Since writing about a Social Security claiming strategy last month that allows individuals who are older than full retirement age to request a lump-sum payout of retroactive benefits, I've heard other financial planners and Social Security experts promote the same strategy for seniors looking for an infusion of cash. Unfortunately, the Social Security Administration seems to have put the brakes on lump-sum retroactive benefits during the pandemic.
Individuals who are full retirement age or older when they file for Social Security have the right to request a lump-sum payment of up to six months of retroactive benefits. Because a portion of their past benefits are paid out in a lump sum, their future monthly benefits will be slightly smaller. Retroactive benefits can’t be paid before full retirement age.
For example, someone who files for Social Security at 67, a year after reaching their full retirement age of 66, can request a maximum lump-sum payment of six months of benefits. Their monthly benefits going forward would be paid as if they had claimed at 66 and six months.
But someone who files at 66 and 3 months could receive just three months of retroactive benefits, beginning with their full retirement age of 66. Individuals who file for benefits before their full retirement age are not eligible for lump-sum retroactive benefits.
Last month, I received an email from a financial adviser who had a client who tried to use this lump-sum strategy, but had his request for retroactive benefits denied. The client filed for Social Security retirement benefits beginning in March, a few months before he turned 70. He also requested two months of retroactive benefits for January and February.
“He was comfortable with taking a small reduction in his benefit to get a bit of extra cash up front,” the adviser wrote. But things didn’t quite work out that way.
The client received a notice from Social Security that read: “You are entitled to monthly retirement benefits beginning in January 2020. However, we cannot pay you for January 2020 and February 2020. We are unable to pay benefits for January and February because we need additional income.”
What? Additional income? I thought perhaps the notice contained a typo and meant to say the agency needed additional “information.” In any case, if someone is older than full retirement age and requests lump-sum retroactive benefits, there should be no need for additional information to justify the claim.
I contacted the Social Security Administration’s national press office in Baltimore on May 21 and asked if there had been a policy change or temporary administrative holds on requests for lump-sum retroactive benefits.
“We temporarily adjusted our procedures to hold the release of retroactive payments to applicants who many need additional time to provide any necessary evidence due to unexpected circumstances from the COVID-19 pandemic,” public affairs specialist Nicole Tiggemann replied to me by email.
“This procedural change allows beneficiaries to receive their monthly ongoing benefits while they provide us with the evidence required to release the other benefits,” Tiggemann wrote.
I asked several other Social Security experts for their interpretation of the strange missive from SSA.
“I have no idea what their explanation means,” said Jim Blair, a 35-year veteran of the Social Security Administration and co-founder of the National Social Security Association, which trains financial advisers about the agency’s rules and claiming strategies. “I can think of no reason why they would need income information to pay your reader his back pay.”
Blair said a similar thing happened to one of his clients in his Premier Social Security Consulting practice and he suggested the client contact his local congressman for help.
“I hate to say it, but your reader may need to go the same route,” Blair told me in an email
Matthew Allen, co-founder of Social Security Advisors consulting practice said he has seen a similar pattern with clients, with SSA stating that it won’t make retroactive payment until things reopen.
“We’ve resolved this successfully for quite a few clients,” Allen said, adding the agency “is in compete disarray — as if that was even more possible than before.” Social Security Advisors specializes in unraveling Social Security filing problems for a modest fee.
David Freitag, a Social Security and retirement expert with MassMutual, has his own theory about what may be going on.
“I think many of the senior people in the SSA are scattered across the country in the now-closed field offices,” Freitag said in an email. “These senior supervisor types are not the ones on the national 800 number line. So, the folks in the call centers and the folks reviewing the application process are not as up to speed on the rules as they should be.”
SSA closed its field offices to the public in mid-March because of the COVID-19 pandemic. In the absence of in-person appointments, the agency has been processing benefit applications online and over the phone, both through its national 800 number and through calls to local field offices.
Check out Mary Beth Franklin's Retirement Repair Shop podcasts.
UBS has a history of costly litigation stemming from the sale of volatile investment products.
New director David Woodcock puts firms on notice over fees, conflicts, and liquidity risk as private credit shows signs of stress.
Advisors can help “separate the math from the emotion” when it comes to retirement, says JPMorgan’s Michael Conrath.
New product gives advisors a structured way to introduce themselves to clients' heirs before assets change hands.
Osaic has also reeled in another LPL team in North Carolina, while Raymond James' FNBO program gains momentum with a $515 million duo in Kansas City, Missouri.
Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline
Ultra-high-net-worth investors aren’t retreating from risk. They're redefining it, balancing safety with selective conviction
