What Happens When I Elect Social Security Benefits Early?

If you elect your retirement benefits early, they will be reduced by 5/9 of 1% for the first 36 months prior to full retirement age (FRA). For any month in excess of 36 months, benefits will be reduced by 20%, which is the reduction for the first 36 months + 5/12 of 1% for each month in excess. For example, if your full retirement age is 66 years, and you elect to begin taking benefits at age 62, then your benefits will be reduced by 20% for the first 36 months, and then 5% for the next 12-month period following that, for a 25% total reduction for electing to receive your Social Security retirement benefits early (prior to FRA). Once you elect and start receiving these reduced benefits, you will receive this reduced benefit amount for the entire time you collect Social Security benefits.

In other words, if you elect your Social Security benefits prior to Full Retirement Age (currently, FRA is age 66), then you have deemed your election, which is an irrevocable permanent election of benefits, and you will maintain this reduced amount for the rest of your life. There are 2 exceptions to deeming benefits. Exception 1: you can include “Survivor Benefits” when greater than your benefits, and this may increase your future benefits (claim your own solo benefits). Exception 2: if you are age 62 or older, and have a child in your care age 16 or younger, then deemed benefits would not apply in these cases.

Another follow-up scenario for you to consider is if you have elected Social Security benefits early, and then later find yourself in a better financial situation after reaching Full Retirement Age, you could suspend benefits at that point, and then receive 8% delayed credits annually currently being offered between ages 66 and 70. The 8% delayed credits earned per year for those 4 years yields a 32% increase in potential benefits to be received for your lifetime benefits, and the corresponding Cost of Living Increases on that as well. Another resource available to you is a “what is at stake?” calculator link, which can be found on my home page of www.stewardshipmatters.net on the right-hand side.

Bond Interest Rate Risk is Currently Red

Caution lights of yellow, orange and red are common. If there were a governmental agency with a warning to bond holders and purchasers of bond funds, then they would be sternly warned of the dangers of investing in bonds. ”Red” would be the caution color utilized to warn people in our current economy.

Why Red? Because we have not had bond interest rates this low in the last 60 years, and this is not good news for investors in the bond market. What will happen when interest rates increase in the next couple of years? 10-Year Treasury bonds with currently about 1.5% and if Treasury bond values increased to 3%, then the value of that bond would be reduced by 25% or more in value. Here is what The Economist states, which seems particularly relevant: “Investors who bought Treasury bonds at a 2% yield in 1945 earned a negative real annual return of 2.3% over the following 35 years.”

Your safe $10,000 bond would be worth only $7,000 over the next couple of years. OK, bonds did great in the last decade, but considering how the tide has changed and the fact that interest rates are no longer falling, where does that leave bond holders now?

In the 1970-1979 period, Treasury bonds performed at negative 1.2% annually. After the Great Depression, we can review Treasury bond rate performance during the years from 1940-1949, and see that they only provided a negative 2.5% return annually in terms of real return.

Is there a way to shift this risk to someone that can reduce the risk and effects, and bring value back to individuals? High Net Worth investors can go to hedge fund groups to hire their services to reduce the risk … for a fee, of course. Main Street could consider going to the insurance carriers that purchase large amounts of bonds, and then turn and hedge them, and also provide an often stable way to secure your money without the wild swings the bond markets can and have reflected in the past. There are private money managers that have a range of fund approaches that can help reduce some of the risk associated with holding a bond fund. How? Allocation changes to the mix of funds, duration of the bonds, or how long until the bonds mature affects these fluctuations. What would have served you well in the 1940′s or the 1970′s would have been to shift risk on conservative money to insurance carriers or banks, or buy commodities and other investments known to work well in higher inflation environments. What has worked for the past decade is unfortunately not going to work moving forward in our current economy.

Medicare Part D Resource for you by Mature Health Center

We have found this site and it’s agents to be helpful- we do not receive any compensation from recommending them to anyone.

What is Medicare Part D?
We’ve put this section together to help answer some of your questions, but feel free to contact us with your questions.Medicare Part D is the federal government’s prescription drug program that covers both brand-name and generic prescription drugs at participating pharmacies in your area. The coverage is available to all people eligible for Medicare, regardless of income and resources, health status, or current prescription expenses. Medicare prescription drug coverage provides protection for people who have very high drug costs.

How does Medicare prescription drug coverage work?
Medicare Part D works in tandem with Medicare Parts A and B. Individuals entitled to Part A or enrolled in Part B can sign up for Part D to receive help paying for prescription drugs. Like other insurance, if you join, you will pay a monthly premium, which varies by plan, and (for most plans) a yearly deductible. You will also pay a part of the cost of your prescriptions, including a co-payment or coinsurance. Costs will vary depending on which drug plan you choose. Some plans may offer more coverage and additional drugs for a higher monthly premium. Plans also vary in terms of the co-pays, prescription drugs that are covered (this is called the “plan formulary”) and the pharmacies that may be used.

