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Social Security and Medicare Planning

"Social Security won't be there when I retire, so why bother learning about when to start benefits?" This commonly expressed attitude is a big mistake for anybody approaching retirement. Why? Well, for one thing, Social Security income accounted for an average of 64.8 percent of total income for all households with someone aged 65 or older, according to a recent report by the Social Security Administration. Deciding when to start Social Security benefits is probably one of the most important financial decisions aging boomers will make.

Social Security income is a valuable source of retirement income that protects against three significant retirement risks -- inflation, market volatility, and longevity. For many boomers, given the shift away from traditional pension plans, Social Security will provide them with the only income that's guaranteed for life.

But making the best decision about when to start Social Security can be complicated, particularly for married couples. So where can you get good advice? According to a recent survey conducted by Social Security Timing, a financial planning firm that helps people determine optimal Social Security claiming strategies, 77 percent of survey respondents expect to receive advice from Social Security representatives. But the reality is that these representatives are actually prohibited from giving any advice! Social Security representatives are trained to answer factual questions about the benefit rules to help you make an informed decision, but they can't tell you what to do given your specific circumstances.

According to the same survey from Social Security Timing, 84 percent of respondents expect advice about claiming your Social Security benefits to be free, while 92 percent would expect to pay less than $100 for such advice. This is particularly short-sighted, since making the best decision on when to start Social Security benefits has the potential to increase your lifetime payout.

Over half of all survey respondents want their financial planner to give them Social Security claiming advice, yet many financial planners don't understand Social Security's complex rules or the nuances regarding life expectancies. In fact, financial advisors often tell their clients that the best approach is to start Social Security benefits early and invest the income, which, according to my recent analyses, is a strategy that has significant risks.

Of course, not all people need to consult a financial planner to make the best decision about when to start their Social Security benefits -- some people will be able make decisions on their own by studying the informative Social Security Administration website.   I suspect, however, that most people will feel better getting professional help for this important decision. Finding an informed financial advisor may be your best approach, particularly if you need an advisor to help in other areas of retirement planning, such as how to use your retirement savings to generate reliable lifetime retirement income. If this is the case with you, consulting with an experienced financial advisor will be well worth your time and effort. 

So what is Medicare? Simply put, it's health insurance for seniors. Whether you're a snowbird or a ski bunny, a Medicare doctor should never be more than a few miles away.

At the core of this program is what's known as the Original Medicare Plan, a fee-for-service program that's made up of two components: Medicare Part A and Part B. Medicare Part A is hospital insurance, which covers everything from general hospital stays to rehabilitation in a nursing home for acute illnesses. Most people don't have to pay a premium for Part A since they paid Medicare taxes during their working days.

Medicare Part B is basic medical insurance that covers services ranging from doctors' visits and outpatient hospital care to some physical and occupational therapy and even some home health care.

This may be true, but it can still leave a lot of holes in one's coverage. Seniors who opt for Medicare's Original plan (also known as traditional Medicare) often find themselves paying well beyond their monthly premiums. According to the Kaiser Family Foundation, a nonprofit focused on health-care policy, Medicare pays only 56% of beneficiaries' total health-care expenditures. As a result, 87% seniors opt for some sort of supplemental insurance.

The biggest category of non-covered items: prescription drugs, which can cost thousands of dollars a year for people on pricey maintenance medications. Seniors can sign up for a Medicare prescription drug plan to help cover some of those large out-of-pocket expenses. Alternatively, seniors can also purchase a supplemental Medicare plan, called a Medicare Advantage Plan, from a private insurer. The choices will vary by region and range from restrictive HMOs to more costly Preferred Provider Plans and Fee-For-Service Plans. To find a plan in your area check out the government's Medicare Personal Plan Finder tool.