Social Security & Medicare Basics

Both Social Security and Medicare are important benefits for most Americans, especially those in retirement. It’s important to understand the basics of both programs and to incorporate them into a holistic financial plan that looks to best utilize these benefits based on individual needs.

Social Security

Social Security provides retirement and disability income to qualified people and their spouses, children and survivors. A person must have earned 40 credits to be eligible for full retirement benefits, and in any year a maximum of four credits can be earned. For 2022, each $1,510 in wages or self-employment income earn a worker one credit, meaning the full four credits for the year are earned once that worker earns $6,040. What an individual will receive at retirement depends on how much has been earned over their working career and at what age they apply for benefits. Full Retirement Age (FRA) depends on the Social Security recipient’s year of birth and ranges from age 66 to age 67. When a recipient reaches their FRA, each year’s earnings are tallied up and indexed for inflation and cost-of-living increases. This calculation yields the primary insurance amount (PIA), which is the monthly amount a worker would receive at their FRA.

A Social Security benefit can be started as early as age 62, but if the benefit is started before FRA there is a permanent reduction in the benefit. If taken at age 62, this is between a 25% and 30% reduction, depending on the recipient’s FRA. Social Security benefits can also be delayed past one’s FRA, with a maximum deferral until age 70. If delayed, benefits are increased by a guaranteed eight percent per year for a maximum of 124% to 132% of the FRA benefit depending on the recipient’s FRA.

“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you’ll never have enough.” - Oprah Winfrey

Social Security benefits can be calculated on the Social Security website (www.ssa.gov). You may also register for access to your individual Social Security account on the website. Spouses are also generally eligible for a spousal benefit, which is up to 50% of the primary worker’s PIA. If the spousal benefit is larger than one’s own benefit, the Social Security Administration (SSA) will automatically pay the higher benefit when the higher earner applies for their benefit. There is also a survivor benefit available, which would pay the deceased spouse’s benefit to the surviving spouse if it were a higher benefit. The amount of survivor benefit depends on the age the deceased spouse started the benefit and the age the surviving spouse begins to receive the benefit. There are additional rules for spousal and survivor benefits that can be found on the Social Security website (www.ssa.gov). There are many factors in determining when it’s best to apply for Social Security benefits. These include health status, life expectancy, need for income, whether you plan to continue work while collecting benefits, and survivor needs. Proper financial planning must be done to ensure you claim your Social Security benefit in a way that is in your best interest. We recommend that you work with your financial advisor and the SSA to determine when it is best to start your benefits.

Medicare is a national health care system that Americans qualify for if they are 65 or older or have certain disabilities. The Medicare Initial Enrollment Period (IEP) is a 7-month period, which begins 3 months before you turn 65 and ends 3 months after the month you turn 65. If you continue to work past 65 and have medical coverage through your employer, once you stop working there is a Special Enrollment Period that runs for 8 months after you or your spouse stop working or lose group health coverage. Please note this is only for Medicare A & B; Medicare Part D’s special enrollment period is only 2 months. There are several parts of Medicare, some of which can charge deductibles and premiums to enrollees. • Medicare Part A helps cover inpatient, skilled nursing, hospice and some home health care. For most enrollees there is no premium for Part A, but there is a $1,556 (2022) deductible each time you’re admitted to the hospital per benefit period. • Medicare Part B covers doctor’s visits, outpatient care, home health care, and durable medical equipment. Part B has a $233 (2022) deductible before it starts to pay and there is a standard $170.10 (2022) per month premium, which may be waived or increased depending on one’s income. • Medicare Part D is coverage for prescription drugs. Plans are offered through insurance companies and premiums vary based on the plan you select. Because Medicare Parts A and B don’t cover all the out-of-pocket costs of health care for enrollees, many also select a Medicare Supplement (Medigap) or Medicare Advantage Plan. Medigap policies can help pay some of the remaining health care costs, like copayments, coinsurance and deductibles. Some Medigap policies also cover services that Original Medicare (Part A & Part B) doesn’t cover, like medical care when you travel outside the United States. Medicare Advantage plans are Medicare-approved plans from private insurance companies that offer an alternative to Original Medicare. These “bundled” plans include Part A, Part B and usually Part D. In most cases you’ll need to use doctors who are in the plan’s network. These plans may offer some extra benefits that Original Medicare doesn’t cover, like vision, hearing and dental services. You can find more information about Medicare and compare Medigap, Medicare Advantage and Medicare Part D options available in your area at www.medicare.gov. Proper financial planning must be done to ensure you select the Medicare options that are in your best interest. We recommend that you work with your financial advisor and Medicare to determine what options are best for your individual situation.