what happens if you don't start collecting social security until you're 75?

Question

My father recently turned 70 and distrusts banks somewhat. He doesn't feel he currently needs the extra income that social security would provide and that if he took the extra money now that that money could disappear in a hypothetical lawsuit.

It's his understanding that if he doesn't collect his retirement income immediately that when he starts collecting it he'll get a one time lump sum back payment for the payments he didn't collect since he was 70. Like if he started collecting when he was 75 his first social security check would include five years worth of payments.

It's also his understanding that if he dies without ever having collected social security the estate can ask for back payment on his unclaimed social security payments.

Is that correct or is my father basically just throwing away free money?

Answer 1

You'd need to talk with an attorney familiar with Social Security, or an appropriately qualified SSA representative to be sure - but all signs point to the idea that unfortunately Social Security does not work the way your father was told it would. And if he doesn't file to receive benefits the reality is actually much worse than "throwing away free money"! However, this is not due to a complete misunderstanding of the system! Social Security does work the way he thinks in some instances, just that the rules don't apply to his exact situation!

First of all, retroactive benefits come in a few forms:

1. File and suspend to get a lump only if you really need it - BEFORE the age of 70 only! In this method you apply for retirement, but you tell the SSA to suspend/delay your benefits. You are entitled to full lump sum of the payments you deferred...but at a cost of getting lower monthly benefits permanently (and that also lowers spousal and dependent children's benefits, too - if those could apply to your dad). But note that at the age of 70, Social Security will stop deferring the payments and start paying you the full maximum retirement benefit monthly, with no lump sum. This is a kind of emergency insurance policy for those who want to try to defer retirement benefits, but who want the opportunity to cash out and get the money they would have been getting "just in case".

2. You can get up to 6 months of retroactive benefits, such as if you wait past your exact retirement age to apply for benefits. But no more: "we cannot pay retroactive benefits for any month before you reached full retirement age or more than 6 months in the past".

3. As for after-death benefits, an estate can only get benefits that were already due to be paid, which generally means a person died and did not get their benefits for that month, so SSA can re-issue a check to the estate following these rules. But as a person cannot be due a lump sum payment after age 70 (for more than 6 months at most), the estate will only be able to get at most 1-6 months of payments (and 6 months is doubtful - you'll need to ask a lawyer if that much would even be possible). If your father was below 70 and wanted to file-and-suspend, the question of lump on death would be more complex and I don't know that answer - but once you are past 70 this doesn't matter any more as you aren't due a lump anymore.

What about lawsuits?

Given the above, we've established pretty clearly that if you don't claim your benefits within 6 months after age 70, any months of payment you would have gotten are just forfeited to the system. But if you claim the benefits and stick them in the bank, can they be taken?

Well, if a lawsuit is really a worry, then yes these accumulated funds can required to pay a debt - but this potential for loss can be protected against without forfeiting the benefits entirely! This is not very common, but if your father doesn't need the money now he may be able to deposit some of the money into a special partially-lawsuit protected format of the Roth IRA (which has no age limits) as detailed here. If he never gets sued, that's OK - it's still his money! If he passes away, the value goes to his estate and does not disappear. And he doesn't forfeit any of his earned retirement benefits.

It's Not Free Money - It's His Money

Finally, I would like to share one last thing with you and your father. These benefits aren't free - he has been paying a portion of his paycheck for decades into Social Security, and now he is eligible for the maximum amount of benefits per month that he will qualify for - and if he wants to keep working he loses no benefit and the amount could potentially even go up. That's up to him.

But not filing for benefits now will mean that all this money he's been paying in for decades will just be lost - they'll basically just be a tax he's paid out to other retirees. His estate (which means you kids) won't get any of it, either. That'd just be a waste for everyone involved.

If you have continued doubts or questions, I wouldn't hesitate to consult a specialist lawyer or talk with the SSA directly to make sure this is all correct. It's his money, and he has earned his benefits for many years. I very much hope he gets to enjoy as much of them as he can!

Answer 2

I am by no means an expert in this, but I did a little research and came across this page on the SSA site --

Can You Be Entitled To Benefits Retroactively?
You may be entitled to monthly benefits retroactively for months before the month you filed an application for benefits. For example, full retirement age claims and survivor claims may be paid for up to six months retroactively. In certain cases, benefits involving disability up to 12 months may be paid retroactively. (This is not true of the special age 72 payments (see §§346-348), black lung benefits (see Chapter 22), medical insurance (see Chapter 24), or SSI (see Chapter 21).)

SSA Handbook (emphasis mine)

Based on this, it sounds like he may be mistaken. I recommend speaking to a SSA rep to get a solid answer on this though. Not everything on the internet is true.

Answer 3

I looked into it and if you don't apply for ss at 70, your payments will not be increased to compensate for the months you didn't receive payments- you will just see the regular inflation adjustment. So if you don't start taking ss until 80, you lose 10 years of monthly payments- you can never get those ten years back!

You can check it yourself using the social security calculators on line. There is almost no difference in today's dollars in what you get at 70 and what you get at 80.