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A reader from Washington State would like some clarity on backdating her Social Security benefits.
“I am 70. I filed for Social Security in March, just before my birthday. The SSA gal is telling me I can back file six months and get a retroactive lump sum. She also said I could claim on my ex-husband’s account for the past six months and get a lump sum retroactive amount there. I am not clear if I would convert to my full benefit or not. His amount would be less than half of my full benefit ($3,400). I am confused. Can you clarify?”
This question has several parts, so I understand why you’re confused. But unfortunately, the simple descriptions Social Security representatives give often don’t embrace all the details clearly. And Social Security is already confusing, as this question brings forth.
One thing I didn’t hear that could impact my answer is whether or not your ex-husband is alive. But since you mentioned half his benefit, I’m guessing he is because a spousal benefit would be at play here. If he had passed, it would be a survivor benefit, and you would have access to 100% of his benefit, assuming you had been married more than ten years. So we’ll assume he is still living. Also, the Social Security representative raised the topic, and there would be no spousal or survivor benefit if you were married less than ten years before divorcing.
Let’s start with your first comment: you went in to file at age 70 and were advised you could backdate that filing (or file retroactively) by up to six months and receive a lump sum amount for those six months. That sounds attractive. However, the tradeoff is that you would have to forgo 4% of your retirement benefit for the rest of your life. That could make sense if you needed the lump sum now and were prepared to reduce your lifetime benefit by 4%. But, sometimes, it makes more sense to have the longevity protection of the full benefit at age 70.
How does that work? Anyone who has reached their Full Retirement Age (FRA) can file retroactively and get this lump sum amount. It’s either a maximum of six months or back to your FRA, whichever is less. You must be past your FRA by six months or more to get the full six months retroactively. But, if your FRA were last month, you would only get to file one month retroactively. Social Security does this for people who say, “I forgot, I meant to file, I meant to go in.” It allows them some grace and lets them backdate their application.
You turned 70 in 2022, so you were born in 1952 when the FRA age was 66. Since you’re well beyond six months past your FRA, they indicate that you could backdate your application for the maximum of six months. But, again, the downside is that you would collect your benefit as if you started claiming it six months earlier.
You need to be careful and understand the ramifications of this tradeoff. You receive 8% more each year that you hold off claiming after reaching FRA – or 4% for six months. By backdating your claim, you would lose the last 4% growth of your benefits – for the rest of your life.
Your second comment mentioned that Social Security said you could claim on your ex-husband’s work record. That’s because you have a unique situation. Because you were born in 1952, you have been grandfathered into being able to file what is called a “restricted application.” This is a fabulous strategy that Congress has phased out, and anyone born on January 2, 1954, or later no longer has access to it. With a restricted application, you can claim a “spousal benefit only” and then start collecting your own retirement benefit at a later date.
You were born before the cutoff date, which is likely why the representative spoke about accessing your ex-husband’s benefit. But here, the representative was less clear because it sounded like you could do both (claim retroactively on your own benefit and your ex-husband’s). That’s not the case; you can only do so on one. You have to choose.
So now, at age 70, you have to decide on your claiming strategy: do you claim six months retroactively on your own account and cause a 4% lower benefit for life? Or do you retroactively file a “restricted application for spousal benefits only” for the six months of your ex-husband’s benefits before reaching age 70? Then, with that lump sum in hand, you would let Social Security turn on your own retirement benefit at age 70, paying at its maximized value for as long as you live.
The latter strategy seems like having your cake and eating it, too. You would have the 6-month lump sum from your ex-husband and the full 32% of delayed retirement credits on your own account for the rest of your life. Unfortunately, I don’t know all the numbers, so I can’t really chime in on which of the two approaches makes the most sense. But I’m leaning towards you retroactively taking your ex-husband’s benefits for six months.
It sounds like you are single and have been waiting all this time for your Social Security benefits to start at age 70, implying you’re attracted to having the most significant benefit possible. So I would not forgo the 4% credits they’re willing to pay you by starting your own benefit at 70 (and not earlier).
While your ex-husband’s benefit might be smaller, you would still be getting a lump sum payment. But then, that benefit would end when your own retirement benefit begins, as there is no reason for you to hold off your filing beyond age 70. So that strategy might be the sweet spot.
My issue is with Social Security. I can’t imagine a scenario where you wouldn’t have wanted to start collecting that spousal benefit at age 66, but you didn’t know, and Social Security didn’t tell you. Had you known about restricted applications, you could have been collecting half of your ex-husband’s FRA benefit for four years, from your FRA at age 66 until now, as you waited for your benefit to grow to its maximum size at age 70.
But Social Security didn’t reach out to you and point this out in a timely fashion. It would help if you didn’t have to have inside information or a high educational level to claim the benefits you’re owed. Instead, you had to discover this strategy by listening to podcasts or reading about it because Social Security didn’t communicate well enough. And now they’re saying you can only get six months because that’s the limit of how far back they’ll go.
If the system were fairer, Social Security would say, “Oh, so sorry to hear that you didn’t know about this benefit at age 66. You just left all this money on the table through no fault of your own. Because we don’t educate the population well enough to know about these benefits, we’re going to make it up to you by notifying you that you could have done this at age 66. And we’ll pay you those four years of benefits you missed because you didn’t know to come in and claim.” That’s what they should be saying and doing, but that’s not how the system works.
If any readers are in a similar situation (or have relatives or friends who are) – being born before January 2, 1954, and delaying their benefits – make absolutely sure they know about this strategy called “restricted application for spousal benefits.” They might have reasons not to do it or might not qualify, but the strategy needs to be looked into because this money will be left on the table unclaimed if they don’t do it.
We’re in the last two years of this strategy applying. Once we reach January 2, 2024 – less than two years from now – the door will be closed. All the people who were grandfathered in will have reached 70, and then it’s a moot point, as the strategy will have disappeared.
You are one of those few people at the tail end of that grandfathering period who could have taken advantage of all of it. But at least you can take advantage of the retroactive six months.