Why is Social Security pushing retroactive benefits?

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hungrywave
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Why is Social Security pushing retroactive benefits?

Post by hungrywave » Thu May 09, 2019 1:42 am

Hello Social Security Savants,

My aunt, who is, I believe, nearing 70, reports having just gotten a call from Social Security. The caller encouraged her to take a lump sum payout of "retroactive benefits" (that is, she would get a sum of money in return for a reduced future income, as though she has started taking benefits 6 months earlier).

This sounded like a scam to me at first but it is really Social Security making these calls and offers:

https://www.kiplinger.com/article/retir ... youts.html
https://www.forbes.com/sites/tomhager/2 ... 6ae8c220fc

It seems that it may even be easy to accidentally claim retroactive benefits:

http://money.com/money/4189633/social-s ... -sum-risk/

My question is: Why is Social Security doing this? Has Social Security gotten into the business of scamming older citizens in order to improve its balance sheet?
The world is largely random so don't sweat the small stuff.

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warowits
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Re: Why is Social Security pushing retroactive benefits?

Post by warowits » Thu May 09, 2019 1:47 am

Social security is actuarially neutral, in theory anyway. Shouldn’t really matter to them if you take it at 69.5 or 70.

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hungrywave
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Re: Why is Social Security pushing retroactive benefits?

Post by hungrywave » Thu May 09, 2019 1:51 am

warowits wrote:
Thu May 09, 2019 1:47 am
Social security is actuarially neutral, in theory anyway. Shouldn’t really matter to them if you take it at 69.5 or 70.
I get the neutrality argument (though I wonder if that is really true, given that Social Security numbers don't seem to be changing dynamically with life expectancies and interest rates). But if that is so, why are Social Security representatives specifically encouraging 70-year-olds to take 6 months of retroactive benefits? Those people could have taken retroactive benefits of any length of time at any point. It seems like Social Security has an agenda in the way they present this - and in the way that people find it easy to accidentally receive retroactive benefits.

What is Social Security's agenda?
The world is largely random so don't sweat the small stuff.

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warowits
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Re: Why is Social Security pushing retroactive benefits?

Post by warowits » Thu May 09, 2019 1:58 am

hungrywave wrote:
Thu May 09, 2019 1:51 am
What is Social Security's agenda?
Immediate economic stimulus? No idea. Many non Bogleheads would view such a situation as a welcome windfall and I could see people at SS being excited to tell folks about this exciting opportunity! Why you would wait all the way until 70 and then do this I don’t really understand though.

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hungrywave
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Re: Why is Social Security pushing retroactive benefits?

Post by hungrywave » Thu May 09, 2019 2:01 am

warowits wrote:
Thu May 09, 2019 1:58 am
Many non Bogleheads would view such a situation as a welcome windfall and I could see people at SS being excited to tell folks about this exciting opportunity!
Haha! Yeah. Many Bogleheads I'll bet often take benefits at 62 and put them in active equity portfolios of their own painstaking design. But I think my relatives might be a bit more on the risk-averse (and long-lived) side. :)
The world is largely random so don't sweat the small stuff.

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GerryL
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Re: Why is Social Security pushing retroactive benefits?

Post by GerryL » Thu May 09, 2019 2:21 am

hungrywave wrote:
Thu May 09, 2019 1:42 am
Hello Social Security Savants,

My aunt, who is, I believe, nearing 70, reports having just gotten a call from Social Security. The caller encouraged her to take a lump sum payout of "retroactive benefits" (that is, she would get a sum of money in return for a reduced future income, as though she has started taking benefits 6 months earlier).
You say she got a call from Social Security? Unless she called or visited SS and requested a call back, I don't think they would be calling her unsolicited. They warn people that if someone calls and says they are from SS, don't believe it. I didn't see anything in those links that suggest SS is actively contacting people by phone and suggesting they hurry up and claim -- and take retroactive benefits.

As I approached 70 last year and was getting ready to file my claim for SS, I did get a letter reminding me that it was time to claim. The letter may have mentioned the possibility of getting 6 months of retroactive benefits, I don't recall, but I certainly did not get a phone call.

