Should You Take Retroactive Social Security Benefits?

retroactive social security benefits

There are some cases where you can receive retroactive Social Security benefits, usually delivered via a one-time lump sum payment when you file for your retirement benefit.

Overall, this can sound like a great deal. It might feel like a little extra, and the lump sum means you can do what you want with that money right away instead of waiting for it to come to you in monthly payments.

But are retroactive Social Security benefits truly a good thing? Here’s what you need to know to make this decision for yourself.

Retroactive Social Security Benefits Don’t Come from the Goodness of the Government’s Heart

When you start talking about retroactive Social Security benefits, there are many little side roads that you could go down and explore. It’s easy to get lost in a rabbit hole here, because there are lots of little narrow cases where an individual can receive retroactive benefits.

But for the purposes of this article, I want to focus in on one specific case: the lump sum payment you may be offered when you go in to file for your retirement benefits.

One of my readers sent me an email the other day when they got a surprise after filing for Social Security. “The Social Security Administration offered to pay me 6 months of retroactive benefits as lump sum,” the reader explained in the email. “I didn’t expect that generosity coming from a government agency!”

I had to email my reader back and tell him that generosity may not have been the primary motivation of the Administration in offering the retroactive Social Security benefits payments — and this wasn’t the first time someone told me the Administration gave them a lump sum when they filed for benefits.

Note that the Administration gave them the choice to take a lump sum of benefits… the SSA gave them the lump sum benefits, as if the recipients had no choice in the matter. And in many cases, this may not be an optimal decision for you.

Here’s why you need to understand where this lump sum payment is coming from and whether or not you should take it.

2 Critical Concepts to Understand If You Want to Determine If You Should Take Retroactive Social Security Benefits

First, it’s important to understand two key concepts:

  1. Your full retirement age and the increases for every month beyond your full retirement age.
  2. The next thing to know is that a lump sum retirement benefit can only be paid to individuals who have reached full retirement age.

When it comes to understanding your retirement age, this is important because without knowing this information, you won’t get far in doing the math to see if a lump sum makes sense for you.

Here’s what to know:

First, your full retirement age is dependent on your year of birth. It’s 66 for anyone born between 1943 and 1954 and you simply add two months for every year up to 1960 where the full retirement age is 67.

For every month you delay beyond your full retirement age, your benefit is increased by 2/3 of 1%. That works out to .667% per month. You must know and understand this information before proceeding any further!

The next critical concept to understand is that the Social Security Administration rules state that anyone who files for retirement benefits after full retirement age can be paid up to 6 months of retroactive benefits… but in no case can you ever receive payments for months that occurred before your full retirement age.

If your full retirement age is 66 and you file at 66 and 6 months or beyond, you can get the full 6 months of retroactive benefits. If you file at 66 and 3 months, you’ll only be eligible for 3 months of retroactive payments because payments can’t be paid for months before your full retirement age.

Understanding the Impact of Retroactive Social Security Benefits

Let’s walk through an example to see how this works in practice.

Assume your full retirement age is 66 and your benefit at that age is $2,000. But you decide to wait to file for benefits until you are 66 and 6 months old.

You’ve worked out the math in your head and you know that your full retirement age benefit has increased for 6 months of delays — so instead of $2,000 per month, your benefit can be $2,080.

But when you get to the Social Security office to file for benefits, they tell you your benefit will be $2,000 per month and you should expect to receive a lump-sum payment of $12,000.

Essentially what the Social Security Administration is saying here is, “we’ll give you 6 months of benefits up front — if you’ll let us cut your benefits by 4% for the rest of your life.”

There’s no question that this is tempting, as when you file for benefits you’re usually in the middle of retirement and you may feel like you have a higher demand for funds at this point because you’re giving up your paycheck and starting lots of new projects and hobbies.

You might have deferred a lot of fun while you were busy working, so the idea of getting a big lump sum right away is pretty exciting, especially when you’re not expecting it.

While it might look great at first glance, there are a few other things to think about before you make this decision.

What to Think About BEFORE Taking a Lump Sum of Retroactive Social Security Benefits

The first thing to understand is that taking the lump sum lowers the base amount of benefits that the annual cost of living adjustment is applied to moving forward. This means that not only is your monthly benefit lower, it doesn’t grow as fast as it would from the compounding effect of the increases.

Second and more importantly, taking the lump sum when you go to file for your retirement benefits will lower the amount of eventual survivor benefits if you’re the higher earner. This might be very important to consider depending on your financial and health situations.

I go back to that all the time in reminding people that your filing decisions will likely affect more people than just you while you’re alive. Optimizing for the survivor benefit has to be a part of your decision!

But now I want to hear from you: if you file after full retirement age, will you take the lump sum with a lower monthly payment or no lump sum with a higher monthly payment?

And if you still have questions, you could leave a comment below — but what may be an even greater help is to join my FREE Facebook members group.

It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too.

Finally, if you haven’t already, you should join the 100,000+ subscribers on my YouTube channel!

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

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William Schaap
William Schaap
1 year ago

We’re in a similar situation,to Alan . My wife took spousal benefits at 65 . We waited to 70 to apply for her benefits, we spoke with SS and they offered a 6 month Retro. filing +$800.00 bonus . Using 2022 figures this would come to 9190.00 , spousal benefits come to $1395. 00 , her 70 benefit will be 1442.70 a 47.70 difference a month . I divided 9190. by 47.70 , which gave me 192.66 months ,which divided by 12 =16.06 years (if my math is correct ) . She will a 70 will only receive cola increases… Read more »

Allan Wadsworth
Allan Wadsworth
4 years ago

A question about Retroactive Social Security Benefits. Is it a wise strategy to wait until age 70 to begin receiving Social Security Benefits and at that point opt for the retroactive lump sum payout? I am assuming that there would be no more .667% increases per month after age 70.

Richard m Freitas
Richard m Freitas
4 years ago

I’m on ssi directly deposit in my bank account i haven’t file taxes since 2008 am i going to get the stimulus package I had my stroke in2009 and I’m disable do we get it

Richard m Freitas
Richard m Freitas
4 years ago

I’m disable and i had a stroke in2009 i am on ssi and have not file taxes since 2008 will I get the stimulus package

Sherrie Easterly
Sherrie Easterly
4 years ago

My FRA is 66. I WILL be 69 5/30/2020. Does retro active benefit me? I am single with no children.
I was originally planning to hold out til 70 but any considering not to with current situation.

Second question.. is there any legal “loop hole know in reference to the “10 years” divorce benefit. I was shy by 45/47 (?) days. Ugh

Mildred Jones
Mildred Jones
4 years ago

I waited to start my ss 4 mos after my Full retirement age. Now I am told I only get amt I would have gotten when I reached my FRA fior rest of this year. That increase I waited 4 extra months for doesn’t start until next January. They said I would get extra in January to make up that difference. I did not want the lump sum they offered that would have decreased my benefits. I cant make sense of what they are doing by not giving me my benefit now. I have been collecting surviving spouse benefits since… Read more »

Kelly Mace
Kelly Mace
4 years ago

I have a question about survivor benefits for my children in 2011 four of my children were on their fathers benefits as each one turned 18 they got off the benefits but the same amount drop down to the three children same as if there was only two children always got the same amount but now that I have one child left in the home they have cut my survivor benefits to half of what I was getting due to the fact that we were max out on the maximum family that is all the income that I received

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