Your guide to the Social Security lump sum benefit 

Not many retirees or would-be retirees may be aware of this, but it’s possible to receive a lump-sum payment from their Social Security benefits – under the right conditions.  

If you have clients who are recipients or soon-to-be recipients of Social Security benefits, it’s important for them to be aware of the features, perks, and drawbacks. In a nutshell, this lump sum benefit provided by the Social Security Administration (SSA) is only for people who reach their Full Retirement Age (FRA) but did not file an application to receive these benefits. 

So, what exactly is the Social Security lump sum benefit and what is it for? Should your client get this lump sum benefit if it’s available? Also, is this the same as the Social Security lump sum death payment? Read on to find the answers to these and more in this article.  

Social Security lump sum benefit: an overview 

When it’s time for your client to file with the SSA and receive their Social Security benefits, they have the option to get a lump sum that’s equivalent to up to six months’ worth of benefits.  

Not everyone can receive this benefit, however. While it may sound advantageous, especially since your client is retired and may need as many sources of income as possible, approach the benefit with caution.  

As an advisor, it’s important to assess whether taking the lump sum would make good financial sense for your client or not.  

Eligibility for the lump sum benefit 

Clients who have reached their full retirement age (FRA) may be eligible to claim up to six months’ worth of benefits, paid in one lump sum.  

For example, let's assume you have a client that reached their FRA in September. Let's assume further that instead of immediately filing for their benefits, they waited until January of the next year to start getting them. In this case, they can ask for a check for the benefits and receive the lump sum of what they would have received if they had claimed their benefits when they first reached their FRA.  

Conversely, if your client isn’t past their FRA, they cannot retroactively claim any benefits. They must be six months past their FRA to claim the lump sum.  

Full retirement age (FRA) at a glance 

Types of Social Security lump sum payments 

Apart from these lump sum benefits, there are at least two more lump sums that your client might receive from their Social Security.  

Lump sum death benefit  

This is a federally funded benefit managed by the SSA. Under this benefit, the surviving spouse or child of the deceased worker receives a one-time payment of $255. This is given apart from the monthly survivors’ benefits to the deceased worker’s beneficiaries. 

This benefit is often cited as a means of assisting the bereaved family members pay for the deceased's funeral and burial or cremation expenses. Recently though, there has been a discussion among US lawmakers to increase the amount of this one-time payment.  

Disability back pay 

Another form of lump-sum benefit is the back pay from Social Security Disability Insurance or SSDI. Commonly known as Disability, SSDI is composed of monthly benefit payments for people with a disability that limits or stops them from working. 

Disability back pay covers the months between the dates your client submitted their application for SSDI and were approved for these benefits. As there is a mandatory waiting period of five months prior to approval, the disability back pay often consists of benefits worth these five months owed.  

In some instances, if your client hires a disability attorney, they may be eligible for more benefits. Some attorneys can secure benefits retroactively, dating back to the date of diagnosis of your client’s disability to when they applied for SSDI.  

A disability can affect anyone, at any time. #SocialSecurity is there if the unthinkable happens. Learn more about our #disability facts: https://t.co/NLgdACRELs pic.twitter.com/94XCuYv63U

— Social Security (@SocialSecurity) July 10, 2024

When do disability payments start?  

In most instances, your client can expect to receive their Disability payments after the mandatory waiting period has elapsed, which is five months. There may be exceptions to this, however, depending on the onset date and the start of the waiting period.  

The onset date is when your client filed for SSDI benefits, and this serves as the basis for the SSA’s calculation of the back pay for Disability Benefits. But in cases where your client was disabled for a significant period before filing for Disability, they may hire an attorney to change the onset date to the date of diagnosis.  

Even if your client received their diagnosis over a year before they applied for SSDI, they may only claim back pay for disability for a year’s worth at most.  

The pros and cons of receiving Social Security lump sum payments 

There are advantages and disadvantages to taking a Social Security lump sum benefit. Advise your client of these pros and cons so they can make an informed decision on this and get the best outcome.  

