--- title: Why the lump sum payment doesn't always maximize benefits description: Why the lump sum payment doesn't always maximize benefits image: https://www.covisum.com/hubfs/lump%20sum.jpg --- [Login](https://www.covisum.com/login-experience) | [Call: 402-235-4500](tel:1-402-235-4500) | [Contact Us](https://www.covisum.com/contact) ** [![covisum-logo](https://www.covisum.com/hs-fs/hubfs/covisum-logo.png?width=264&height=41&name=covisum-logo.png "covisum-logo")](https://www.covisum.com/) [![Start Your Free Trial](https://no-cache.hubspot.com/cta/default/2755909/b23743cd-d0df-4907-a66d-293b58ab1164.png)](https://cta-redirect.hubspot.com/cta/redirect/2755909/b23743cd-d0df-4907-a66d-293b58ab1164) [![Contact Us](https://no-cache.hubspot.com/cta/default/2755909/6c6d7fe7-e094-4fc0-9c82-d93d4ccbb532.png)](https://cta-redirect.hubspot.com/cta/redirect/2755909/6c6d7fe7-e094-4fc0-9c82-d93d4ccbb532) # Why the lump sum payment doesn't always maximize benefits [IN THE NEWS  |  ](https://www.covisum.com/blog/topic/in-the-news)8/26/15 2:03 PM  |  by [Katie Godbout, Vice President of Sales & Marketing](https://www.covisum.com/blog/author/katie-godbout-vice-president-of-sales-marketing) ### ![lump sum.jpg](https://www.covisum.com/hs-fs/hubfs/lump%20sum.jpg?width=400&height=295&name=lump%20sum.jpg)Advisors often ask us about Social Security’s lump sum payment because they’ve read articles mentioning this option. These articles often use an example like this: someone files and suspends at 66 with the goal of waiting until 70 to build delayed retirement credits of 8% each year but then is diagnosed with a terminal illness at 68. The client could then request a lump sum payment to act as though he were receiving a benefit amount as early as when he first suspended. We’ve heard rumblings about using this as a potential tax strategy, potentially creating a year or two of completely tax-free income. These articles fail to mention the risks and how this option doesn’t always help when trying to maximize Social Security. Before you suggest a lump sum payment, keep these factors in mind: 1. This “strategy” doesn’t exist in the regulations. Rather, it only exists in the Program Operations Manual (POMS), which is what Social Security Administration offices follow. The danger in relying upon POMS is that it can be changed quickly without legislative action. The best example of this was the modification of the previously unlimited withdrawal timeframe and the elimination of the retroactive voluntary suspension, both of which occurred in the Federal Register in December 2010. These were immediately effective, so anyone who took early benefits using this strategy was irreparably harmed. 2. Your client will lose all delayed retirement credits earned after the age in which he or she started the suspended period. 3. The survivor benefit will be based off the lower benefit amount. 4. By filing and suspending at full retirement age, the client is not able to restrict only to spousal benefits since he or she has already filed for his or her own benefit. 5. If the lump sum is a larger one, the client could move up to the next tax bracket. 6. Be **very** careful about building the rest of an income strategy around a planned lump sum. For example, an advisor might suggest that a client file and suspend with the intent of taking a retroactive lump sum at 70, and in order to create a tax-free income for a couple of years, intentionally structure the rest of the portfolio with no planned distributions in that time period. If this rule changes, this client could be significantly harmed. For a single person who has never married, this would make sense. But for clients possibly leaving loved ones behind, they could be missing out on other claiming decisions that could affect spousal and survivor benefits. If you are a subscriber and have questions, contact us at 877.844.7213.  Not a subscriber? 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