By BRIAN HEPP
To build a secure retirement, you will likely take advantage of multiple building blocks to establish your overall plan. Two of the important pieces people most often take advantage of are Social Security and Medicare. Unfortunately, while many will eventually rely on these programs to assist in their retirement funding, relatively few have a good understanding of how these programs work. Following are the answers to a few commonly asked questions, to help educate you a little more on the subject. We’ll also provide sources you can turn to for more information about these programs.
QUESTION: What is the minimum age for Social Security retirement benefits?
ANSWER: You can begin receiving “early” Social Security retirement benefits at age 62. However, if you retire at 62, your monthly benefits will be permanently reduced. Under the current system, which includes varying rates based your birth year, that reduction starts at 20 percent for those born in 1937 or before, and climbs to as high as 30 percent for those born in 1960 or later. In addition, the full-retirement age — the age when you can claim your full benefits — is actually increasing. Previously, retirees who waited until 65 to apply would receive full benefits. Now, however, the full-retirement age is gradually increasing to 67. Your full-retirement age is a combination of years and months, and again depends on the year of your birth.
QUESTION: How much can I work and still receive my Social Security benefits?
ANSWER: No matter how much you earn from your job, you can receive all of your benefits, provided you are full-retirement age or older. However, if you’re younger than full-retirement age, you must limit your on-the-job earnings to avoid losing benefits. The earnings limit for most workers is $12,480 in 2006. If you exceed the limit, $1 will be withheld from your benefits for every $2 earned in excess of the limit. Keep in mind, only employment earnings count against the limit. Pensions, interest, dividends, capital gains and other investment income do not count, nor does money distributed from IRAs or from 401(k), 403(b) or other deferred-compensation plans.
QUESTION: When can I qualify for Medicare?
ANSWER: Medicare coverage does not begin until 65 for most individuals, even if they start receiving Social Security benefits at 62. Three groups that can receive Medicare coverage before 65 include people who receive Social Security disability benefits because they have amyotrophic lateral sclerosis (Lou Gehrig’s disease); other disabled people who have received Social Security disability benefits for at least two years; and patients of all ages who need kidney dialysis or a kidney transplant because of end-stage renal failure.
QUESTION: What does Medicare cover? ANSWER: Medicare consists of Hospital Insurance (Part A), Medical Insurance (Part B) and Medicare Prescription Drug Coverage (Part D). More specifically, Part A helps pay for inpatient hospital care, hospice care and skilled home health services for homebound patients. It also helps with short-term inpatient care in Medicare-certified skilled nursing facilities if the patient is there for rehabilitation. Part B helps pay for doctors’ services, outpatient hospital care, and some medical equipment and supplies.
While these are just a few of the many questions you may have about Social Security and Medicare, the idea is to get you thinking about how these programs will fit into your retirement plan. Remember, these certainly won’t be able to cover all your retirement expenses, but they can be an important part of your overall strategy. To find out more about Social Security, you can visit socialsecurity.gov or call 1-800-772- 1213. To learn more about Medicare, go to medicare.gov or call 1-800-MEDICARE. (Brian Hepp is a financial consultant and (310) 453-0077 or at)
Originally published in the Santa Monica Daily Press print edition on August 24, 2006. Read the original PDF.