The following is a expanded version of a comment I made in a recent diary. A couple of commenters suggested that I “post” it, so here we are.
I’m not sure of DKos demographics, but I suspect there quite a number of Boomers here and—while we still have a social safety net of sorts—it’s important to know the rules relating to enrolling in Social Security and Medicare. If you are getting near (or past) 60, there are some important decisions that you need to make, and not knowing the rules can cost you money. You need to make enrollment decisions whether or not you are employed. And if you’re lucky enough to still be employed when you turn 65, you need to be especially careful, as I describe below.
In general, I’ve found that the people who work in local Social Security offices are the helpful, concerned, and generally pretty knowledgeable—the polar opposite of the stereotype of government employees that some may believe. If you have questions about Social Security or Medicare that can’t be answered by some Internet research, go ask.
The following is based on current law. Who knows what Cat Food Committee II (aka the Joint Select Committee on Deficit Reduction) will do to us. If things go horribly wrong in November 2012, you may not have to worry about enrolling in Social Security or Medicare at all.
Raising The Retirement Age
Given all of the current discussion concerning raising the retirement age, it would probably surprise many people to know that that particular ship sailed in 1983.
When the Social Security Act was passed in 1935, benefits were available to qualified individuals “beginning on the date he attains the age of sixty-five, or on January 1, 1942, whichever is the later.” 1935 Act, § 202. In 1961, men were given the option to receive reduced benefits at age 62 (women had been given this option in 1956). Social Security Amendments of 1961: Summary and Legislative History (pdf): “for those who claim benefits before they reach age 65, the monthly amount is reduced to take account of the longer period that they will draw benefits.”
In 1972, Cost of Living Adjustments (COLA) were introduced for Social Security benefits. This was intended to keep benefits in line with inflation. A technical error in the formula used, however, caused benefits to increase at twice the rate of inflation. During the 70s, Social Security had its first financial crisis. Partly because of the COLA error, partly because of the changing demographics, and partly because of a slowing economy and high inflation, the future of Social Security was cast into doubt.
Although various amendments were made in 1977, the financial outlook continued to look bad, and in 1982, The National Commission on Social Security Reform (NCSSR), chaired by Alan Greenspan (yes, that Alan Greenspan), was empaneled to investigate the long-run solvency of Social Security.
Much of the recommendations of the NCSSR were adopted. A document written for the Social Security Administration (pdf) puts it this way:
The 1983 amendments, passed in record time by the 98th Congress, represent a bipartisan effort to deal with serious near-term and long-range financing problems facing the Old-Age, Survivors, and Disability Insurance (OASDI) program under prior law. Since 1975, expenditures of the OASDI program had exceeded revenues and it was anticipated that, without legislative action, it would not have been possible to continue paying OASDI cash benefits on time beginning in July 1983.
The Republicans’ idol, St. Ronnie, signed the 1983 amendments on April 20, 1983, saying (id.):
This bill demonstrates for all time our Nation’s ironclad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times a. half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire . . . . Our elderly need no longer fear that the checks they depend on will be stopped or reduced. These amendments protect them. Americans of middle age need no longer worry whether their career-long investment will pay off. These amendments guarantee it. And younger people can feel confident that Social Security will still be around when they need it to cushion their retirement.
Reagan called the legislation (emphasis added for irony)
a monument to the spirit of compassion and commitment that unites us as a people . . . . Each of us had to compromise one way or another. But the essence of bipartisanship is to give up a little in order to get a lot. And, my fellow Americans, I think we’ve gotten a very great deal.
One of the measures included in the 1983 Amendments—but not actually part of the recommendations from the NCSSR—was raising the “full retirement age” (id., emphasis added):
Gradual increase in the age of eligibility for full benefits to age 66 in 2009 and to age 67 in 2027. The earnings test will also be modified so that after 1990 a $1-for-$3 benefit withholding rate will replace the present $1-for-$2 withholding for beneficiaries who have reached the age of eligibility for unreduced retirement benefits.
