Understanding Retroactive Social Security Benefits and Why They May Not Be Offered Automatically

I applied for benefits in December, 2023 at age 68.  A friend turned 67 on January 23rd, 2024.  He will pull his SS shortly; however, he will receive a lump-sum payment of $15,000 for 6-months of Retroactive Benefits. (Marc – Not sure if 6 months is available as retro period cannot precede FRA.)  My question is why didn’t SSA reveal this to me when I applied for Social Security?  What are the rules regarding retroactive benefits?

Up to 6 months of retroactive benefits are available for an individual who files for Social Security retirement benefits after they reach their full retirement age.  The retroactive period cannot go back past the month the attained full retirement age. If your client was past full retirement age when he filed Social Security should have discussed the 6-month retro period available. Keep in mind if you take the 6 months retro you lose delayed retirement credits and the 4% increase. SSA will usually tell folks about the possibility of receiving 6-months of retro benefits. Retroactive Social Security benefits can be a complex topic, and it’s understandable why you might be puzzled about why the Social Security Administration (SSA) didn’t inform you about them when you applied. Here’s a breakdown of how retroactive benefits work and why the SSA might not have discussed them with you:

1. Eligibility for Retroactive Benefits:

   • After Full Retirement Age (FRA): Up to 6 months of retroactive benefits are available to individuals who file for Social Security retirement benefits after reaching their Full Retirement Age (FRA). The retroactive period cannot extend back past the month in which you reached FRA.
   • Limits on Retroactive Benefits: If you file at or after FRA, you can request retroactive benefits for up to 6 months prior to the application date, but not earlier than the month you attained FRA. For example, if you reached FRA in June and applied in December, you could request retroactive benefits going back to June.

2. Why SSA Might Not Mention Retroactive Benefits:

   • Standard Procedure: Typically, the SSA does inform applicants about the option for retroactive benefits when they apply after FRA, as it can affect the decision-making process regarding when to start benefits. However, this might not always happen, especially if the discussion is focused on other aspects of the application.
   • Delayed Retirement Credits (DRCs): One reason the SSA might not emphasize retroactive benefits is that taking them reduces the Delayed Retirement Credits (DRCs) you would otherwise receive. DRCs increase your benefit by 8% per year between FRA and age 70. If you opt for 6 months of retroactive benefits, you lose the DRCs for those months, which can result in a lower monthly benefit for the rest of your life.

3. Impact on Your Benefit Amount:

   • Reduction in DRCs: For someone like you who applied at age 68, taking the 6-month retroactive benefit would mean a reduction in your benefit by the amount of DRCs you would have earned during those 6 months. For each month of retroactive benefits you take, you forfeit about 0.67% of your DRCs.
   • Decision Considerations: SSA typically leaves the choice to the applicant, weighing the immediate lump sum against the long-term impact on monthly benefits. If maximizing your monthly benefit is your priority, not taking retroactive benefits is generally advised.

4. Why It Wasn't Discussed:

   • SSA Oversight: It’s possible that the SSA representative simply did not bring up retroactive benefits during your application process, which could be an oversight.
   • Applicant Preferences: Some applicants may have previously indicated that they do not wish to explore retroactive benefits, leading the SSA to focus discussions on other options.

5. What You Can Do:

   • Contact SSA: If you believe you would have benefited from retroactive payments, or if you’re unsure whether this option was right for you, consider contacting the SSA to discuss your application and any potential adjustments.
   • Evaluate Your Needs: Consider whether the lump sum from retroactive benefits would have been more beneficial for your situation or if maximizing your monthly benefit through DRCs is preferable.

In summary, the option for retroactive Social Security benefits is available, but it comes with trade-offs that might not always be highlighted by the SSA. If you applied after FRA, the SSA should have discussed this with you, but if not, it’s worth following up on for more clarity.

The content on this blog is for informational purposes only and is not legal, financial, or professional advice. Social Security rules change periodically, so some information may become outdated. For the most accurate advice, consult a certified National Social Security Advisor (NSSA®). Social Security Professionals, LLC, and NSSA® are not responsible for any errors, omissions, or actions taken based on this blog's content. Use of this blog does not create a client relationship, and all information is provided "as is" without guarantees. By using this blog, you agree to hold Social Security Professionals, LLC, and NSSA® harmless from any claims or liabilities arising from its content. For personalized guidance, contact an NSSA® professional.