Social Security and Medicare are tied together in most people’s minds. That’s because, for decades, people became eligible for both programs at the same time: their 65th birthday. Of course, most people know that the Social Security retirement age went up a few years ago. Unfortunately, this has created quite a bit of confusion about Medicare eligibility – confusion that often leads to steep penalties.
In this post, we explain the connection between Social Security and Medicare, as well as how to protect yourself against late fees.
What Age Is Full Retirement According to Social Security?
Thanks to the 1983 Social Security Amendments, full retirement age has increased slowly but steadily since 2003. As of 2019, you can receive full retirement benefits once you turn 66 years, 6 months old. Retirement age is scheduled to max out at 67 for everyone born after 1960.
Increases to retirement age are due to increases in life expectancy. When Social Security began in 1935, the average life expectancy was 61.7 years. Today, it’s 78.6 years according to the CDC.
Find the full retirement age chart here.
Do You Have to Retire at Age 66 (or 67)?
Of course, you can retire anytime you want. But, if you want to collect Social Security (SS) benefits, you cannot retire before age 62. This assumes you have the 40 credits needed to collect Social Security. (That’s another connection between Social Security and Medicare. You also need 40 credits to qualify for premium-free Part A.)
Retiring early means you reduce your SS benefit. The rate of reduction varies according to how early you choose to retire. For example, if you retire at age 62, you get around 70 percent of your benefit. Working an extra year, until age 63, gets you around 75 percent.
You can also wait to collect SS benefits until after you reach full retirement age. The maximum age to collect SS is 70.
Delaying retirement gets you a higher monthly payment. If you wait until you turn 70, you get 124 percent of your benefit.
The Social Security Administration (SSA) offers a calculator to help you understand your monthly benefit for both early and late retirement.
Please Note: Delaying the age at which you begin receiving your SS benefits does not delay the age at which you become eligible for Medicare. You should still enroll when you turn 65.
How Do You Earn 40 Credits?
You earn one Social Security credit for earning X amount of dollars in a particular year. The amount changes every year to account for inflation and higher earnings. In 2019, you get one credit for every $1,360 earned. However, you max out at four credits per year.
There are other ways to earn the 40 credits needed. This SSA pamphlet has all the details.
By the way, you earn your 40 credits for Medicare Part A on a quarterly basis, with no regard to income level. In short, you get one credit for every three months worked. Once you work a total of 10 years, you have the 40 credits needed for premium-free Part A. You also qualify if your spouse earned those 40 credits.
What If You Collect Social Security at Age 65?
Medicare enrollment is connected to when you collect Social Security in certain situations.
If you collect SS benefits for at least four months BEFORE turning 65, you’re automatically enrolled in both Medicare Parts A and B (Original Medicare). That’s because the government assumes you retired. Expect to receive your Medicare card about two months before your 65th birthday.
But what if you don’t want to receive Medicare at age 65? Well, you can opt out of Part B assuming you have employer-sponsored coverage. In addition, the company must employ more than 20 people. This is due to the primary vs. secondary coverage question. (For full details, please see our post on who pays first when you have Medicare.)
While you may cancel Part B, you must keep your Part A coverage. That’s because you can’t receive SS benefits without having Part A once you turn 65. You can, however, apply for Part A without signing up for Social Security at age 65.
HSA Accounts, Social Security, and Medicare
If you have a health savings account (HSA) and collect Social Security before turning 65, you face tax penalties. That’s because you cannot contribute to an HSA while enrolled in any part of Medicare. And, since Medicare Part A and Social Security are linked, that means that you cannot enroll in SS either. To protect yourself from paying the tax penalty, do not begin collecting Social Security before turning 65.
Another option is to cease HSA contributions at least six months before turning 65. To understand the tax implications and determine your best course of action, we highly recommend talking to an accountant or financial advisor.
Understanding Your Medicare Options
Medicare can be incredibly confusing. The licensed agents at Medicare Solutions help you understand your options to choose the best plan for your unique needs and budget. Just call us toll-free at 855-350-8101 to get started. Or, use our online tool to see plan options in your area.
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