Archive for May, 2015

Important Changes in New Two-Year Budget Agreement

According to a report in today’s (10/29/15) Wall Street Journal on page C1, the two-year budget agreement, passed by the House of Representatives on October 28th and headed to the Senate will eliminate the ability of social security recipients to elect and suspend benefits at age 66 (described below under Take Advantage Of Spousal Benefits At Age 66) and have their spouse claim spousal benefits while continuing to benefit from delaying their own social security benefits until age 70.

Start of Original Post

I purchased and read the book Get What’s Yours – The Secrets To Maxing Out Your Social Security after seeing a generally favorable book review.   The authors are Laurence J. Kotlikoff, Philip Moeller and Paul Solman; respectively an economics professor at Boston University, a journalist who writes about retirement for Money and the PBS website Making Sen$e and a business and economics correspondent for PBS NewsHour.

In an effort to make the details of social security entertaining and approachable, I thought the authors relied on somewhat tortured personal anecdotes and repeated and repeated key points, indicating in my view a condescending attitude toward their readers.   The book nevertheless has some very useful information for those trying to assess their best options for Social Security and some helpful cautions.

Key points include:

Know The Basic Facts and Terminology – For most baby boomers (those born between 1946 and 1954) 66, not 65, is now the “Full Retirement Age” and 70 is the “Maximum Retirement Age”.   You can elect to begin collecting Social Security for retirement as early as 62, but if you do your monthly distributions are reduced by 25% of your full retirement benefit at age 66. Your benefits will grow by 8% of your full retirement benefit per year if you wait from age 66 to age 70.   The book explains a lot of other Social Security terminology, some of which may be critical to you maximizing your benefits, and also presents a lot of information on survivor, spousal and disability and dependent child options under Social Security. The Social Security website ssa.gov is also full of information.

View Social Security An Annuity To Protect Against Exhausting Other Assets – One of the great benefits of Social Security is that the payments last as long as you live and may provide survivor options to your spouse and children. The authors argue, and I agree with them, that assuring yourself a higher annual income from Social Security for as long as you live late in retirement, when there is a chance you might exhaust your other resources, is more important than starting benefits early, unless you have no other retirement income available to you or know for certain that you will die early.

The Financial Incentives To Delay Claiming Benefits Are Compelling – If your full retirement benefit at age 66 were to be $1,500 per month, your benefit if you claim benefits early, beginning at age 62, would be only about $1,125 per month.   By starting benefits at age 62, you would get four more years of payments, totaling $54,000, than waiting until age 66. But by waiting for the higher payment you would receive $31,500 more in total benefits before inflationary adjustments if you were to live to age 85.   More important, is that by waiting you would have a substantially higher annual income, $18,000 vs. $13,500 before inflationary adjustments, late in life when there is chance your other forms of retirement savings are exhausted and inflationary adjustments will magnify this difference over time.

Wait Until 70 To Take Social Security Benefits If You Can – Using the same example of a $1,500 monthly retirement benefit at age 66, by waiting to age 70, rather than starting retirement benefits at age 66, you would boost your annual retirement income to approximately $1,980 per month, $23,760 annually (by approximately 32% compare to your standard age 66 full retirement benefit).   Since these figures would be adjusted for cost of living, the absolute differences between the lower and higher figures would be even greater on a post-inflation basis.

Take Advantage Of Spousal Benefits At Age 66 – One of the key opportunities for maximizing your Social Security benefits concerns the Spousal Benefit. You will want to consult the book or another resource for details but in essence if one spouse is several years older than the other and was the higher wage earner, it is possible for the older, higher wage earner to file for Social Security retirement benefits at age 66 and suspend benefits for up to four years until age 70 in order to create the opportunity for the lower wage earning spouse to claim restricted spousal benefits (50% of the higher wage earners full retirement benefit) without triggering retirement benefits for the higher wage earner and without reducing the growth in the higher wage earner’s social security benefit between age 66 and 70.   There are penalties, if this maneuver is started before the younger spouse reaches age 66.

Evaluating Your Options – There are a multitude of potential Social Security benefits and options for getting them. To help you understand the specific Social Security options available to you, the lead author, Laurent Kotlikoff , also offers an online Social Security software planning tool at maximizemysocialsecurity.com, which gets good press reviews but which I have not tried.   At times the book is only a promotional tool for the software playing up the risks of making an error in claiming Social Security and warning against relying on the Social Security Administration for advice.   Anecdotal feedback I have gotten from other Social Security recipients seems much more favorable about the advice available from Social Security offices than the impression you get from reading Get What’s Yours – The Secrets To Maxing Out Your Social Security but the book is a useful resource.

 

 

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Signing Up For Medicare

I have a group of friends who first came together in a special 6th grade class and continued in school together through high school.   About 10-year ago we began having informal reunions every two or three years.   This year, since I am one of the first to turn 65 and have some background in healthcare, I have been asked to provide some tips on signing up for Medicare to the group, which I summarize in this blog.