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RickBoglehead
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Re: Why is Social Security pushing retroactive benefits?

Post by RickBoglehead » Thu May 09, 2019 3:25 am

GerryL wrote:
Thu May 09, 2019 2:21 am
hungrywave wrote:
Thu May 09, 2019 1:42 am
Hello Social Security Savants,

My aunt, who is, I believe, nearing 70, reports having just gotten a call from Social Security. The caller encouraged her to take a lump sum payout of "retroactive benefits" (that is, she would get a sum of money in return for a reduced future income, as though she has started taking benefits 6 months earlier).
You say she got a call from Social Security? Unless she called or visited SS and requested a call back, I don't think they would be calling her unsolicited. They warn people that if someone calls and says they are from SS, don't believe it. I didn't see anything in those links that suggest SS is actively contacting people by phone and suggesting they hurry up and claim -- and take retroactive benefits.

As I approached 70 last year and was getting ready to file my claim for SS, I did get a letter reminding me that it was time to claim. The letter may have mentioned the possibility of getting 6 months of retroactive benefits, I don't recall, but I certainly did not get a phone call.
This ^^^^. Call? Danger, danger Will Robinson!

I tell people to NOT answer the phone for any number they don't recognize. Please explain this to your aunt.
Last edited by RickBoglehead on Thu May 09, 2019 6:28 am, edited 1 time in total.
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Re: Why is Social Security pushing retroactive benefits?

Post by Jack FFR1846 » Thu May 09, 2019 5:54 am

Obvious scam call is obvious.

- Captain Obvious
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bob60014
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Re: Why is Social Security pushing retroactive benefits?

Post by bob60014 » Thu May 09, 2019 6:27 am

Social Security doesn't call unless it's a follow up to a call YOU have placed. Yep , it's a scam, like the IRS "we're coming to get you" calls.

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Re: Why is Social Security pushing retroactive benefits?

Post by Ron » Thu May 09, 2019 6:42 am

Jack FFR1846 wrote:
Thu May 09, 2019 5:54 am
Obvious scam call is obvious.

- Captain Obvious
Actually, it isn't....

My wife had been receiving spousal benefits from ages 66-69 based upon my record. She submitted her age-70 request on-line last year, with a start date of the month she turned 70.

I let her know that she may be contacted by SS (by any means) offering this "bonus", noting that while the lump sum would be nice, it would reduce her future benefits until her passing.

She did receive a call with the offer. Why? Simply because SS wanted to ensure that folks know about the option - it is not stated on the on-line form as such. As I see it, SS is being proactive in letting folks know of this option, if they are interested.

BTW, the person receiving the call has contacted SSA by use of the on-line benefits request. This is just a follow-up to that action.

FWIW,

- Ron

Yooper16
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Re: Why is Social Security pushing retroactive benefits?

Post by Yooper16 » Thu May 09, 2019 9:00 am

Its a "damned if they do, damned if they don't" problem.

Someday there will be a thread about someone being PO'd that SS didn't notify them about the differant collection options they have at the time. :oops:

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Re: Why is Social Security pushing retroactive benefits?

Post by dbr » Thu May 09, 2019 9:09 am

Ron wrote:
Thu May 09, 2019 6:42 am


BTW, the person receiving the call has contacted SSA by use of the on-line benefits request. This is just a follow-up to that action.

Correct. SS often calls in response to online requests whether to ask for further information or to clarify options that may be available or to confirm elections. I got a call when I filed and suspended because they wanted to be sure that was really what I had wanted to do and I said it was.

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Re: Why is Social Security pushing retroactive benefits?

Post by Ybsybs » Thu May 09, 2019 9:17 am

warowits wrote:
Thu May 09, 2019 1:47 am
Social security is actuarially neutral, in theory anyway. Shouldn’t really matter to them if you take it at 69.5 or 70.
While at one point the taking of benefits at 62 vs 70 was at least arguably actuarially neutral, it's not now because life expectancies have increased without the benefit payouts being updated to match.

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Re: Why is Social Security pushing retroactive benefits?