If you start your SS retirement benefits before you reach "full retirement age," your benefits will be reduced using a sliding scale. For people born between 1943-1954, your "full retirement age" is 66. The current chart for other birth years is here. If you retire when you turn 62, your retirement benefit will be reduced by 25%. See this page. The longer you wait, the closer to the full benefit you'll get (and if you wait past your full retirement age, you get more).
There are various calculators, including some based on your actual earnings, that can help you decide when to start collecting Social Security. These are based on several factors, including your life expectancy, because the basic concept is that you should get the same total benefit whenever you retire (less per month for more months if you retire early; more per month for fewer months if you wait).
Many financial planners urge delaying retirement because, depending on your actual benefits, you make up for the delay in starting by the time you get to your late 70s or early 80s. Here’s an example calculated last year:
A man born on January 2, 1948, who earns $80,200, he can expect a $2,157 a month from Social Security at his normal full retirement age of 66. But if he retires this year, at 62, he’ll receive just $1,458 a month, about a third less. Using Social Security’s assumptions, by waiting until 70, his checks will start at $3,303—more than double what he’d get at 62.
True, he must pass up eight years’ worth of checks—in this example, that’s a total of $149,517 in inflation-adjusted benefits from age 62 through 69. But if he starts taking benefits at age 70, the bigger checks will let him make up that $149,517 in a little over six years, or by the time he’s 77. From then on, he’ll be ahead of the game. Through age 85, he’ll have collected $786,450, or$219,462 more than if he had started benefits at 62. Postponing meant eight years of tax-free, government guaranteed growth.
Unfortunately, many of us superannuated dirty hippies have been made redundant (a nice British euphemism for getting laid off) and have little choice but to enroll in Social Security as soon as possible.
Medicare is even more complicated
Assuming that you worked for at least 10 years in Medicare-covered employment, and that you are getting Social Security benefits (because, e.g., you signed up at age 62), you are automatically enrolled in Medicare Part A on your 65th birthday. You don't pay for it. Medicare Part A is hospital coverage.
Medicare Part B is physician coverage. You generally have to pay for this. As a result, Medicare gives you the option of not enrolling in this coverage. There is a catch.
When you first become eligible for hospital insurance (Part A), you have a seven-month period (your initial enrollment period) in which to sign up for medical insurance (Part B). A delay on your part will cause a delay in coverage and result in higher premiums. If you are eligible at age 65, your initial enrollment period begins three months before your 65th birthday, includes the month you turn age 65 and ends three months after that birthday. If you are eligible for Medicare based on disability or permanent kidney failure, your initial enrollment period depends on the date your disability or treatment began.
If you sign up for Part B in this period, you pay the going rate (currently, $96.40/month if you make less than $85,000). If you do not enroll in Medicare Part B during your initial enrollment period, you have another chance each year to sign up during a “general enrollment period” from January 1 through March 31, but you are subject to a 10% penalty for every 12-month period you were eligible for, but did not enroll in, Medicare Part B. This penalty applies to your Medicare Part B premiums for as long as you continue to get Medicare.
You are excused from the penalty if the reason you do not enroll in Part B is because you (or your spouse) are working and have a group insurance plan through your employer or union. You have 8 months following the end of your employment to sign up for Part B. COBRA—which permits you to participate in your former employer's group insurance plan for up to 18 months—does NOT count as an excuse for failing to enroll in Part B. That is, if you wait until the end of the COBRA period to enroll in Part B, you will pay the penalty, notwithstanding that you were covered by your former employer's group insurance plan the entire time (ask me how I know this).
Medicare Part D (drug reimbursement insurance), “Medigap” insurance polices, and the scam known as Medicare Part C or “Medicare Advantage” are topics for another day.
Good luck, and may you be well and not need health care insurance … but to adopt the mantra that’s been repeated over and over during the coverage of Hurricane Irene, “Hope for the best but prepare for the worst.”