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Social Security Claiming Decisions – Part 1


Recently, a Van Wie Financial Hour listener asked us to discuss when and how to claim Social Security benefits. While claiming benefits is a topic that surfaces frequently, we liked the timing so much that we have started a short series, both on the show and in the Blog, on the topic of America’s complex Medicare and Social Security Systems.

Americans are turning 62 and beyond at a financially alarming rate, estimated to be in the range of 10,000 or more people daily. Having our population attain venerable ages in large numbers is an admirable accomplishment, both individually and as a society.

Consider this – a couple who will receive an average Social Security benefit of $4,000 monthly for a retirement that lasts 20 years will collect $960,000. Making a claiming mistake that results in a lifetime benefit reduction of 5%, 10%, or even 32%, and then factoring in inflation, the consequences can be staggering. For the most part, errors in filing for benefits cannot be undone. Planning is of the essence.

With aging comes personal financial responsibility for planning our own futures, and it is not always easy. Decades ago, when life was simpler, a graduate (high school or college) usually married, took a lifetime job, raised a family, worked to age 65, and retired with a gold watch and a pension. Add in a little Social Security and Medicare, and life was good for as long as either spouse lived. Those people were our parents and grandparents; only the fortunate few have similar situations today.

For the rest of us, we are, in large part, on our own to make plans and decisions regarding our financial futures. Sadly, most of us are under informed as to the possibilities that exist in our Social Systems. Making good decisions requires receiving good information, and this series is intended to illustrate options and to provide guidance for navigating the complexity of our own personal “financial forevers.”

 This week, we’ll start with the easier decision, filing for Medicare. Most Americans know that the eligibility age for Medicare is 65. Most people do sign up at that age, and Medicare encourages participation by imposing higher lifetime premium costs if a person is not enrolled by age 66. An exception exists for some people who are covered by a primary health insurance plan while working past 65. For them, Medicare simply puts their enrollment period on hold until retirement. Once they enroll in Medicare coverage, they get standard pricing.

Medicare decisions are child’s play compared to Social Security claiming. This issue is so intense, important, and financially complex, that we have broken it into several categories of situations we’ve encountered in our day jobs as personal financial planners. We can see no other way to explain the complexity of Social Security claiming, except to start easy and get progressively more complex. We’ll begin next week with the simplest Social Security claiming case – single filers.

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