By Mark Miller

What you don’t know about Social Security and Medicare can hurt you.

Both of these critical retirement programs have complex rules governing when you file for benefits, interaction with employment and spousal and survivor benefits. Any one of these factors can make a difference of thousands of dollars in lifetime benefits or costs.

Here’s a quick rundown of key points to remember when navigating the sign-up process as you approach retirement age.

Social Security

About half of all Americans file for Social Security when they first become eligible for benefits, at age 62. Most would be better off waiting because monthly benefits increase for every year that you wait, up to age 70.

But there’s no one-size-fits-all solution. Some who have suffered a job loss or face other emergency spending needs may have a compelling need to replace income as soon as possible; others decide to file early if they have reason to think they won’t live long enough to beat the “break-even point” when total benefits received exceed the income forgone while waiting.

Social Security’s filing rules are built around the program’s full retirement age, or FRA (currently age 66). The idea is to ensure that Social Security pays out fairly among all beneficiaries, no matter what age you file. Monthly benefits for earlier filers are reduced accordingly to avoid paying them higher lifetime benefits.

However, a focus on lifetime benefits misses the point. Social Security is intended as a source of guaranteed income to meet living expenses no matter how long you live. Most people will do better making a choice that boosts their monthly payout — especially married couples. Studies show that higher monthly benefits are helpful — even for households that have done a good job saving for retirement — in the out years in cases where one or more beneficiaries far outlive mortality averages.

Under the rules, annual benefits are reduced for most of the years you start early, based on an actuarial projection of average longevity. For a 62-year-old, the net effect will be a 25 percent permanent reduction of annual benefits. On the other hand, your benefit will be bumped up by 8 percent for every year that you delay filing beyond the FRA up until age 70, after which credits for waiting no longer are awarded.

Married people sometimes put on the blinders when it comes to Social Security. That’s a mistake because the program rules include valuable benefits for spouses and surviving widows. The survivor rules permit widows to receive up to 100 percent of a deceased spouse’s benefit or her own benefit, whichever is greater; the spousal rules permit receiving the greater of her own benefit or up to half of a living spouse’s benefit.

The upshot of the survivor rule: Couples usually benefit when the spouse with the higher lifetime earning history (which translates into a larger Social Security benefit) delays filing. That’s most often the man — and men can expect their wives to outlive them. A delayed filing by the higher-earning husband usually sets the stage for the widow to receive a higher benefit down the road, after his death.

Couples can benefit by considering a range of options. Should one or the other spouse start benefits early, should both delay, or should both file early? Most often, couples will benefit if the higher-benefit spouse delays filing to earn delayed credits. Divorced people also can qualify for a spousal benefit based on the ex-spouse’s wage history if they meet certain criteria.


Medicare eligibility still begins at 65, and sign-up is automatic if you’re already receiving Social Security benefits. If not, it’s important to sign up sometime in the three months before you turn 65 up through the three months following. In fact, failing to do so can lead to expensive premium penalties.

Monthly Part B premiums jump 10 percent for each full 12-month period that a senior could have had coverage but didn’t sign up. That can really add up: a senior who fails to enroll for five years ultimately would face a 50 percent Part B penalty — 10 percent for each year.

Often, you can delay starting Medicare without penalty if you’re still employed when you turn 65. Medicare is the primary health-insurance payer if you work at a company with fewer than 20 employees; at larger companies, the employer’s coverage is primary. In the latter situation, a claimer can postpone filing for Parts A (hospitalization) or B (outpatient services), though many choose to enroll for Part A anyway because it doesn’t require premium payments. Seniors can enroll later on without penalty for up to eight months following retirement.

If you do opt to postpone enrollment, it’s wise to notify Medicare at age 65 of your decision in order to ensure that there won’t be problems with premium penalties at a later time. This can be done by checking off a box on the back of a Medicare card that has been sent, by calling the Social Security Administration, or by going to the SSA website.

Consider signing up for Part A no matter what, because there is no premium. If you continue to work, you can have access to your employer-provided health insurance, which will keep your cost lower, and you will avoid any risk of the 10 percent surcharge for a late sign-up. (Note, however, that if you are enrolled in a high-deductible health plan and have a health-savings account, you can no longer contribute to your HSA if you are enrolled in Part A or Part B.)