Some folks get con- fused about these two government programs, so let’s make sure everyone is clear. While working in the good old USA, your earning years count towards these retire- ment benefits. And while one program can affect the other, the programs are completely separate and there are different rules and regulations for each. We are going to break down the misinformation and make sure we all have the facts.
You do not have to sign up for both programs at the same time. Many people think I must turn on my Social Security benefits at the same time I enroll in Medicare. NOT TRUE!
Medicare: If you have worked ten years in the USA and paid taxes, or, are married to someone who has worked ten years, you are eligible for Medicare A&B at age 65. But there is much misinformation regarding a penalty if you don’t sign up at age 65. There is an exception. As long as 1) you have an employer health insurance plan (not a retiree plan), with 2) more than 20 employees on that plan, and 3) the plan is “Creditable Coverage”, you can stay on that employer health plan after age 65 and not sign up for Medicare. No harm, no foul, no penalty. Later, when you decide to retire and lose your employer health plan, you can sign up for Medicare A&B with no penalty if you met the 3 requirements. If you do not have employer health coverage that meets these 3 requirements, then YES, you must sign up for Medicare at age 65 or start accumulating a penalty. Bad news? You pay the penalty the rest of your life! Yikes! COBRA is not considered creditable coverage.
What does Medicare cost? Medicare Part A (Hospital) has a $0 monthly premium if you have worked 10 years and paid taxes. Part B (Medical Services) of Medicare has a monthly premium of $144.60. You will pay more for Part B if your Gross Adjusted Income is above $87,000 filing single or above $174,000 filing joint. In other words, the more you make above these amounts, the more you pay. As your yearly income fluctuates, Medicare will adjust this premium up or down automatically as you file your yearly income taxes.
Social Security Benefits: This one has more information, but here are the basics. You can sign up for Social Security Benefits as early as age 62 or as late as age 70. Somewhere in the middle of this span of birthdays is your Full Retirement Age (FRA). If you were born in 1954 or before, FRA is at age 66. If you were born after 1954, starting in 1955 you would add 2 months for each year of birth. Example: if you were born in 1957 your FRA would be 66 and 6 months. This is capped at age 67 for folks born 1960 or later.
If you turn on your Social Security benefits early, you will lose approximately 8% per year you turn on benefits. Example: At age 66 your monthly benefit check is $1,000, but if you turned on your benefits at age 62 your reduced benefit will be approximately $750. That’s a big discount. Just the opposite, if you waited till age 70 your $1,000 benefit will have grown to $1,320 a month. So, your choices are, turn on benefit early at its reduced amount, turn on benefit at full retirement, or, if you wait, it grows approximately 8% a year until age 70.
One standing piece of advice we give to folks deciding when to do what is “if you need your Social Security benefit to make your retirement budget work, take it at whatever year you need to start benefits”.