Post by ColchesterFam » Thu May 09, 2019 10:25 am

At least you have an option as to whether or not to accept the six months of retroactive Social Security benefits.

We're finding we have NO choice on the six months retroactive backdating of Medicare Part A once you're past your full retirement age. My husband applied for only Part A last month and asked for an effective date of May 1, 2019. His effective date was backdated to October 2018 by Medicare which represents six months back from the date he applied.

This normally has ramifications for folks on high deductible medical plans and effectively prevents them from making contributions to their HSA for that time period, but the ramifications are more far-reaching than that. By backdating, I will lose needed months of COBRA coverage to get me to age 65 and it may well impact my eligibility for the HCTC if that is extended beyond December 31, 2019.

I am at a loss as to why recipients are not given a choice of effective dates.

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Re: Why is Social Security pushing retroactive benefits?

Post by prd1982 » Thu May 09, 2019 10:31 am

Ybsybs wrote:
Thu May 09, 2019 9:17 am


While at one point the taking of benefits at 62 vs 70 was at least arguably actuarially neutral, it's not now because life expectancies have increased without the benefit payouts being updated to match.
I believe the life expectancy increase has been for wealthier folks, and decreasing for poorer. So it might make sense for poorer single people to take SS at 62, which I think they do. Note that for married couples, if the older person has the largest SS payout, it probably makes sense to wait until 70 because of survival benefits. This is esp. true if the older person is male.

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Re: Why is Social Security pushing retroactive benefits?

Post by eli80 » Thu May 09, 2019 10:40 am

I've not seen too much written on this but SS is gender neutral. That is a woman and man with the same work history will receive the same benefit. Due to women generally living longer than men, this would skew analysis such that it would be in a woman's best interest to delay starting benefits early, even more so than a man.

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Re: Why is Social Security pushing retroactive benefits?

Post by dodecahedron » Thu May 09, 2019 10:49 am

Ybsybs wrote:
Thu May 09, 2019 9:17 am
warowits wrote:
Thu May 09, 2019 1:47 am
Social security is actuarially neutral, in theory anyway. Shouldn’t really matter to them if you take it at 69.5 or 70.
While at one point the taking of benefits at 62 vs 70 was at least arguably actuarially neutral, it's not now because life expectancies have increased without the benefit payouts being updated to match.
In addition, interest rates have gone down quite a bit since the last actuarial calculation was made.

Finally, the actuarial calculation was done without taking into account male/female differences in life expectancy. All these factors suggest that if the OP´s aunt is in good health, delaying to 70 is like a better than breakeven actuarial deal for her.

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Re: Why is Social Security pushing retroactive benefits?

Post by Walkure » Thu May 09, 2019 11:24 am

Ybsybs wrote:
Thu May 09, 2019 9:17 am
warowits wrote:
Thu May 09, 2019 1:47 am
Social security is actuarially neutral, in theory anyway. Shouldn’t really matter to them if you take it at 69.5 or 70.
While at one point the taking of benefits at 62 vs 70 was at least arguably actuarially neutral, it's not now because life expectancies have increased without the benefit payouts being updated to match.
I could see two reasons why this is advantageous (for SS, not you!). One is if SS is not paying interest on the retroactive payments, they keep the interest on the 6 month float. That's maybe a hundred dollars per retiree, but in a system as large as SS that might add up quick.

Otherwise, I wonder about the "actuarially neutral" part, too. The fact is the relative payout can only be actuarially neutral at the age it is taken. Going by SS 2015 table, a man at 62 has 20.11 years remaining, while a man at 70 has 14.40 years. So the payout, adjusted for time value of money, of starting at age 62 and collecting for 20.11 years is naively expected to "equal" the payout of starting at age 70 and collecting for 14.40 years. But for 90% of men who start at 62, upon reaching age 70, 8 years into their 20.11 years they now also have a life expectancy of 14.40 additional years, for a total average collection time of 22.40 years. They have benefited from not being among the 10% or so of men who died between 62 and 70. The trick with retroactive is that they are making payments to a person who is known to have made it to 70 at a rate that was only actuarially neutral for a person who still had (using a rough straight-line interpolation) a 1% chance of dying between 69.5 and 70.

