There are numerous articles out there that analyze the best age at which to start taking social security benefits. This isn’t one of them. Instead, this is a tale of lost opportunity and “hidden” social security options that can land you tens of thousands of extra dollars — immediately.
My father was a rugged individualist, and among his many unorthodox choices, he never signed up to receive social security benefits. Who passes up “free” money? To this day, I’m not sure what he was thinking since he had paid into the system and could have used the money, but … that was my father.
On the other hand, maybe he just hadn’t gotten around to it. There are a number of options for starting to collect social security benefits, and there are reasons to claim it early, at retirement age or even later.
My father had some eccentricities: At one point in his later years, he moved into a log cabin in the wilderness, with no phone line, the nearest grocery store an hour and a half away, and kept it heated with wood he chopped himself. He kept bars of precious metal covered in a dusty tarp in an old shed. Overall, he was interesting and cool and cared about people. Everyone loved him. His Social Security eccentricity, though, and our lack of knowledge, ended up costing some real money.
It turns out my father also had high blood pressure, which he chose not to treat. He ended up having a stroke, requiring my sister and me to start managing his affairs. He had a positive net worth, but it wasn’t liquid, and there were bills to pay, credit card debts to resolve and so forth. When my sister and I realized he hadn’t signed up for Social Security, signing him up was one of the first things we did, and it was a real relief to help with his ongoing bills.
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What we didn’t know, however, is that there is a “lump sum” option, which can immediately pay tens of thousands of dollars — and the recipient still gets a monthly check after that. It’s true that the monthly check is slightly smaller than it would have been, but it takes many years for that decrease to catch up to the initial payout.
In my father’s case, his prognosis after the stroke wasn’t good, and indeed, he lived only a few months longer. So, the lump sum option would have been a great choice for him, his estate and ultimately us, his children.
Once he passed away, his estate had to be settled (this is mandated by law for everyone): debts paid, assets distributed, etc. And the Social Security Administration demands that you repay them the check for the last month. We were fortunate that some of his credit card companies were willing to forgive some of his debt when we explained the overall situation. They were very accommodating and helped make a difficult time easier. But, you have to know to ask for this. Also, you need to plan for the fact that by law the credit card companies will report these forgiven amounts to the IRS as “income” to the estate, so even though you never actually get any cash, the estate will owe income taxes on those amounts. It’s still a net win, though. The online executor software EstateExec can help you understand all these options, track the financials and optimize results.
Regardless, the Social Security lump sum option is available if you’ve reached full retirement age without taking Social Security benefits and enables you to collect six months of checks in one “bonus” check. There are some articles telling you the optimal age to start collecting social security, but they rarely mention the lump sum option, which can be a great choice if your health begins to fail and you want to go on a vacation, pay medical bills or just boost the estate for your children. It’s a good thing to know about when you need it most.
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