If you have limited income and resources, and you qualify for extra help, you may not have to pay a premium or deductible. Individuals enrolled in both Medicare and Medicaid (“Dual Eligibles”) who have not already selected a Part D plan will be automatically enrolled in Medicare Part D by their state agency.

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If I am on Medicare do I have to enroll in Part D?
Medicare Part D is an optional plan. No one is required to enroll but if you are eligible and delay enrolling, you risk paying a penalty in terms of increased insurance premiums when and if you enroll at a later date.

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How do I get more information and enroll?
Enrolling in Medicare Part D is easy. Call us or click here for a free Medicare Part D quote. We can answer your questions and handle your enrollment over the phone or email/mail an application to you if you wish. Coverage becomes effective on the first day of the month after your enrollment.

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What is the Initial Enrollment Period (IEP)?
The Initial Enrollment period for Medicare Part D (IEP) is a one-time event when an individual first has the opportunity to enroll in Medicare. It occurs for most people when turning age 65. For people turning 65 the Part D IEP lasts seven (7) months (it begins three (3) months prior to your birth month, includes your birth month, and extends three (3) months after your birth month). In addition, people enrolling in Medicare Part B after their entitlement to Part A ends, may enroll in Part D using a Special Election Period (SEP). If no SEP is applicable they may enroll in Part D during the next Annual Election Period (AEP), however a penalty may be enforced which would increase their premiums for Part D.

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What is the Annual Election Period (AEP)?
The Annual Election Period begins October 15, and ends December 7. Anyone who already enrolled in a Medicare Part D plan may change plans during this period each year without penalty. Eligible individuals (people on Medicare) who chose not to enroll during their initial Open-Enrollment Period may enroll in Medicare Part D between October 15 and December 7 each year, but penalties will apply unless the individual had “creditable” prescription drug coverage*. Enrollments during this period have an effective date of January 01.

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What is a Special Election Period (SEP)?
A Special Election Period means that you are allowed to enroll in Medicare Part D without penalty after the Initial Election Period and/or Annual Election Period because you meet certain conditions set forth by the government. Below are the specific situations which might qualify you for a SEP.

You may qualify for a Special Election Period if:

You are a Hurricane evacuee and reside in certain zip codes as identified by the Federal Emergency Management Agency at the time of the hurricane.
You move permanently outside your plan’s service area.
You’re enrolled in another prescription drug plan or a Medicare Advantage plan whose contract is terminated.
You are not adequately informed about creditable prescription drug coverage.
You lose your previous creditable coverage through no action of your own*.
Your enrollment or non-enrollment is caused by an error by a federal employee or contractor hired by the federal government.
You were eligible for both Medicare and Medicaid (a “dual eligible”) but you lost your dual eligibility status.
You want to move from an employer-sponsored prescription drug plan to a Medicare Prescription Drug Plan.
You want to leave your current Medicare Prescription Drug Plan because it was reprimanded by the federal government or the federal government has determined the plan violated a material provision of its Medicare contract in relation to services provided to you.
You’re enrolled in a Cost Plan that isn’t renewing its contract with Medicare. This SEP begins 90 calendar days prior to the end of the contract year (i.e., October 1) and ends on December 31 of the same year.
You want to move from a Program of All-Inclusive Care for the Elderly—PACE—to a Medicare Prescription Drug Plan.
You live in—or are moving in or out of—a skilled nursing facility, nursing facility, intermediate care facility for the mentally retarded, psychiatric hospital or unit, rehabilitation hospital or unit, long-term care hospital or swing-bed hospital.
Your Medicare entitlement determination is made retroactively.
You are not eligible for premium free Part A and enroll in Medicare Part B during the January-March Part B General Enrollment Period.
You have a low-income subsidy.
The federal government may authorize other special election periods.

*To avoid a penalty, individuals must apply for Medicare Part D within 63 days of losing “creditable” prescription drug coverage, which is coverage that is at least as good or better than the standard benchmark level of Medicare Part D Prescription Drug coverage as determined by the individual’s coverage provider.

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Can I change my Part D plan after I enroll?
Once enrolled in a Medicare Part D Prescription Drug Plan individuals can only change their plan from October 15 to December 7 of each year, with an effective date of January 1 of the following year.

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Important Medicare Part D Dates to Remember

October 15
Annual Election Period begins. First day you may elect to enroll in a Medicare Part D Plan, effective next calendar year.

