Retroactive Social Security benefits: Everything you need to know

A financial adviser contacted me recently to ask whether a widowed client, who had been eligible to collect Social Security survivor benefits at the earliest at age 60, could file for retroactive benefits now that she was 63. Any type of Social Security benefit claimed before full retirement age, whether as a retiree, spouse or survivor, is permanently reduced and subject to earnings restrictions if a claimant continues to work. But this client was a perfect candidate to claim reduced survivor benefits early since she was no longer working and therefore not subject to the earnings cap. She planned to delay collecting her own retirement benefits until 70 when they would be worth the maximum amount. Her financial adviser had recommended that she claim her survivor benefits at 60. Even though her survivor benefit would be worth just 71.5% of her late husband's primary insurance amount, compared to 100% if she waited until her full retirement age of 66, she could collect them for 10 years before switching to her own maximum retirement benefits at 70. However, she never got around to filing for Social Security and now wondered if she could collect back benefits. The short answer is no, but like anything else having to do with Social Security rules, there is a longer answer with lots of caveats. In general, only people who file for Social Security benefits after their full retirement age are entitled to back benefits, and the maximum retroactive payment is six months, beginning no sooner than full retirement age. So if someone claimed Social Security retirement benefits at 66 and four months, they could receive up to four months of back benefits in a lump sum instead of earning four months' worth of delayed retirement credits for claiming benefits after full retirement age. Or, if they claimed benefits at age 67 — a year after they reached full retirement age — they could collect six months' worth of back benefits — the maximum amount of retroactive benefits — in lieu of earning delayed retirement credits for that same period. Delayed retirement credits are worth 0.66% per month or 8% per year for every year that you postpone collecting benefits beyond full retirement age up to age 70. In most cases, electing to claim retroactive benefits in a lump sum permanently reduces ongoing monthly benefits. [Read more: Should you claim Social Security retroactive lump sum?] But sometimes it makes sense to claim retroactive benefits. For example, only a worker's retirement benefit earns delayed retirement credits when benefits are postponed beyond full retirement age. Spousal benefits and survivor benefits do not. They are worth the maximum amount when claimed at the spouse's or survivor's full retirement age. Therefore, someone who claims spousal or survivor benefits after their full retirement age should request the maximum six months of retroactive benefits (assuming they are at least 66 and 6 months old). There are some exceptions to the retroactivity rules in cases involving surviving spouses and eligible surviving ex-spouses who were married for at least 10 years before divorcing. Generally, the availability of retroactive benefits depends on whether the deceased worker claimed benefits before full retirement age. "Unless [her late husband] filed for his retirement benefits before his full retirement age, she will not be eligible for retroactive benefits," Jim Blair, a 35-year veteran of the Social Security Administration, said in response to my question about the widow's predicament. However, Social Security does allow limited retroactivity for widows and widowers who are under full retirement age in certain circumstances, said Mr. Blair, who is co-founder of the National Social Security Association, which offers a certification for financial professionals. For example, a widow or widower who is younger than full retirement age and who files for survivor benefits within one month of the worker's death can receive one month of retroactive benefits, starting with the month the worker died. That can be an important continuation of benefits for the surviving spouse since benefits paid to the worker during the month he or she died must be returned to Social Security. Also, a widow or widower who is under full retirement age may qualify for up to six months of retroactive benefits if the deceased worker claimed reduced benefits before full retirement age. In that case, the surviving spouse or ex-spouse may be entitled to a larger benefit under the so-called widow's/widower's limit provision. That provision allows the survivor to receive either the amount the deceased worker was collecting at the time of his or her death or 82.5% of the worker's full retirement age amount, whichever is larger. Survivors who are subject to the widow's/widower's limit provision may be entitled to up to six months of back benefits. Disabled widows and widowers, who are eligible to claim survivor benefits as early as age 50, can collect up to 12 months of retroactive survivor benefits if they claim survivor benefits before age 61.

Read more: Is claiming retroactive Social Security benefits a good idea?