Americans are facing a cost-of-living crisis - U.S. inflation is at a three-year high - that their retirement savings may not be able to handle.
Some 60 percent of those over 50 worry that they won’t have enough money to get through their golden years, a May survey from AARP found.
Those concerns could lead to decisions about Social Security that only 32 percent of workers said they feel knowledgeable about - namely, taking up to six months of retroactive payments in one lump sum.
“It's best to consider the lump sum as a trade, not free money,” said Mark Sanaiha, founder of wealth management firm Macallen Capital.
The “exchange” Sanaiha referred to is one that can impact retirees for the rest of their lives.
All at once
The Social Security six-month lump sum is a voluntary, one-time payment reserved for those who begin receiving benefits after their full retirement age.
That age is based on when someone was born, according to the Social Security Administration:
- 66 years old: Born from 1943 to 1954
- 66 years and two months: Born in 1955
- 66 years and four months: Born in 1956
- 66 years and six months: Born in 1957
- 66 years and eight months: Born in 1958
- 66 years 10 months: Born in 1959
- 67 years: 1960 and later.
Full retirement age is important because that’s when an individual can receive their full benefit, which was $2,071 in January 2026, according to the Social Security Administration.
If a retiree chooses to take their benefit before hitting full retirement age, they could lose up to 30 percent of their monthly benefit.
On the other hand, if they don’t start their benefits at retirement age, their monthly payment increases 8 percent a year, until they start payments or turn 70.
There’s a fourth timing category - those who take their benefit after their full retirement age but want back pay for some of the months they chose not to take a payment.
This is where the Social Security lump sum comes in. The Social Security Administration gives retirees a lump sum equal to up to six months of payments the recipient would’ve received in the six months before they turned 65, according to Evan H. Farr, a certified elder law attorney at Far Law Firm, P.C.
“Many people consider the big upfront check, and forget that they'll be sacrificing delayed retirement credits,” Farr said. “How long you live can affect whether or not you end up losing money in total.”
The payments are equivalent to what the recipient would’ve earned if they’d retired at the standard age. The decision to take a lump sum has distinct benefits and drawbacks.
Pros and cons
Pros
On the positive side, a lump-sum payment could be instrumental in meeting urgent financial needs. A medical emergency costing thousands that a retiree doesn’t have could be paid off with a lump-sum Social Security payment.
“This can help you pay off bills, build up your nest egg again or even use it to pay off high-interest loans or credit cards,” Farr said.
Cons
Taking a lump sum comes with two considerable drawbacks. First, the Social Security Administration will reduce the recipient’s monthly benefit based on their lump sum value. So, a retiree who’s supposed to get $2,500 a month but takes the lump sum may see their benefit drop to $2,300.
Second, any drops in a monthly benefit will affect a spouse’s survivor benefit, which allows a spouse to receive their deceased spouse’s monthly benefit amount if it’s higher than theirs, generally speaking.
“A lower benefit also means a lower survivor benefit for a spouse,” Sanaiha said in an email to The Independent.
If a recipient takes their benefit at the normal age, their spouse is eligible to receive 100 percent of their loved one’s monthly payment.
For those who take benefits before the full age set by the government, their spouse’s benefit maxes out at 71 percent to 99 percent of their spouse’s benefit, the Social Security Administration notes.
So, if someone earns $2,500 a month and passes away after their retirement age, their spouse receives $2,500 a month. But if they take a six-month lump sum, their monthly benefit might go down to $2,300 a month, which would reduce their spouse’s survivor benefit.
Social Security lump sums are considered income and are typically taxed, George Dimov, owner of Dimov Tax, said. Working with a tax professional can help you come up with a strategy to reduce tax liability for a six-month lump sum payment, he told The Independent in an email.
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