Q &A: November 2018

Q &A: November 2018

What Can You Tell Me About Retroactive Social Security Benefits?

Q: I’m turning 65 soon, and I’m not employed since I was caring for my husband who recently passed away.  I inherited our home and two retirement accounts, in addition to receiving a payout from life insurance when my husband died.  Now my mother’s dementia is worsening, and I need to take care of her, so I’m leaning toward starting Social Security.  I’ve been told that I might qualify for widow’s benefits and receive retroactive benefits.  What can you tell me? 


A:  Social Security pays up to six months of retroactive benefits to qualified beneficiaries who are over their full retirement age.  While you potentially may qualify for widow’s benefits now, any benefit you receive will be reduced because you are under your full retirement age.  Because you would be retiring early, you wouldn’t qualify for any retroactive Social Security benefits.  If you were born before 1955, your full retirement age is 66.

When you retire after full retirement age, the Social Security Administration automatically calculates retroactive benefits back to the month when you turned your full retirement age, up to a maximum of six months.  In other words if you retire at age 66 and 7 months, you would automatically receive 6 months of retroactive benefits unless you specifically decline the benefits.  You may want to consider doing that instead.

Taking retroactive benefits can be a bad deal for you, because you would be trading a one-time retroactive payment for a lower monthly benefit for the rest of your life.  For example, say you qualify for a benefit of $1,600 at age 66.  At age 66 and 6 months your benefit has grown 4% to $1,664 by earning delayed retirement credits.  If you opt for retroactive benefits, however, the Social Security Administration would start your benefits at $1,600 instead of $1,664.  You would receive $9,600 in retroactive benefits, but if you lived longer than 12.5 years, you would potentially be leaving a considerable sum of money behind. Also keep in mind how much more you would have to pay in taxes by taking the lump sum early.  If you are in reasonable health, it’s quite possible these days to live another 25 years.

These are complicated decisions and we strongly recommend that you take your time and get professional financial counseling.  Here’s what you should definitely do right away when you are within 3 months of age 65 — sign up for Medicare Part B.  This is not automatic.  You will need to sign up by Medicare’s deadline to avoid getting hit with permanent late enrollment penalties.  You sign up for Medicare on the Social Security Administration’s website.

In addition to signing up for Medicare Part B, as soon as you receive your Medicare number, you will need to choose how you want to receive your coverage.  Your choice is between a Medicare supplement with a stand-alone Part D prescription drug plan, or to enroll in a Medicare Advantage plan with Part D drug coverage.  There is free one-on-one counseling available to help you with this decision at least, through State Health Insurance Assistance Programs (SHIP).  Many of these programs operate through local Agencies on Aging, and senior centers.  To get a counselor in your area visit: www.shiptacenter.org/.