December 7
Last day you can enroll or change Medicare Part D Prescription Drug plans for the next calendar year, unless you qualify for an exception.

January 1
First day you can use your Part D Prescription Drug Plan (PDP) card for that plan year.

Some categories of beneficiaries are not bound by the lock-in rules and may enroll or disenroll from a PDP plan in other than the AEP. An individual may at any time, during a designated Special Election Period (SEP), discontinue the election of a PDP plan offered by an PDP organization and change his or her election to original Medicare or to a different PDP plan. Examples of situations which may entitle an individual to an SEP include the termination or discontinuation of a plan, a change in residency out of the service area, the organization violating a provision of a contract or misrepresenting the planâ€™s provisions, or the individual meeting other exceptional conditions as CMS may provide. CMS has also designated an SEP for individuals entitled to Medicare A and B and who receive any type of assistance from Title XIX (Medicaid), including full-benefit dual eligible individuals, as well as those eligible only for the Medicare Savings Programs. This SEP lasts from the time the individual becomes dually eligible until such time as they no longer receive Medicaid benefits. Individuals who are eligible for an SEP under the guidance for Part D enrollment and disenrollment may use that SEP to also make an election into or out of an MA-PD plan.
from Medicare.gov, Prescription Drug Coverage (2012), Prescription Drug Coverage: Basic Information (2012)
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Here is their link below.

https://www.maturehealthcenter.com/medicare_solutions.cfm

FNTRH048 Rev 10/09

We are not connected with or endorsed by the United States Government or the federal Medicare program.
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Case Study: 62 year old female divorced approaching retirement

Jane was timid when she first came in the office and rightfully so. Her income had been cut at her employer by 30% (talk of shutting down and complete loss) and she recently had been divorced without alimony. Her main asset was her 401(k) plan and it was about $250,000 invested half in the stocks and other half conservative stable account. Another adviser told her if something happens on the job front you simply turn on Social Security and claim your $1,658 a month, next find a part time job and rollover your 401K to IRA and grow it to age 70 1/2 when the government requires you to take distributions.

Can you see a few flaws with this advice? First, is suggesting Jane take Social Security now at reduced rate provides about 34% less than at age 66. Second Jane comes from a family of long livers in fact mom is alive and doing well in her mid 90′s. Jane is in excellent health and expects to follow her her footsteps or more. When you look over the Social Security Website you will see a reduction numbers of 75% for taking early. The fact is that $1658 represents 34% less than the cash flow of $2,211 afforded her at age 66. Next issue is Jane might get a good job before age 66 and then Social Security will take .50 for every dollar earned over $14,640 according to SSA.gov site. The conservative bucket or stable income account is only yield 1% in the current market. Let’s do the math on the stable account $125,000 at 1% is providing only $1,250 a year. Would there be better opportunities to increase that cash flow with stable account shopping? yes in deed but the advisor with the 401K is discouraging an in service rollover as it takes money from the firms assets. The advice of wait until age 70 1/2 to take IRA dollars seems to be the industry norm at least in the many training circles I have seen over the past quarter of a century.

I forgot to mention Jane could consider claiming a spousal on the ex-husbands Social Security provided he has claimed at Full Retirement Age (currently age 66). While the spousal might be a little less than her benefit alone it could potential afford her a special delayed credits and she could possible afford to wait until age 70 to claim her own benefits at highest level age 70. Get this the $1658 at age 66 is $2,211 and age 70 would provide $3,029 a month for life and the inflation protection on a higher number as well. Jane get’s 82% more and collects spousal along the way would be more appropriate advice would you agree? So taking some of her IRA before age 70 could help secure more lifetime income. Do you think her IRA grew by more than 82% guaranteed over the past eight years? Consider sharing this article with your friends and family getting ready to retire. Remember the online resource in the calculator at the home page of www.stewardshipmatters.net as well.

Medicare Eligible? Resources at Mature Health Center Online

Who is Eligible for Medicare?

Generally, you are eligible for Medicare if you or your spouse worked for at least 10 years in Medicare-covered employment and you are 65 years old and a citizen or permanent resident of the United States. You might also qualify for coverage if you are a younger person with a disability or with End-Stage Renal disease (permanent kidney failure requiring dialysis or transplant).

Here are some simple guidelines. You can get Part A at age 65 without having to pay premiums if:

You are already receiving retirement benefits from Social Security or the Railroad Retirement Board.
You are eligible to receive Social Security or Railroad benefits but have not yet filed for them.
You or your spouse had Medicare-covered government employment.

If you are under 65, you can get Part A without having to pay premiums if:

You have received Social Security or Railroad Retirement Board disability benefit for 24 months.
You are a kidney dialysis or kidney transplant patient.