The pros of receiving Social Security lump sum payments 

If your client decides to take the lump sum for benefits that are retroactive to their reaching full retirement age, they can enjoy these perks:  

• they can get a large amount now instead of getting small payments for the next several years 
• they can pay off a burdensome debt or other obligation like their mortgage 
• they may get higher returns if they invested the lump sum – this depends on the amount and how the market performs 
• they can use the lump sum as an emergency fund for medical treatment  
• they can pay taxes on other more beneficial investments 

If your client has a pre-existing condition that can affect their lifespan, that could also be a factor in deciding to take the Social Security lump sum payment.  

The cons of receiving Social Security lump sum payments 

On the flipside, there are potential drawbacks to getting the Social Security lump sum benefit:  

• If it’s a substantial amount, the lump sum could place your client in a higher tax bracket and raise their income tax for the year 
• If your client invests the lump sum, there’s no guarantee that they will get a return higher than 8%. This is the annual benefit boost they would normally receive by waiting until age 70 to make the claim. 
• Getting the lump sum will permanently reduce the amount of money they’d receive as their Social Security retirement benefits.  

Social Security lump sum strategies 

Given the pros and cons of the Social Security lump sum benefit, how should your client deal with this feature? Here are some suggestions.  

1. Don’t accept the benefit blindly 

Advise your client to pause for a moment, then take a step back and assess the situation.   

2. Help them assess their financial goals and needs 

As a financial planner or advisor, you can help your client see the bigger picture of their financial situation. Discuss their financial situation, financial goals, and financial needs.  

Get to the core of the matter and have your client lay all their cards on the table. Be prepared to ask the hard questions like:  

• Do they need to pay off a longstanding debt?  
• Do they have student debt or other obligations they’d like to erase before they retire?  
• Is there any personal or family emergency that warrants the lump sum?  

After hashing out their financial concerns, you and your client will know how to move forward.  

3. Decide on what to do with the lump sum 

You can advise your client to take the lump sum or leave it, depending on their financial goals and needs. Either decision is acceptable, but only if it brings out the best outcome for your client.  

4. Don’t discount the option of delaying Social Security 

One of the unique options of Social Security afforded to workers is the choice of delaying them. Putting off when your client starts taking their benefits can also increase the size of their monthly Social Security check.  

They can start on the monthly benefit as early as age 62, but if they choose to wait, they can get a bigger payment each month. Your client’s Social Security benefits can increase by 8% per year they postpone taking it until the age of 70. After they reach that age, your client reaps no additional benefit from waiting. 

Impact on other benefits 

If the local Social Security office convinces your client to accept the lump sum offered to them, advise them not to jump the gun and immediately accept. For your client to accept the lump sum offered, they could be risking their financial security or worse, causing harm and hardship to their dependents if they have any.  

Impact on monthly retirement payments 

Although it is SSA policy to inform retirees of the lump sum option, they may not tell your client of negative effects like this on their income and financial goals.  

Should your client feel partial to taking the lump sum, this will permanently reduce their monthly retirement benefit. 

Impact on Medicare 

Medicare and Social Security benefits go hand in hand. Once the lump sum payment reduces your client’s monthly retirement benefit, they can end up having less money to pay for their Medicare Part D or Medicare Part C. What’s more, starting Social Security benefits automatically activates Medicare Parts A and B, if your client enrolls in SS before they turn 65.  

To appreciate how Medicare and Social Security work for your clients, you can show them this short video. This can help them think about how the lump sum might impact their medical needs. 

Taking Social Security lump sum payment is an important decision 

Taking Social Security lump sum retroactively is not a decision to be taken lightly. Most clients who are retiring may simply not have enough income in their golden years. Most will be highly dependent on their Social Security checks, so taking the lump sum may not be in their best interests. 

Discussing your client’s financial situation, goals and needs is crucial. Only then can you help them make the move that’s best for them.  

If you need the views of experts on Social Security lump sum payments and other aspects of retirement, read and bookmark our section on retirement planning.