Retroactive Payments for Social Security Beneficiaries
July 27, 2022
When thinking about social security benefits, have you ever heard of retroactive payments? It might be nice to receive a lump sum of payments all at once, but it comes with a catch! Before accepting the payment, learn what you’re missing out on. Follow along with the rest of our blog to see what you need to know.
To receive retroactive payments, you can file for back payments that will compensate you based on the amount of months you wait to retire after reaching full retirement age (FRA). One important note, the maximum amount that Social Security can provide is equivalent to six months of payments. Although, you’ll be missing out on money in the long run if you decide to forego your delayed retirement credits.
Delayed Retirement Credits
After reaching FRA, you start to gain these credits for each year you delay retirement. For each year you hold off, you increase your potential benefits by 8%. This is well over and above annual inflation adjustments that many retirees struggle with when increasing retirement savings. After opting in for the lump sum payment, you’ll lose the opportunity to use the credits you gained over the previous six months. This means you’ll miss out on thousands of dollars for the upcoming years! Is it worth taking the payday now to lose all that money down the road?
For some individuals, taking the early payment may be better. A variety of factors can influence your final decision. This includes your life expectancy, spousal support needs, and how you’ll utilize the money after it ends up in your bank account. For individuals or couples with good health and more years ahead, it may be more viable to avoid the lump sum payment so you have more support for the following years. If you have high-interest debt or you’re facing circumstances that leave you with a shorter life expectancy, it may not be a bad decision to accept the payment earlier on.
No matter what stage of life you’re at, it’s always optimal to plan ahead! Do you have any more questions regarding retroactive payments? For more information, please visit our contact page and feel free to call us or fill out the form to get in touch with us. To see our practice areas, be sure to check out the rest of our website!