While you do not have to pay a premium for Part A if you meet one of those conditions, you must pay for Part B if you want it. In 2011 the monthly premium for Part B is $96.40 for most with incomes under $85,000 (single) and $170,000 (married). However, the monthly Part B premium for 2011 will be $115.40 for people enrolling in Medicare for the first time in 2011. It is deducted from your Social Security, Railroad Retirement, or Civil Service Retirement check. If you do not get any of the above payments, Medicare sends you a bill for your Part B premium every 3 months.

If you have questions about your eligibility for Medicare Part A or Part B, or if you want to apply for Medicare, call the Social Security Administration. The toll-free telephone number is: 1-800-772-1213. The TTY-TDD number for the hearing and speech impaired is 1-800-325-0778. You can also get information about buying Part A as well as part B if you do not qualify for premium-free part A

If you wish to get more then visit https://www.maturehealthcenter.com/medicare_solutions.cfm

You can get great service and quotes from Mature Health Center at the above link. We are not compensated for this recommendation and want you to find professionals to trust as you purchase the appropriate additional benefits.

Dependents Can Get Income From Parent or Grandparents SS Retirement

Your 66 and just claimed your Social Security Retirement Benefits. Maybe you feel pretty good about getting that first check. What if I told you that Grandparents if they financially support and are the guardians of grandchild or other dependents there may be another paycheck equal to 50% of your Social Security check. Dependents are covered under death and disability as most are aware. But did you know that you could also claim for dependents under age 18 in school for retirement benefits?

A friend of mine has good friend that is claiming Social Security Retirement Benefits and collecting $20,000 a year and is married to a much younger wife and just recently adopted her 8 year son. Now the stepson is provided $10,000 a year and only by having a conversation with informed financial advisor did he learn of this significant benefit. Ask your financial advisor if they are up on the Social Security claiming strategies? If they reply yes, then test them with some of the 2 dozen informative articles we have on this blog regarding Social Security. Next, ask why they have not discussed it or mentioned it previously. Perhaps you could ask them to explain to you if ” file and suspend” would be beneficial to you and your family?

So in recap. If you have claimed Social Security and have dependents in school under age 18 then you could be claiming benefits for them as well. Below are some additional issues we have addressed and the links to the articles at Stewardship Matters. This is another example of “Found Money” we discuss with seniors and nonprofits that wish to enhance their community. If your favorite charity has shared this link with you and you find real money with this advice would it not be nice to share some of it with them?

Here are some of the other issue we address in this blog:

Social Security Retirement Retro Claim

Here are two examples where you may claim a lump sum from past and get paid as much as either 6 months of benefits and up to 4 years.

Case one assumes you are past Full Retirement Age (currently age 66 or older is FRA). You have been busy with life and did not claim benefits at FRA and now claim. If you are now say age 67 and claim you can “retro” claim up to 6 months and receive a lump sum equal to 6 months at current rate. Carl claims $1,500 a month today at age 67 and then file for retro back 6 months and receives additional $9,000 ($1,500 X 6). If Carl is married he might want to consider “suspending” his payments to increase his monthly benefit amount and also increases his spousal benefits. There are several considerations here and getting custom advice to your situation is always recommended.

Case two is someone who filed for benefits at age 66 and then suspended them. Mary is now 69 and half year of age and dying of cancer and now has an opportunity to retro claim her Social Security benefits all the way back to age 66 in a lump sum. Let’s say Mary’s monthly benefit is $2,400 at age 66. She was advised by an informed financial advisor that knew how the system worked and had her file and suspend her benefit back 4 1/2 years prior. This did not reduce or cost her anything. Now Mary can claim retro and receive a lump sum check for the past 42 month or 3 1/2 years! That is a lump sum check for Mary and her family in the amount of $100,800 lump sum. This would not be possible without proper planning and a discussion with her advisor in previous years. While doctors only give Mary a few months to live it was at least comforting to know she had this extra money to provide for her family and others she wished to bless. When this actually happen to a best friend of an advisor I know it changed my view of Social Security Planning and the need for proper and informed planning. I asked is there any downside to receiving the lump sum check? Yes, there are a couple of items: Taxes in a single calendar year. second if Mary was going to live a long time then realize she could have claimed a much higher monthly benefit at age 70 than at age 66. It would be 37% more than at age 66 and if you look at the monthly over 4 years with 8% per year increase it would seem to be 32%, but the increase is actually 37% more. There are lots of reasons to get wise advice on this complex system called “Social Security Retirement Income”.

Some additional resources for you are under the “blog tab” at www.stewardshipmatters.net and in the category ”financial strategies”.