Imagine giving up a portion of your Social Security benefits to receive six months of something called retroactive benefits. Well, it's true. But as you might imagine the rules for retroactive benefits are different for different kinds of Social Security payments, according to Andy Landis, author of Social Security: The Inside Story.
"There are different rules depending on whether you're claiming retirement, survivors, or disability benefits," he says.
Now the most common claim is for retirement payments, says Landis. "If you file before full retirement age or FRA there is no retroactivity," he says. "Payments start the month you apply. If you are eligible and want payments to start, don't delay -- file immediately so you don't lose a month of payments. Click, call, or visit SSA before the end of the month."
If, however, you are over FRA, you can receive retroactive payments up to six months before filing, or back to your FRA, whichever is later. "The general rule is that you can't get retroactive benefits if that would cause a permanent payment reduction, i.e. by starting payments before FRA," says Landis.
The same rules apply to spousal payments.
According to Landis, choosing a payment start date involves a familiar trade-off. "The earlier you start your payments, the lower your monthly payment, potentially for your life and your spouse's life," he says. "On the other hand, starting payments retroactively can start you off with a bang--a multi-month lump sum."
For survivor payments -- for widows, widowers, and surviving children -- there's a twist. "If you file before FRA, payments start the month you apply, with no retroactivity," says Landis. "However, if you file in the month immediately after the worker's death, payments can start the month of death. And, if you file when older than FRA, you can get retroactive payments for up to six months, like retirement payments."
Disability payments have special retroactivity rules, according to Landis. "Payments can start up to 12 months before filing," he says. "Be sure to file a disability claim as soon as possible after impairment starts, and set your date of onset as early as possible to get back payments."
What's the catch here?
If you take the six months retroactive benefits your monthly payment will be reduced 4% for life, according to Landis. And a surviving spouse's payment would also be 4% smaller, assuming you were counting on a widow's payment.
So how might one evaluate whether to take the retroactive benefit or not?
It depends on whether your retirement would be better bolstered by more capital or more income, says Landis. "If I really needed a lump sum, or I had a shorter life expectancy, I would take as much retroactivity I could get, with a big back payment," he says. "It would be great to retire some debt, for example. If I was concerned about income for a possible long life -- including a surviving spouse -- I would delay claiming to maximize my monthly payout going forward."