A recent report by the American College of Financial Services shows that older Americans scored an average of 31% on a financial literacy test and for their knowledge about Social Security (33%) and Medicare (42%); these scores out of a 100% are considered abysmal. There have been governmental efforts to improve literacy through improved Social Security statements and mandated annual illustrations of lifetime income from a 401(k) participant’s account balance, but they too have failed.
We get a lot of questions about Social Security and Medicare, but the questions seem to focus on how the earnings test for Social Security works, when to file the application if they want benefits to start in a particular month, whether or not they can qualify for spousal benefits, and so on. But we wish people would ask other questions like: how to maximize Social Security and how to manage their other sources of retirement income around Social Security.
What you really need to know about Social Security is:
- How to obtain your benefit estimate. (www.socialsecurity.gov)
- How much it will be at the various claiming ages plus the increased premium plus cost-of-living-adjustments for waiting longer? (“How much” can find on your Statement, but you won’t the increases).
- How the starting amount translates to total income over their life expectancy. (Most people have no idea—not surprising, since it requires specially-programmed software—and it is causing them to leave too much money on the table and have too little income later in life.)
- How a small slip-up, such as failing to report earnings if under Full Retirement Age (FRA) or the fact that they worked in a noncovered job, can result in an overpayment that may not be caught until years later with a demand for repayment of possibly tens of thousands of dollars.
- How widows can take advantage of a special switching strategy, should they start with their retirement benefit early and switch later to their survivor benefit—or vice versa—to greatly improve total benefits and boost income later in life.
And when it comes to Medicare:
- When you can, should, or must enroll in Medicare depending on what type of insurance they have before and after age 65 (or before and after retirement).
- You need to understand what Medicare covers and what it doesn’t cover, what costs will remain after Medicare pays its share, and how supplemental policies can insure against high out-of-pocket costs.
- The difference between Traditional Medicare and the Medicare Advantage, without succumbing to misleading messages put out by the private Medicare insurers.
- How much will you pay for health care in retirement. Fidelity estimates a 65-year-old couple will pay for health care throughout retirement about $315,000, but how are you supposed to plan for that?
- You need to have an idea of how much health insurance will cost each month/year if you retire early and go off your employer plan.
Most people lack the interest or attention span to study these subjects on their own. We can break the information down into manageable pieces and tailor it to your specific needs. Let us help you get the right answers.
