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Simple Things to Prepare for Social Security and Medicare

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More and more I have clients reaching out to sign up for Medicare and/or Social Security.  Sometimes it is important that they sign up and sometimes it is not.  Let’s explore when you should and when you should not.  At the end of this article on when and how to sign up for SS and/or Medicare I will give you the one piece of advice everyone should do immediately.  Go ahead skip to the end if you desire.

Original Medicare is 3 parts.  Medicare A is for Hospitals, and it is paid for from the tax collected out of your paycheck since your first job.  Medicare B is for outpatient or doctors and costs $170/month or more depending on your Adjusted Gross Income.  Medicare part D is for Prescriptions and cost anywhere from $10/month to $100/month.  (Medicare part C is a hybrid of Original Medicare parts A, B and D into an Advantage Plan that acts like an HMO with the insurance company determining the care they believe is necessary.  Unless you need to maintain a strict budget, I recommend staying on Original Medicare and not go to an Advantage plan).

Often, I get asked by a client or on the radio about needing to sign up for Medicare because they turn 65 soon.  Here are the questions to consider before signing up for Medicare parts A or B.  Are you currently insured under a group Health Insurance Policy through an employer with more than 20 employees?  If yes, then you do not need to sign up for Medicare part B until that employers Medical Insurance comes to an end.  If this group health plan comes to an end when you are older than 65 and 3 months, then you need to have the employer sign off on a L564 form to get a special enrollment period of 8 months from the end of employment to sign up for Medicare part B without a penalty.   If you are not covered by a group health insurance plan through an employer with more than 20 employees, then you need to sign up for Medicare part A and B no later than 3 months after turning 65.  Next question, will you fund a Health Savings Account through your employee group health insurance after 65 years of age?  If yes, then you do not want to sign up for Medicare part A which costs nothing further since you paid Medicare taxes since you had your first job.  Signing up for Medicare A negates the ability to fund a Health Savings Account.   If you do not have a Health Savings Account with your group health insurance and you are turning 65, then you should sign up for Medicare part A since you have already paid for the coverage.  Medicare part D for prescriptions is only required when you no longer have a prescription plan at work.  If you are older than 65 years of age when you apply for Medicare part D you may need a credible coverage letter from your group health plan to prove you had a Comparable Prescription Plan through your employer for the time after turning 65.   (If you are a US Government retiree, then this decision is far more complicated so seek professional advice.  US Government insurance for retirees is not supplemental to Medicare as is most every other medical plan in retirement and therefore it significantly complicates the analysis)

Timing for taking Social Security is the next most frequent question.  The Simple rule is if you are single the most logical time is your Full Retirement age which is age 67.  If you are married, then the lower earning spouse takes their social security when either they stop working or age 67 depending on need.  The higher earning spouse waits to age 70.  This is the simple rule and factors such as health of the individuals, ages discrepancy of the couple and assets to carry them to age 70 are significant factors.   This is the typical client rebuttal when offered this advice.  “If I take SS now I get $3,000/month and if I wait to 70 I get $4,200/month.  $3,000/month for 5 years is $180,000 and the extra $1,200/month is $14,400.  Therefore it would take me 12.5 years to recoup plus all the interest I could earn.”  The argument is logical so lets take the assumptions apart.  First the higher Social Security continues to the surviving spouse and the lower Social Security payment is lost.  Therefore the $4,200/month continues regardless which spouse is alive compounded to inflation yearly.  Second did they really get $36,000 each year and the answer is no after taxes paid yearly they got at most $29,300 assuming 85% of their SS is taxed at a 22% Federal Tax Bracket.   Allowing Social Security to compound until age 70 is tax free and the extra $1200 is compounded to inflation each year so at 2% compounding you are getting $1650/month more in 15 years.   Make sure you factor inflation and taxation into the breakeven analysis for when to take Social Security.

Here now is the advice that everyone should do immediately.  Set up your online My Social Security account and keep it current.  For when you go to apply for Social Security or Medicare it is mandatory you have an active online account.  The website is not the best and it is easiest to do when you do not need to sign up so you can overcome snafus easily without the pressure of trying to get this done in a month or two.  This may be one of the top five stress reliever recommendations for anyone at any age.   So get your MySocialSecurity account established now and keep it active.

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