(And what you can do to avoid them)
Eighty-six percent of workers in their 60s say they plan to work past age 65 according to the Transamerica Center for Retirement Studies. But for seniors who keep working, learning Social Security’s and Medicare’s poorly-publicized rules is essential to avoiding these three biggest benefit mistakes.
Your Social Security benefits are reduced because you earn more than the exempted amount. You can continue to work after starting benefits, but your Social Security benefits will be reduced if you earn more than the exempted amount, which varies depending upon your age. If you are under your full retirement age, one dollar in benefits will be withheld for every $2 in earnings over the limit, which is $14,640 ($1,220 per month) in 2012. In the year in which you reach full retirement age you can earn more—$38,880 ($3,240 per month) in 2012. If you earn more than that amount in the months prior to attaining full retirement age, your benefit will be reduced $1 for every 3 in earnings. Once you attain your full retirement age you can earn as much as you want without reduction. Tip: To avoid reductions, consider delaying the start of benefits until after you reach full retirement age. Your benefit will grow due to the delayed retirement credit. If you have already started benefits early, consider working part time and tapping retirement accounts to bridge your income needs. The Social Security Earnings Test reductions only apply to earnings from wages. Regardless of your age you may receive any amount of income from sources other than work, like IRAs, pensions or the sale of an asset, without affecting the amount of your benefits.
You are assessed a life-long Medicare premium penalty because you missed your initial enrollment period. Unlike the full retirement age, which is now 66 and rising, Medicare’s eligibility age is still 65. And unlike a tax penalty that you pay just once—Medicare late enrollment penalties are life long. If you have good genes, that could mean 25 or even 30 years. The amount that you pay adds up fast because it increases two ways. It grows bigger the longer you put off signing up. And, because it’s based on a percentage of the Medicare premium, the amount you pay climbs along with the premium. The penalty for Part B grows 10% for each year you delay signing up, and the penalty for Part D is 1% of the national base Part D premium, for every month you’re not covered. Tip: If you missed the Part B enrollment period, the Medicare late enrollment calculator can give you an estimate of the percentage of the premium that will be assessed. If you do not have access to the Internet, contact the Social Security Administration at 1-800-772-1213 for more information.
You pay higher premiums, deductibles and cost sharing every year because you don’t compare and switch to Medicare plans that are less costly. One of the most important attractions of working after age 65 is employer-provided health benefits. While that’s an essential benefit, don’t automatically assume that your employer or union-provided plan is always going to be your best choice, or save you the most money. Health and drug plans vary significantly and no one plan ever suits all. Employers are attempting to hold the line on rising healthcare costs by requiring employees to pay a bigger share of the cost of their coverage. Tip: If your employer- provided health plan doesn’t cover the prescription drugs you use or requires high co-pays for the services you use frequently, it’s especially important for you to check your other options. There may be other Medicare plans that would provide the same or even better coverage, and at a lower cost. If you leave your employer- provided plan, you won’t be able to get it back, but if the costs are significantly lower purchasing your own coverage, it may be worth considering. Take time each year to compare your plan with the other choices available to you. You can find and compare health plans and Part D plans available in your area at www.Medicare.gov or call 1-800-MEDICARE (1-800- 633-4227).