Beware of Social Security Agents Bearing Lump-Sum Offers

The clients thought they remembered something about that, but they really liked the idea of getting a big check. And it didn’t seem like much of a difference in their monthly payments.

But is it a big difference?

Well, it’s a matter of degree and each client’s unique situation. And, how important is the maximum payment in their overall retirement income plan?

Putting together a simple model:

• Assume a client had a $3,000 primary insurance amount at age 66.
• The age 70 estimate is $4,620, including delayed retirement credits and cost-of-living adjustments.
• By effectively claiming six months earlier, his benefit drops $335 per month to $4,285.

This may not seem like a big deal to some clients. Apparently, the offer of $25,000, more or less, is just too good to pass up.

Connecting Some Key Dots

Regardless of all the planning and advice from an advisor, a client is always in charge of their Social Security claiming decision. You know that the plan has a higher degree of success when maximizing Social Security at 70. But that is only on paper.

Clients aren’t connecting the dots. And, unfortunately, that decrease in Social Security benefits can add up:

• The lump sum could bump a client into a higher tax bracket the year it is received.
• This decision may increase his Medicare Part B premium in two years because of higher income.
• That additional $335 in income would have paid for the base Medicare Part B premiums ($164.90 in 2023) and some IRMAA, if applicable.
• Annual COLAs will now be applied to a significantly smaller base benefit amount. Overall, he’ll collect less in benefits, potentially shortchanging household income by some $140,000 if he lives to 94.
• Most importantly, if he dies before his wife, she will not receive the maximum amount as a surviving spouse.

None of these clients invested their found money. It was theirs, and they spent it. They had no regrets. But perhaps they should.

Your clients may be tempted to take their money and run. It’s best to rerun their retirement income plan to evaluate the effects of an unplanned, smaller benefit amount. Then give them a heads up about the decision they’ll face when they call Social Security to put in their application.

Marcia Mantell is the founder and president of Mantell Retirement Consulting Inc., a retirement business and education company supporting the financial services industry, advisors and their clients. She is author of “What’s the Deal with Retirement Planning for Women?,” “What’s the Deal with Social Security for Women?,” “Cookin’ Up Your Retirement Plan,” and blogs at BoomerRetirementBriefs.com.