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Re: Why is Social Security pushing retroactive benefits?

Post by Big Dog » Thu May 09, 2019 11:53 am

per this article in Forbes, SS is required to explain the availability of the '6 month bonus' for those who apply for SS benefits after FRA.
The lump sum benefit option isn’t new. The option's been available when claiming retirement benefits at your full retirement age (FRA) or later. Social Security representatives are required to fully explain this choice to eligible applicants, whether they ask about it or not. That can be a source of confusion, because it often is offered at the last minute to people who weren't expecting it,...
https://www.forbes.com/sites/bobcarlson ... 317bd410a6

When you think about it, it makes sense for SS to explain the possible benefit -- but not push it. Peeps applying for benefits might have an immediate need for the cash. Or, perhaps they just receive a medical diagnosis that changes thier longevity outlook. In which case, take the cash.

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Re: Why is Social Security pushing retroactive benefits?

Post by hungrywave » Thu May 09, 2019 12:21 pm

Walkure wrote:
Thu May 09, 2019 11:24 am
I could see two reasons why this is advantageous (for SS, not you!). One is if SS is not paying interest on the retroactive payments, they keep the interest on the 6 month float. That's maybe a hundred dollars per retiree, but in a system as large as SS that might add up quick.

Otherwise, I wonder about the "actuarially neutral" part, too. The fact is the relative payout can only be actuarially neutral at the age it is taken. Going by SS 2015 table, a man at 62 has 20.11 years remaining, while a man at 70 has 14.40 years. So the payout, adjusted for time value of money, of starting at age 62 and collecting for 20.11 years is naively expected to "equal" the payout of starting at age 70 and collecting for 14.40 years. But for 90% of men who start at 62, upon reaching age 70, 8 years into their 20.11 years they now also have a life expectancy of 14.40 additional years, for a total average collection time of 22.40 years. They have benefited from not being among the 10% or so of men who died between 62 and 70. The trick with retroactive is that they are making payments to a person who is known to have made it to 70 at a rate that was only actuarially neutral for a person who still had (using a rough straight-line interpolation) a 1% chance of dying between 69.5 and 70.
Ah ha! This is brilliant! Thank you, Walkure! My impression is that Social Security may actually be encouraging people to take retroactive benefits and this may explain why. Maybe this has started as the financial viability of Social Security has become more questionable. If Social Security has made a policy of encouraging retroactive benefits, this is not very fiduciary of them. It would make a great expose in the New York Times if true...
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Re: Why is Social Security pushing retroactive benefits?

Post by Yooper16 » Thu May 09, 2019 1:34 pm

This is a cut from the Forbes article mentioned upstream.

"The lump sum benefit option isn’t new. The option's been available when claiming retirement benefits at your full retirement age (FRA) or later. Social Security representatives are required to fully explain this choice to eligible applicants, whether they ask about it or not. That can be a source of confusion, because it often is offered at the last minute to people who weren't expecting it,"]

Since this is Forbes and not the National Enquirer it is probably wrong but

Reading is Fundamental.

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hungrywave
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Re: Why is Social Security pushing retroactive benefits?

Post by hungrywave » Thu May 09, 2019 1:44 pm

Yooper16 wrote:
Thu May 09, 2019 1:34 pm
Social Security representatives are required to fully explain this choice to eligible applicants, whether they ask about it or not.
Thank you! I did see that in the article. However, this was reportedly not my aunt's experience. She said her Social Security representative not only told her about the option but encouraged her to take it. Obviously there is a significant difference there which I cannot personally substantiate but my aunt was very clear that the Social Security representative was providing advice.
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Re: Why is Social Security pushing retroactive benefits?

Post by SGM » Thu May 09, 2019 1:44 pm

A friend of mine had to argue with a SS rep that advised her to take the retroactive 6 month benefit. My friend insisted that she get the age 70 benefit but not without a verbal argument. I believe that some SS reps don't understand the reasons why people would refuse the retroactive option. They are required to give you the option.

When I filled out my SS application at age 70 I wrote specifically that I wanted my full age 70 payment and that I did not want any retroactive payment for any age below 70.

