Retirement: The Lure of a Retroactive Lump Sum

By Kevin McCormally, Kiplinger's Personal Finance | August 11th, 2017

If you’re older than 66 when you apply for Social Security benefits, don’t be surprised if an agent offers you what sounds like a great deal: the chance to pocket up to six months of retroactive benefits in a lump sum. If your full benefit is $2,200, for example, that could put $13,200 in your pocket.

Before you bite, though, recognize this: taking the offer effectively means filing six months earlier – and forfeiting six months’ worth of delayed-retirement credits. Taking the lump sum would mean reducing benefits by 4 percent for the rest of your life.

The official Social Security manual advises agents on how to determine eligibility for retroactive benefits, but it does not instruct them to tell claimants that taking the dough will result in permanently lower future benefits. In fact, in only one live visit by researchers for a study by the General Accountability Office did the agent explain the trade-off.

Whether claiming sooner rather than later will pay off depends, of course, on how long you (or your spouse, if you’re married) will live to collect benefits. The GAO study notes that increasing life expectancies raise the potential cost of claiming early. Social Security says the average life expectancy for a 65-year-old man is age 84.1, and it’s 86.5 for a 65-year-old woman. But, remember, those are averages. About one in every four 65-year-olds will live past 90, and one in 10 will live past 95.

Retroactive benefits don’t always come with a dark side. A Chicago-area executive was 67 when he first heard that he could “restrict an application” — delay taking his own benefits and apply for spousal benefits on his wife’s record because she was already receiving benefits. He got six months’ worth in a lump sum retroactively and is now receiving about $250 a month as he builds up delayed-retirement credits for his own benefit. The lump sum won’t affect that benefit when he switches to it.

One of the best ways to avoid bad advice may be to skip contact with an SSA employee. Mary Beth Franklin, a certified financial planner, says, for example, that the easiest and surest way to file a restricted application for spousal benefits is online. If you do visit a Social Security office or discuss benefits with an agent over the phone, be prepared to ask plenty of questions, and request to talk with a supervisor if you need clarification on any point.

Kevin McCormally is chief content officer at Kiplinger. Send your questions and comments to And for more on this and similar money topics, visit

(c) 2017 Kiplinger’s Personal Finance; Distributed by Tribune Content Agency, LLC.

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