Avoiding the Timing Landmines Hidden in Social Security and Medicare
If you think choosing when to start claiming Social Security benefits can be confusing, you’re right. But did you know there is even more to consider when deciding when to start collecting those benefits?
If you are approaching or planning for retirement, you need a Medicare enrollment strategy that synchronizes with your Social Security claiming strategy in order to:
- Reduce your risk of losing benefits,
- Prevent you from incurring penalties, and
- Maximize your benefits from both programs for the rest of your life.
Medicare and Social Security are programs that “talk to each other.” Missed deadlines or poorly-timed benefit claims could mean as much as thousands of dollars of lost income.
What we don’t know can hurt us. So, here’s a quick look at why you must verify deadlines and information for each program so everything is done right.
What is “Deemed” and Why Should You Care?
Before the Bipartisan Budget Act of 2015, there were 567 ways that a couple could take Social Security benefits, including “file-and-suspend.” Even with file-and-suspend eliminated by that legislation, there are still multitudes of ways to claim benefits and “deemed” is taking precedence in Social Security law.
When you claim your Social Security benefits, you will be “deemed” to have filed for ALL available benefits, both spousal and retirement, and be paid the higher of the two, explains Mary Beth Franklin, a contributing editor to InvestmentNews. So, taking benefits on a spouse’s earning record before your Full Retirement Age (FRA) means you will be forced to take your own benefit as well.
Social Security will pay the higher amount, starting with your own benefit and layering any excess spousal amount on top of it, if it’s larger than your own, she adds. Benefits claimed before FRA are permanently reduced for early claiming, greatly affecting your future income. (Survivor benefits are exempt from deeming rules.)
And when you claim any type of Social Security benefits — retirement, spousal or survivor — before FRA you are subject to earnings restrictions should you continue to work.
Social Security & Medicare: The Left Hand Knows What the Right is Doing
Medicare premiums are deducted from your Social Security paychecks, so getting things right with both of them at the start is very important. You know that Medicare is our country’s health insurance program for people age 65 or older. Some Americans younger than age 65 can qualify for Medicare if they have certain disabilities or permanent kidney failure.
We are all expected to sign up for Medicare Part A (hospital insurance) at age 65, at no cost. At that time, you can also elect to enroll in Part B (medical insurance). Because you must pay Part B premiums, you have a period of three months before your 65th birthday through three months after your birthday (seven months total) to choose to sign up for it.
You can decline Part B, but Franklin believes most 65-year-olds should sign up for it. It’s easy to see why: The Social Security Administration warns that your monthly premium will go up 10% for each 12-month period you were eligible for Part B, but didn’t sign up for it, unless you qualify for a special enrollment period. And you may have to pay a late enrollment penalty for as long as you have Part B coverage.
Because the rules of Medicare Part B eligibility are complex, seniors may mistakenly think their circumstances exempt them from applying for coverage at age 65. They may learn when it’s too late that they were misinformed and their Part B premium, because they delayed coverage, will be more expensive for the rest of their lives.
A Real-Life Example of a Potentially Costly Medicare Filing Mistake
Franklin sites a compelling case study she gathered while traveling.
She met a married couple with a husband who planned to enroll in Medicare Part B when he retires at age 70. “The couple assured me that the husband, Bill, would not be subject to a delayed enrollment penalty of 10% per year for every year he was eligible to enroll in Medicare but didn’t because he was covered by his wife Sylvia’s group health insurance,” she recounts.
Upon asking for details, Franklin discovered a problem. “Sylvia had retired from the federal government 10 years earlier. Her Federal Employee Health Benefits plan [didn’t] qualify as creditable group health insurance to avoid a Medicare late-enrollment penalty. Only group health coverage from an existing employer qualifies.”
Franklin continued. “In theory, Bill could be facing a 50% penalty for delayed enrollment every month for the rest of his life if he signed up for Medicare five years after he was eligible and had not had creditable insurance in the interim.”
Potential Exceptions to Part B Enrollment at Age 65
According to the Social Security Administration, there may be exceptions. If you 65 or older, you or your spouse are still working and you are covered under a group health plan based on that current employment, you may not need to apply for Medicare Part B at age 65.
You may qualify for what the SSA calls a “Special Enrollment Period” (SEP) that will let you sign up for Part B:
- During any month you remain covered under the group health plan and your, or your spouse’s, current employment continues; or
- In the eight-month period that begins with the month after your group health plan coverage or the current employment it is based on ends, whichever comes first.
Simple, right? It becomes clear that with the stakes this high, crucial deadlines and details for these programs need to be confirmed before applying for Social Security or enrolling in Medicare.
Need Professional Guidance with Your Benefits?
If you need help getting the most out of your Social Security benefits and Medicare coverage, retirement planning guidance from a financial professional can help.
Use our “Find a Financial Professional” section to connect directly with a financial professional. Should you have any questions or concerns, call us at 877.476.9723.