Many of us who previously worked in the private sector generally have a negative view of government programs.   But, my experience strong suggests Medicare is easier than you think.   In signing up for Medicare I found the government website (Medicare.gov) and dealing with the Centers for Medicare and Medicaid Services (CMS) to be much better than dealing with the private health insurance companies, including those offering employer sponsored plans and individual policies and the companies that administer Medicare Supplemental and Part-D drug insurance.

The Basics

  • You are eligible for Medicare on the first day of the month in which you turn 65 unless your birthday is the first of the month, in which case you start the first day of the prior month.
  • You are required to sign up for Medicare within a seven-month period before and after your 65th Ideally you should sign up in the three months before the month in which you turn 65. You may face higher premiums if you delay signing up unless you remain covered by an employer’s insurance policy.
  • There are two main parts to Medicare – Part A (Hospital Insurance) that covers inpatient and post-inpatient services and Part B (Medical Insurance) that covers medically necessary doctor and outpatient services.
  • Because co-payments for Medicare Part A and Part B can be significant with a long hospital stay or prolonged illness, most Medicare members also purchase a Medicare Supplemental Insurance policy from a private insurance company to help cover deductibles and co-pays.
  • Many insurers offer Medicare Supplemental policies and you will be inundated with offers as you approach 65 but all must offer a standard set of plan options (A – N) from which you can choose.
  • Medicare offers a prescription drug benefit, Medicare Part D, for which you must sign up through a private company separately from Part A and B.
  • Medicare members also have the option of combining A, B and D coverage into a single policy call a Medicare Advantage Plan, or Part C, which is a Medicare Managed Care or HMO/PPO type policy.  These policies can offer cost advantages, additional benefits and better-integrated services but may also restrict options for healthcare providers and drugs.

The  Cost

Medicare Part A is generally free to those that have paid Medicare taxes over the year.   Medicare Part B has a sliding fee scale tied to income with monthly premiums ranging from $104.90 for individuals with incomes of $85,000 annually or less up to $335.70 for individuals with income above $214,000 annually (income based on most recent tax return on file). Supplemental insurance premiums range from about $70 per month to $225 per month depending on the plan you choose.

Part D also has a sliding monthly premium fee scale based on income but it is essential in selecting a Part D Plan to consider the annual deductible and co-pays for the drugs you use, not just the monthly premium, to determine the total costs you can expect to pay.   The base monthly premium for a Part D Plan is generally less than $50 with income based additions of $12 to $71 per month in 2015 for individuals with incomes over $85,000.   Medicare and others provide on line tools that will assist you to select the most cost effective Part D Plan based on the cost of insurance and the deductible and co-pays for the specific drugs that you take and you can change plans annually.

In some cases Medicare Advantage or Part C plans may offer lower costs or more comprehensive coverage than an A-B-D plan with supplemental insurance but Medicare Advantage plans can limit the caregivers or medications you may be able to use.

Key Decisions

Unless you remain covered under an employer’s healthcare plan, or are covered by certain other approved exceptions, you need to sign up for Medicare or face significant penalties for delay.

The key question is whether to sign up for Original or Traditional Medicare – Part A, Part B and Part D with supplemental insurance or for a Medicare Advantage (Part C) Plan.   The key advantage of Original Medicare is that you have full choice over your physicians, hospitals and other care providers while a Medicare Advantage Plan may restricted the care providers you can see and otherwise limit or direct utilization.

There are also important choices to be made about which Medicare Supplemental Plan to select, with a broad range of premiums and deductibles, some offering coverage outside the US and some not.   The best Part D Plan for each person will vary based on the drugs they use, so using an online tool to evaluate plans is key to making this decision.

I selected an Original Medicare Plan with Parts A, B and D and a Medicare Supplemental Insurance Plan from AARP/United Healthcare.   I wanted to preserve the ability to use my present primary care doctor, so I did not consider Medicare Advantage options.   My choice of a Medicare supplemental insurance provider was influenced by many frustrations in dealing with CareFirst (the Blue Cross/Blue Shield provider in Maryland) and by a consultation with former stock analyst colleges that follow health insurance providers.   I also decided to purchase my Part D Plan through AARP/United Healthcare but, because I take few drugs, I did not spend a lot of time shopping for a Part D Prescription Drug Plan.

Other Resources

This short introduction to Medicare should be supplemented with information from Medicare and supplemental insurance providers.   See particularly “Medicare & You 2015” available free at Medicare.gov and available online and downloadable to e-readers for free.   AARP (aarp.org), among others, also offers a general Medicare Guide and sponsors a Medicare Supplemental Insurance Program offered through United Healthcare.   In the Medicare & You guide, Medicare also indicates you can contact your State Health Assistance Program (SHIP) or call 1-800-MEDICARE (1-800-633-4227) and say Agent to get individual help but I did not try either of these.

 

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