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Re: Why is Social Security pushing retroactive benefits?

Post by JoeRetire » Thu May 09, 2019 3:58 pm

eli80 wrote:
Thu May 09, 2019 10:40 am
Due to women generally living longer than men, this would skew analysis such that it would be in a woman's best interest to delay starting benefits early
Might be in a woman's best interest, not would. There are far too many variables to make an absolute statement.
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Re: Why is Social Security pushing retroactive benefits?

Post by JoeRetire » Thu May 09, 2019 4:01 pm

ColchesterFam wrote:
Thu May 09, 2019 10:25 am
I am at a loss as to why recipients are not given a choice of effective dates.
Because it can't deny coverage of prior conditions, the idea is to prevent people from gaming the system by delaying Medicare until the benefits are needed.
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Re: Why is Social Security pushing retroactive benefits?

Post by JoeRetire » Thu May 09, 2019 4:05 pm

hungrywave wrote:
Thu May 09, 2019 12:21 pm
My impression is that Social Security may actually be encouraging people to take retroactive benefits and this may explain why. Maybe this has started as the financial viability of Social Security has become more questionable.
Nope.
If Social Security has made a policy of encouraging retroactive benefits, this is not very fiduciary of them. It would make a great expose in the New York Times if true...
Not true.
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Re: Why is Social Security pushing retroactive benefits?

Post by JoeRetire » Thu May 09, 2019 4:08 pm

SGM wrote:
Thu May 09, 2019 1:44 pm
I believe that some SS reps don't understand the reasons why people would refuse the retroactive option.
You are correct. Not only do SS reps make mistakes, but some are simply not well trained.

We shouldn't get into politics here, but there is significant incentive to keep administrative costs as low as possible, without regard to the quality of service being provided.
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Re: Why is Social Security pushing retroactive benefits?

Post by WillRetire » Thu May 09, 2019 4:09 pm

Several years ago, a family member initiated Soc. Security benefits well after FRA. This led to a phone call from SSA in which the rep offered several options: start benefits now as requested, start 6 months retroactively, or start 12 months retroactively. (There were other options as well; the rep explained it was possible to go back any number of months up to 12 from the first online request.)

The SSA rep cheerfully explained all options and the lump sum that would come with the retroactive options. In doing so, the SSA rep described the lump sum amounts with the same emphasis as the resulting reduced monthly/annual benefit amounts, a fact which, to a boglehead or math/finance-knowledgeable person is not quite fair, since the lump sums are a one-time event whereas the monthly benefit is forever. So in that sense, it seems like SSA over-sells the lump sum(s), but I suspect it was just SSA laying out the facts with equal emphasis.

If the beneficiary doesn't need the lump sum, he/she should delay taking benefits as long as possible up to the max age, and say "no" to the retro-active payments which UNDO your carefully planned benefit delay.

If the beneficiary really needs the lump sum money, or is facing a health problem that may shorten lifespan, then of course he/she should probably start benefits retroactively with a lump sum. Realize though that that action forever reduces survivor income. SSA should inform people of that consequence. I wonder if they do(?)

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Re: Why is Social Security pushing retroactive benefits?

Post by The Wizard » Thu May 09, 2019 4:12 pm

SGM wrote:
Thu May 09, 2019 1:44 pm
A friend of mine had to argue with a SS rep that advised her to take the retroactive 6 month benefit. My friend insisted that she get the age 70 benefit but not without a verbal argument. I believe that some SS reps don't understand the reasons why people would refuse the retroactive option. They are required to give you the option.

When I filled out my SS application at age 70 I wrote specifically that I wanted my full age 70 payment and that I did not want any retroactive payment for any age below 70.
I turn 70 early next year.
I'll be watching with a close eye to be sure no funny business on my transition to my personal SS benefit...
Attempted new signature...

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Re: Why is Social Security pushing retroactive benefits?

Post by sport » Thu May 09, 2019 4:18 pm

JoeRetire wrote:
Thu May 09, 2019 4:08 pm
SGM wrote:
Thu May 09, 2019 1:44 pm
I believe that some SS reps don't understand the reasons why people would refuse the retroactive option.
You are correct. Not only do SS reps make mistakes, but some are simply not well trained.

