Timing is crucial for Social Security and Medicare

Sometimes the most important advice I can give readers is, “Don’t do it!”

For example, one reader wrote to me recently asking if she should collect benefits on her ex-husband’s earnings record now, at age 65, and later switch to her own larger benefit.

My response was swift and emphatic. “Stop! Don’t claim Social Security now at age 65 or you will be forced to claim your own benefit,” I wrote.

Any time someone files for benefits before their full retirement age and they are entitled to both their own Social Security retirement benefit and a benefit as a spouse or ex-spouse, they are “deemed” to file for all available benefits. Social Security will pay the higher of the two amounts, starting with their own benefit and layering any excess spousal amount on top of it if it’s larger than their own. In addition, benefits claimed before full retirement are permanently reduced for early claiming.

Plus, individuals who claim any type of Social Security benefit — whether retirement, spousal or survivor — before full retirement age are subject to earnings restrictions if they continue to work.

“Wait until you reach your full retirement to file a restricted claim for spousal benefits and collect half of your ex’s full retirement age benefit amount,” I advised her. “In the meantime, your own benefit will continue to grow by 8% per year between ages 66 and 70,” I explained. “At that point, you can switch to your own maximum benefit.”

This reader is among the dwindling group of Americans who are eligible to claim only spousal benefits on their current mate or their ex-spouse at age 66 and defer claiming their own retirement benefit until it is worth the maximum amount at age 70. To file a restricted claim for spousal benefits, they must be born on or before Jan. 1, 1954. People born after that date will never have this option. Whenever they claim Social Security, they will be paid the highest amount to which they are entitled at that age.

Separately, I met a married couple during a recent trip who told me that the husband planned to enroll in Medicare Part B at age 70 when he retires in July. The couple assured me that the husband, Bill, would not be subject to a delayed enrollment penalty of 10% per year for every year he was eligible to enroll in Medicare but didn’t because he was covered by his wife Sylvia’s group health insurance.

But when I asked for details, I discovered a problem. Sylvia had retired from the federal government 10 years earlier and her Federal Employee Health Benefits plan does not qualify as creditable group health insurance to avoid a Medicare late-enrollment penalty. Only group health coverage from an existing employer qualifies.

In theory, Bill could be facing a 50% penalty for delayed enrollment every month for the rest of his life if he signed up for Medicare five years after he was eligible and had not had creditable insurance in the interim.

Once again, I said, “Don’t do it,” meaning don’t retire until he determined how he would be affected by the Medicare delayed enrollment penalty.

I have to hand it to Bill. He came up with a perfect remedy on his own. He disenrolled in his wife’s retiree health care plan and re-enrolled in his company group health insurance effective the next day. Once Bill enrolls in Medicare this summer at age 70, his delayed enrollment penalty will be limited to the two years when he was covered by his wife’s retiree health care plan from January 2016 through January 2018.

That means he will pay a delayed enrollment penalty of just 20% a month. Based on the annual standard Medicare Part B premium of $134 per month in 2018, that means Bill will pay any extra $26.80 per month this year as well as 20% of the standard Medicare B premium every year in the future.

More importantly, re-enrolling in his company’s group health insurance plan will create a special enrollment period that will allow him to sign up for Medicare as soon as he retires. If he had stuck with his wife’s retiree health coverage, Bill would have to wait until the next general enrollment period that runs from January through March 2019 for Medicare coverage that would begin in July 2019.

Once Bill retires and enrolls in Medicare Part B this summer, he can re-enroll in Sylvia’s federal health insurance plan under the “life changing event” exception and it will serve as a Medigap policy for both of them.

It’s a valuable lesson for all of us: Verify crucial deadlines and details before applying for Social Security or enrolling in Medicare. What you don’t know can hurt you.