sum option (or retroactive benefits). 

The lump-sum option 

If you’re past your full retirement age, you can claim Social Security OR you can claim the lump-sum option. You can receive up to six months of retirement benefits in a lump sum. Let’s say you turned 69. You can claim at 68 ½ and they’ll write you a check for those six months. However, your monthly benefit would reflect you retiring at that earlier age and it will all be taxable. 

Listen to the whole episode to hear my answers to three listener questions!

 

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