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  • Writer's pictureChris Stein, CFP®

Should I File Retroactively?

Many people wonder, “Should I file retroactively for Social Security Benefits?”. The question this week is from someone considering taking retroactive benefits on Social Security at age 70.

“I’m ready to file for my Social Security benefits when I reach age 70 in 18 months. I’ve researched the retroactive benefit option. Even though exercising it will reduce my monthly amount, I believe the accessibility of a lump sum would outweigh the reduction. It would take about 16 years to make up the difference, not considering inflation. My primary question is ‘How long will I live?’” It’s a gamble, to say the least. What stories have you heard, good or bad, about the retroactive draw? All in all, has it worked out one way or the other?”

The good news is that the situation is less complicated than you think. As you say, if you need that cash, one way to get the six months’ worth of benefits between 69½ and 70 is to file at age 70 – and file retroactively.

About Filing Retroactively

Social Security allows you to file retroactively up to six months before your application date, or back to your full retirement age, whichever is less. You have to be past your full retirement age, which you clearly are (you said you’d be 70 in a year and a half) so you can go into Social Security now or at age 70 and say, “You know what, instead of applying as of today, I would like to backdate – or make retroactive – my application.” And they will happily do so.

In fact, when you have delayed as you have (well past your full retirement age), Social Security’s default filing is to process your request as if you wanted to backdate it six months. In the past, we’ve warned people who don’t want this to state very clearly when claiming their benefits that they absolutely do not want the retroactive benefits.

How This Applies

One way you can get that six months’ worth of benefits is to wait to age 70 and backdate your application, applying retroactively. Social Security will start your monthly benefits then and send you a lump sum to cover the six months they had not paid you.

However, if you want the money between 69½ and 70, you don’t have to wait until age 70. You can claim your benefit at 69½. That would be better than waiting until 70 because you start getting your money right away. You will get the same dollar amount either way, but you won’t be forced to wait. Besides, they don’t give you any interest on what they’re paying you retroactively for those prior six months.

You earn 8% more in your benefits for every year you wait past your full retirement age. (Waiting an extra six months will increase your benefits by 4%.) If you take the 6-month retroactive filing option at age 70, your start date for benefits also goes back six months, so you forgo that last 4% of growth. If having the money in hand is more important than the slightly higher benefit every month from age 70 on, simply claim at age 69½ instead.

What About Those Stories?

As far as stories go, it’s totally mixed. Plenty of people have lived longer than their life expectancy (which according to Social Security is the mid-80s), and they are happy they delayed until 70. Other people have delayed until age 70 and then been diagnosed with cancer at 75; in those cases, in hindsight, it was a bad idea to delay until 70.

That’s why this is a very personal decision. But, as a purely financial decision, there is a very attractive reason to delay until 70 if you can afford to do so. The fact that Social Security is a lifetime income source that also has an inflation adjustment is very, very powerful over long periods. That’s why we recommend people at least consider it.

We’re not saying that waiting until age 70 is right for everyone. In hindsight, it may turn out to be the wrong decision. But, sorry to sound morbid, you’ll be gone, so does it really matter? Yet, if you live extra long, you will greatly appreciate having the higher Social Security benefit that does not go away, until you do. It’s something to think about.

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