By Special to the AFRO
As Financial Literacy Month continues, the AFRO would like to give special attention to the financial health of senior citizens. In this months’ special edition, we have included two pertinent questions about the planning and usage of social security benefits.
In response, we have expert Russell Gloor, who serves as national social security advisor for the Association of Mature Americans Citizens Foundation (AMAC Foundation), the non-profit arm of the Association of Mature American Citizens (AMAC).
Dear Rusty: I plan on retiring at 62, one year from now. I have been coached to (if financially possible) leave my Social Security earnings for my wife to collect in the future if I die, considering that she was a homemaker for the majority of her income-earning years. My instinct is to get Social Security coming (I understand I’m settling for a lesser amount at age 62) as soon as possible considering the forecast of our government’s inability to fund Social Security for the rest of my life. No one has a crystal ball, and no one knows what our government will or will not be able to fund even into next week, so we weigh what we know and see, and then decide. Is my question clear?
Your question is clear but contains two opposing factors – you say you wish to provide well for your wife if you die, but also say you wish to claim at age 62 because you’re not confident that Social Security (SS) will be there in the future. Yet claiming at age 62 will mean the lowest possible survivor benefit for your wife because her benefit as your widow will be the amount you are receiving at your death. I’ll try to put all this into perspective for you.
Although Social Security is facing some future financial issues, it will never go bankrupt and be unable to pay benefits. The worst that could happen, if Congress takes no action beforehand, would be that benefits will be cut by about 22 percent if the SS Trust Fund is fully depleted in 2033 (right now, reserves in the Trust Fund are used to supplement SS expenses because SS revenue is currently less than program costs). If that happens, Social Security can only pay out as much as it brings in. But that almost certainly won’t happen, because Congress won’t permit it to.
Congress already knows how to fix Social Security’s financial issues – they just currently lack the political will and bipartisan spirit to implement the changes needed. But there’s little doubt that they will fix the issue before allowing an across-the-board benefit cut to over 65 million beneficiaries (because seniors vote). For your information, there was $2.9 trillion in reserves in the Social Security Trust Fund at the end of 2020.
I don’t recommend you make your Social Security claiming decision-based on fear of the program going bankrupt – it won’t. Even if Congress doesn’t act and a benefit cut is imposed in 2033 (which is highly unlikely), a 22 percent cut to your age 62 benefit amount would be more painful than a 22 percent cut to your benefit at your full retirement age (FRA) which would be about 30 percent higher than your age 62 benefit amount.
The longer you wait to claim, the higher your benefit and your wife’s survivor benefit will be – even in the unlikely event of a later cut in benefits. Instead, I suggest you make your claiming decision based
only on your personal circumstances. If you wish to increase your wife’s survivor benefit, then waiting longer to claim is the way to do that. If you retire from working at age 62, Social Security’s earnings test won’t apply to you (the earnings test limits how much you can earn while collecting early SS benefits), thus you can certainly claim at 62 if you so wish. But it’s important to consider the consequences of claiming early (including a lower survivor benefit for your widow) and make a decision based on facts, not fear of Social Security going bankrupt – because it won’t.
Ask Rusty – My Husband Still Works; Must He Enroll in Medicare at age 65?
Dear Rusty: There is confusion between my husband and me on when he should file for Medicare. My husband will be 64 in July. While he does plan on continuing to work to age 67 and continuing with his employer’s insurance plan, I believe there’s a requirement that he file for a certain part of the Medicare retirement plan at age 65, otherwise there’s some penalty at some point in the future after retirement. There’s lots of confusion with this, and I’m hoping you can explain exactly what the process is in filing for Medicare at age 65 and after reaching full retirement age. Also, please comment on whether continuing with employers’ insurance is an option or if you should file for Medicare at age 65.
Confused About Medicare
There are two main parts of Medicare to be aware of for this discussion – Part A, which is coverage for inpatient hospitalization services, and Part B- which is coverage for outpatient services (doctors, medical tests, etc.).
Medicare Part A
Assuming your husband is eligible to collect Social Security when he turns 65 (he’d needn’t be collecting it, only eligible to), there will be no premium associated with Medicare Part A (thus no penalty if he delays claiming it). If his employer coverage is “creditable” (which is a group plan with at least 20 participants), then he can defer enrolling in Part A until 1) his employer hospitalization coverage ends, or 2) he starts collecting his Social Security benefits (enrolling in Part A is mandatory for those who are collecting Social Security after age 65). He may also wish to check with his employer’s HR department to see if his employer plan requires him to enroll in Part A when he turns 65. However, if your husband enrolls in Part A and has a Health Savings Account (HSA) through his employer, any contributions made to his HSA account after the month before he is 65 will be subject to an IRS penalty and become taxable income.
Medicare Part B
There is a monthly premium associated with Part B, but if your husband has “creditable” healthcare coverage from his employer when he turns 65, he can simply defer enrolling in Part B until his employer coverage ends and there will be no Late Enrollment Penalty for waiting. When his employer coverage ends, he will enter an 8 month Medicare Special Enrollment Period (SEP) during which he can enroll in Part B without penalty. But if he doesn’t enroll during (or before) his SEP and enrolls in Part B later, he’ll be subject to a Late Enrollment Penalty which would increase his Part B premium by 10 percent for each full year without “creditable” coverage after age 65.
For your information, your husband can also enroll in Part B shortly before his employer coverage ends and specify that he wishes his Medicare coverage to start on the 1st of the month following the end of his employer coverage (to avoid any gap in coverage). When your husband enrolls in Part B, he must also enroll in Part A (at no additional cost). Part B premiums can increase yearly – the standard 2022 Part B premium is $170.10 per month.
There is another Medicare element called “Part D” which is coverage for prescription drugs. Prescription drug costs are not covered by Medicare Parts A/B and such coverage must be acquired separately if desired. When your husband’s prescription drug coverage from his employer plan ends, he’ll need to separately acquire (through a private insurer) drug coverage during his SEP, or there will be a separate Part D late enrollment penalty for acquiring drug coverage thereafter.
The bottom line is this: If your husband’s healthcare coverage from his employer is “creditable” he can simply defer enrolling in Medicare until his employer coverage ends, and there will be no late enrollment penalty for doing so (unless he waits beyond his SEP to enroll).
About AMAC and AMAC Foundation
The 2.4 million member Association of Mature American Citizens (AMAC) www.amac.us is a vibrant, vital senior advocacy organization that takes its marching orders from its members. AMAC Action is a non-profit, non-partisan organization representing the membership in our nation’s capital and in local Congressional Districts throughout the country. The AMAC Foundation (www.AmacFoundation.org) is the Association’s non-profit organization, dedicated to supporting and educating America’s Seniors.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at firstname.lastname@example.org.
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