Certified Safe Money Admin

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Certified Safe Money Admin

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Medicare – Avoiding the Timing Landmines Hidden in Social Security and Medicare

As you approach retirement, you may be eligible for various income and healthcare benefits such as Social Security and Medicare. Both of these programs were created by the U.S. government to help retirees avoid poverty and excessive out-of-pocket medical expenses when they stop working. 

But, while these programs can offer you a financial “safety net,” they also come with a number of parameters in terms of when you should file and how you can get the most out of them. In fact, without a good understanding of the enrollment timelines of both Medicare and Social Security, you could miss out on additional benefits and/or be subject to penalties, such as having to pay a higher premium amount on your Medicare coverage. 

When to File for Social Security Retirement Income Benefits

If you qualify for Social Security retirement benefits, you can claim them as early as age 62. However, if you do so, the dollar amount that you receive from each payment will be permanently reduced.

The Social Security full retirement age, or FRA, is the age at which your full retirement income benefit is payable. For many years, 65 was the full retirement age for all Social Security retirement income recipients across the board. But, in an effort to keep the Social Security trust fund afloat, the full retirement age was changed. It is now between age 65 and 67, depending on the year of your birth.

Social Security Full Retirement Age

Year of Birth Minimum Retirement Age for Full Benefits
1937 or Before 65
1938 65 + 2 months
1939 65 +4 months
1940 65 +6 months
1941 65 +8 months
1942 65 +10 months
1943 to 1954 66
1955 66 + 2 months
1956 66 + 4 months
1957 66 + 6 months
1958 66 + 8 months
1959 66 + 10 months
1960 or Later 67

Source: Social Security Administration

Although it may make sense in some cases to file early for your Social Security retirement benefits, the lower-income amount each month could add up to a loss of significant income over time. There are other potential pitfalls, too, if you file early for Social Security.

For instance, you could have up to 85% of your Social Security benefit taxed if you’re receiving this income before your FRA, and you are also receiving income from various other sources, such as wages or self-employment pay. 

Conversely, you could wait until after your full retirement age to start receiving Social Security retirement income. If you do so, the amount of your benefit can be increased permanently. In fact, you can earn a “delayed retirement credit” of approximately 8% per year for each year that you wait – up to age 70. In addition, even if you earn income from other sources, once you have reached your full retirement age, your Social Security income won’t be taxable. 

In order to get an estimate of how much Social Security retirement income you will receive – based on your earnings and potential filing age – you can go to the Social Security benefits calculator HERE: https://ssa.gov/benefits/calculators/

Do You Qualify for Medicare Coverage?

If you have earned enough “work credits,” you may also be eligible for Medicare healthcare coverage when you reach age 65. (Some individuals with certain types of health conditions may qualify for Medicare prior to reaching this age). 

Original Medicare consists of:

  • Part A – Hospitalization coverage
  • Part B – Coverage for doctors’ services

In addition, if you want to add coverage for prescription medications, you can purchase a Medicare Part D plan. Unlike Medicare Parts A and B, which are offered through the Centers for Medicare and Medicaid Services – an agency of the federal government – Medicare Part D plans are sold through private insurance carriers that have been approved to offer them.

An alternate way to receive your Medicare coverage is to purchase a Medicare Advantage plan. Also known as Medicare Part C, these plans offer the same benefits as Medicare Part A and Part B. Depending on the plan, additional benefits – such as vision, dental, and eye care – could also be included, as well as coverage for prescription medication.

Some individuals receive Medicare Part A and B automatically, while others may have to sign up for it. In most instances, it will depend on whether or not you are already receiving your Social Security retirement benefits. 

In most cases, Medicare Part A does not require a premium. Medicare Part B, however, requires a monthly premium payment of $148.50 per month for most enrollees. Note that if you are considered a high wage earner (based on your adjusted gross income from two years prior), the Part B Medicare premium could be more. 

Depending on when you file for your Medicare Part B coverage, you could incur a late enrollment penalty. For instance, if you did not enroll in Part B of Medicare when you were initially eligible – and you also were not covered by another healthcare insurance plan at that time – the amount of your premium could go up by 10% for each 12-month period that you could have had Part B, but you didn’t sign up for it. Typically, you will be required to pay this higher premium for as long as you are enrolled in Medicare Part B. 

Maximizing Your Benefits and Reducing Your Cost of Social Security and Medicare

There are literally hundreds of different combinations for filing your Social Security benefits. So, you must work with a retirement income planner who can help you with the right filing and benefit maximization strategy for your specific situation and coordinate your Medicare health insurance coverage.

If you would like to set up a time to talk with a retirement income planning expert, please feel free to contact us at [email protected]

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