Lump Sum Pay Outs

Social Security Has Too Many Rules

Social Security is suppose to protect people against old-age, not reward people for knowing the fineprint of the program.

Social Security is trying to serve too many roles, resulting in thousands of rules which affect the benefits of retirees.  The complexity built into the system has created a cottage industry of consultants who sole contribution to society is maximizing the rate at which Social Security is depleted. 

The debate about Social Security reform does not deal with the basic question : What is Social Security suppose to do.  Let's assume that the function of Social Security is to provide old-age insurance.  If so some of these rules need to be eliminated.

For Example : Lump Sum Payouts

A lesser-known Social Security rule allows retirees to exchange reduced future benefit for a lump-sum payment that can amount to thousands of dollars. The option introduces an incentive to trade future security for present consumption. That is an insane option for a system which delivers old-age insurance. It introduces the problem of adverse selection in which people who feel that they have a shorter life expectancy to cash-out of the old-age insurance on favorable terms.

Here is how it works :

"To see how it works, consider a woman who would be entitled to a $2,784 monthly benefit at age 68. By taking a lump sum, she can pocket $16,008. But her monthly benefit will fall to $2,668—the amount she would have received had she started taking her benefits six months earlier, at 67½, says William Meyer, chief executive of, a service that identifies Social Security claiming strategies likely to yield the highest amount over a beneficiary's life span. (The $16,008 comes from multiplying the monthly benefit at age 67½ by six months.)" (read more)

For Example : Claim Now, Claim More Later

A lesser-known Social Security rule allows  married individuals to receive spousal benefits at retirement age and subsequently switch to their own benefit record at a later date. This strategy allows the retiree to building up credits based on a "delayed" retire­ment.

Here is how it works :

"Under Social Security, married individuals are entitled to a retired worker benefit based on their own earnings and/or to a spousal benefit equal to one half of their spouse’s benefit claimed at the full retirement age (currently 66). Until 2000, the Social Security Administration assumed that an individual claiming benefits was applying for all benefits to which he or she was entitled, compared the worker and spousal benefits, and automatically awarded the highest.(read more)