There is a rash of recent articles about the financial state of the Social Security system and the impending retirement of baby boomer. While there are numerous immediate financial concerns for retirees, the impending doom of the Social Security system is not one of them.
Here’s an article from USA Today warning of impending doom. Here’s an article from CNBC that lays out many of the issues facing Social Security. It’s worth a read to provide some perspective.
Social Security expert Nancy Altman reminded a group of aging experts yesterday that the 2009 Social Security Trustees reports says Social Security will have sufficient income to pay benefits in full until 2037, and at a 78% level after that. Obviously, Congress will have to step in before that to put a plan in place for Social Security. She’s chair of the board of directors of the Pension Rights Center.
What is alarming though are the statistics of how many people rely so heavily on Social Security to cover their expenses once they retire. Altman says 2 in 3 retirees get half or more of their income from Social Security and 1 in 5 retirees get all their income from Social Security.
So, if you are still planning your retirement, and considering how long you will continue working and the sources of income you will have to draw on in retirement to pay your expenses. here are two things to think about in deciding when to begin Social Security payments:
1. Rather than thinking of Social Security eligibility as a single age, think of it as bands of retirement ages. The longer you wait to begin Social Security payments, the more money you will receive on a monthly basis. You can begin at 62 and take a reduced benefit or you can wait until your full retirement age (linked to when you were born) to receive full benefits or wait until say 70 and receive an even higher monthly payment.
Here’s how it works. If your full retirement age is 67, the reduction for starting your benefits at
- 62 is about 30 percent;
- age 63 is about 25 percent;
- age 64 is about 20 percent;
- age 65 is about 13 and 1/3 percent; and
- age 66 is about 6 and 2/3 percent.
Because so many of us rely so heavily on those payments in our retirement years, this is a really important decision in determining how much money you receive monthly to cover your expenses in retirement. Here’s a link to the Social Security Retirement Estimator.
2. The age at which Medicare begins and Social Security begins are no longer linked. Medicare is age based – 65 (unless you are disabled) and based upon having worked 40 quarters (10 years of payroll tax payments). Social Security is generally 66 or 67, depending on the year you were born.
If you are not already getting benefits when you turn 65, you should call 1-800-772-1213 three months prior to your birthday so they can help you decide if you should sign up for Medicare. You should do this even if you plan to continue working or do not think you have enough work credit under Social Security, because Medicare enrollment period rules are very strict.
If you would like to file for Medicare only, you can apply by calling 1-800-772-1213.
Making the right decision about when to begin receiving Social Security and signing up correctly for Medicare can make a big financial difference in your retirement income.
For example, if you do not enroll in Medicare Part B when you are first eligible (and not covered by an employer health plan) you’ll have to wait until the next General Enrollment Period, which is January 1 through March 31 of each year. You may then have to pay a higher Medicare Part B premium because you could have had Medicare Part B and did not take it.
So as you plan your retirement, make sure you know the rules around Social Security and Medicare.
Resources
Social Security Administration Website
National Academy of Social Insurance – When to Take Social Secuity
Longevity Alliance – Managing Risk in Retirement