The 6-Month Social Security Lump Sum That May Sound Good But Shrinks Your Monthly Check for Life

You may know the basics of Social Security, including that waiting until age 70 means locking in higher checks. But you may not know that some people can receive a lump sum from the Social Security Administration equal to six monthly benefits.

This opportunity is only available for people who file for Social Security at least six months after reaching full retirement age. It makes sense for some people, but it certainly isn’t free money. Here’s what you need to know before making your decision.

What the Social Security lump sum is

The Social Security lump sum is money that you can receive from the government if you wait until at least six months after full retirement age to claim Social Security. It’s an appealing option for people who need extra money right now, but there is a catch.

If you claim this lump sum, it’s treated as if you claimed Social Security benefits six months beforehand. The later you claim up to age 70, the larger your benefit checks. You can find your full retirement age using the Social Security Administration's website.

Why the check shrinks for life

Some people wait as long as possible until age 70 to claim Social Security because they know that waiting results in higher checks for life. Claiming at 67 results in higher benefits than if you claimed at 62, which is the earliest you’re allowed to claim. Similarly, you will receive the highest possible benefit if you claim at 70 instead of 67.

This concept also applies to months. Your check will be slightly higher if you claim when you are 67 years and 1 month old instead of claiming Social Security the moment you turn 67. The same rule holds for waiting an extra six months, which is where the lump sum comes into play.

If a 68-year-old claims Social Security upon their birthday, they will receive benefits as if they claimed at 68. However, if that same 68-year-old opts for the lump sum, all of their monthly checks will be as if they had claimed Social Security at 67 ½ old.

That’s why Social Security benefits will be a little smaller for the rest of your life if your claiming date is moved earlier. It even affects the survivor benefit if the higher-earning spouse opts for the six-month lump sum payment.

When it might and might not make sense

Taking the six-month Social Security lump sum may make more sense for people who have urgent cash needs or serious health concerns. You can build an emergency fund with those benefits immediately, and potentially give your portfolio more room to run by lowering the need to sell assets.

However, it may be better to avoid the six-month lump sum if you are in a good financial position and are healthy. Especially if you live into your 80s or 90s, it’s ideal to have a larger check to support your retirement lifestyle.

Before making a decision, you can see how your monthly benefit will change if you take the lump sum. You should also consider the survivor benefit, potential tax treatment of the payment and any effect on Medicare income-related premiums. You can review key details in your my Social Security account and reach out to the Social Security Administration to compare both scenarios before filing.