We shouldn't get into politics here, but there is significant incentive to keep administrative costs as low as possible, without regard to the quality of service being provided.
In my experience with dealing with the personnel at my local SS office, they are doing a good job of keeping costs low with the expected effect on service quality. :annoyed

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Re: Why is Social Security pushing retroactive benefits?

Post by GerryL » Thu May 09, 2019 4:26 pm

The Wizard wrote:
Thu May 09, 2019 4:12 pm
SGM wrote:
Thu May 09, 2019 1:44 pm
A friend of mine had to argue with a SS rep that advised her to take the retroactive 6 month benefit. My friend insisted that she get the age 70 benefit but not without a verbal argument. I believe that some SS reps don't understand the reasons why people would refuse the retroactive option. They are required to give you the option.

When I filled out my SS application at age 70 I wrote specifically that I wanted my full age 70 payment and that I did not want any retroactive payment for any age below 70.
I turn 70 early next year.
I'll be watching with a close eye to be sure no funny business on my transition to my personal SS benefit...
You have two places where you can indicate that you do NOT want any retroactive benefits. I used both and borrowed wording from a previous BH post on this subject. Never got a call or letter asking about whether I wanted retroactive option. Determination letter -- which was a long time coming -- had exact benefit I expected.

1) WHEN TO START RETIREMENT BENEFITS
Benefits should start in: month/year you turn 70
Specific reason this start date was selected: Other
Description of Other reason: Maximum delayed retirement credits

2) REMARKS (at end of application)
I am choosing to receive MAXIMUM delayed retirement credits and do NOT want my benefits to be paid retroactively.

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JoeRetire
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Re: Why is Social Security pushing retroactive benefits?

Post by JoeRetire » Thu May 09, 2019 8:02 pm

sport wrote:
Thu May 09, 2019 4:18 pm
In my experience with dealing with the personnel at my local SS office, they are doing a good job of keeping costs low with the expected effect on service quality. :annoyed
Yup. That doesn't mean they are all happy about it, though.
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Re: Why is Social Security pushing retroactive benefits?

Post by drawpoker » Thu May 09, 2019 9:53 pm

GerryL wrote:
Thu May 09, 2019 4:26 pm
You have two places where you can indicate that you do NOT want any retroactive benefits. I used both and borrowed wording from a previous BH post on this subject. Never got a call or letter asking about whether I wanted retroactive option. Determination letter -- which was a long time coming -- had exact benefit I expected.

1) WHEN TO START RETIREMENT BENEFITS
Benefits should start in: month/year you turn 70
Specific reason this start date was selected: Other
Description of Other reason: Maximum delayed retirement credits

2) REMARKS (at end of application)
I am choosing to receive MAXIMUM delayed retirement credits and do NOT want my benefits to be paid retroactively.
Similar experience here, altho I tweaked it a bit in the final "Remarks" section and wrote "Am filing for old-age benefit effective June 2019; I do not wish to receive any lump-sum payment, back benefits, or any amount that is based on an age earlier than 70."


Must have worked :D As I received a phone call from the SSA office where my app. had been sent (Denver CO, altho I am on east coast) confirming my app had been approved. The nice lady who called never brought up a dang thing (carrot?) about the possibility of a lump sum deal going back six months. Nope, just wanted to confirm some of my personal history submitted. So, the message must have sunk into them. :sharebeer

Couple of caveats to note: 1) If you file online, some of the fields to enter your info are limited on # of characters. (I strongly suspect GerryL had to use abbreviation of "DRC" instead of spelling out Delayed Retirement Credits under the "description" field - too many characters - that is my recollection when I did the deed, anyway)

Secondly, don't assume your application will go to your "regional" SSA office for processing. Evidently, all of the apps. submitted online are assigned to SSA offices anywhere in the U.S. Am assuming this is not random assignment, but based on the various office's current volume data, an effort to spread the work around so, in theory, applications will be processed quicker.

Of course, what do I know, this could be 100% wrong. After all, it is the gumbmint :oops:

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