MONEY Social Security

How Social Security Spousal Benefits Can Boost Your Tax Bill

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: If my wife takes the “spousal benefit” on my Social Security, which I have suspended until age 70, do we have pay taxes on that income? – Ron

A: Yep, you do. Social Security benefits are taxable if they exceed certain levels, and this applies to spousal and other benefits as well as your own retirement benefits. The rules can be a bit tricky. If you file a joint tax return, and your “combined” income is less than $32,000, you will owe no federal income tax on your Social Security benefits. If it’s between $32,000 and $44,000 a year, you will owe taxes on 50% of your benefits. Above $44,000, you would owe taxes on 85% of your benefits. Under current rules, you will never owe federal taxes on more than 85% of your benefits. These income brackets are not adjusted for inflation each year, so over time more and more people will owe taxes on their Social Security benefits. To determine your combined income as defined by Social Security, take your adjusted gross income (AGI) from your tax return, add any nontaxable interest you receive (from, say, a municipal bond), and then add half of your household’s combined Social Security benefits.

Q: After reading your article in Money, I thought the Start-Stop-Start strategy might work for me. I have called Social Security and they have never heard of this. Can you tell me the part of their regs which allows this method of claiming benefits? Thanks. —Phil

A: Start-Stop-Start is not an official name but a short-hand reference to a way of using Social Security’s rules for Suspending Retirement Benefits. If you have begun receiving benefits (the first Start), these rules permit you to suspend them (the Stop part) when you’ve reached your Full Retirement Age. Then, they will increase due to Delayed Retirement Credits until you resume them (the second Start part). Your suspended benefits will reach their maximum amount at age 70.

Q: My wife and I are both high earners. I am 68 now and am not taking Social Security benefits. My wife will be 66 in June 2017. Can I file for benefits and suspend and if I do, can she then receive half of my benefits now, even though she is not yet 66? What effect will this have on her own benefits, which she would like to defer until age 70? — Rao

A: If your wife files for a spousal benefit before she reaches 66 (which is defined as Full Retirement Age) she will not be able to file just for her spousal benefit. Under Social Security’s “deeming” rules, she will not be able to suspend her own benefits but will be required to file for them and her spousal benefit at the same time. She will not get both benefits but an amount that is roughly equal to the greater of the two. Also, because she is filing before her FRA, her benefits will be hit with Early Claiming Reductions, meaning that she will get an amount that is roughly equal to the greater of two reduced benefits! Unless you are in dire financial straits or facing a health or other family emergency, she should wait to file for a spousal benefit until she is 66. At that time, and assuming you have filed for and suspended your own benefit, she can file what’s called a restricted application for just her own spousal benefit. She will receive the full value of this benefit, which will equal half of your benefit as of your FRA. And she will be able to let her own retirement benefits increase by 8 percent a year until up to age 70.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: How to Time Medicare and Social Security Claims for 2016

MONEY Medicare

How to Time Medicare and Social Security Claims for 2016

Q: I read your informative article on the increased Medicare Part B premium hike that may occur next year, but for only certain groups of Medicare enrollees, mainly those not paying the cost out of Social Security. Of course it seems inherently unfair to charge an individual like myself who has decided to delay Social Security for a higher benefit at age 70 and pay my Medicare out of pocket till then.

My question is can I avoid this increase by taking my Social Security this year and have my Medicare deducted from my benefit, and then next year suspend or withdraw my retirement and start again paying Medicare out of my pocket? When I suspend or withdraw my retirement will I continue to pay the same Medicare benefit as I paid while receiving Social Security, or will my Medicare premium increase because I again would be paying out of pocket?

My birthday is in November and I’ll turn 67 so I would just take the Social Security benefit till early 2016. Your help in answering this question will assist me in deciding to apply for benefits before November. Thanks. –Mike

A: Mike asked the most intriguing question I received on that article, but lots of readers chimed in following the recent disclosure that Medicare Part B premiums are projected to rise for some people by more than 50% next year. The projections were contained in the Medicare trustees’ recent annual report.

And, as it turns out, Mike’s questions involve detailed Social Security rules that can have broader implications for many filers.

The “Hold-Harmless” Rule

First, though, let’s recap the news about next year’s Part B premiums, which cover doctors, outpatient expenses and other services. The rules say that these premiums must be deducted from Social Security payments if someone is receiving Social Security and Medicare. Since those costs are expected to rise more next year than they have in recent years, Medicare must boost premiums that it will begin collecting next January.

However, overall inflation this year is expected to be low. Current levels of inflation determine whether Social Security beneficiaries will receive a cost of living adjustment (COLA) in 2016. The way it looks now, the trustees said, there likely will be no COLA at all.

When this happens, Social Security’s “hold harmless” provision kicks in. This rule says that no existing Social Security beneficiary paying the basic Part B premium ($104.90 this year) can be forced to receive a smaller Social Security benefit in one year than they did the previous year. These folks, roughly 70% of beneficiaries, would therefore continue paying $104.90 a month next year in Part B premiums.

Yet Medicare must raise about 25% of total Part B expenses from its recipients. So the program will have no choice but to collect all of this required revenue from the remaining beneficiaries, who will not be held harmless.

This group includes new Social Security beneficiaries, existing beneficiaries who have modified adjusted gross incomes above $85,000 ($170,000 if filing joint tax returns), and those who pay their Part B premiums directly to Medicare instead of having them withheld from their monthly Social Security payments. This last group represents people on Medicare such as Mike who have not yet begun receiving Social Security.

Medicare officials have said they will work to reduce the projected 52% hikes in Part B premiums faced by these three groups. But if the Social Security COLA does come in at zero when it is announced in October, the hold-harmless provision will trigger a big increase in Part B premiums for this sizable minority of Medicare recipients.

Suspend and Avoid

To return to Mike’s question, there’s some good news. Dorothy Clark, a spokeswoman for Social Security, says it looks like he can, indeed, avoid getting dinged with a big Part B increase by suspending benefits. She said there are four conditions that must be satisfied (the bold words are hers):

The individual is entitled to (i.e., actually receiving) Social Security benefits for the months of November and December,

Medicare Part B premiums for December and January are deducted from those benefits,

The individual receives a cash benefit for November, and

Solely because the increase in the Part B premium is so high compared to the Social Security benefit payable, the Social Security benefit payable would be lower in January than in December.

Mike’s November Social Security payment is lagged a month, meaning he won’t receive it until December. When he does, his Medicare Part B premium for December will be deducted from that initial Social Security payment. By beginning Part B deductions before the end of 2015, Mike will qualify to be held harmless in 2016.

So far, so good. But can Mike then suspend or withdraw his Social Security payment in 2016, and resume paying his Part B premiums to Medicare at the same hold-harmless rate he was paying in 2015?

Short-Term Gain

We have a split decision here. Ms. Clark said he absolutely can suspend his benefits in 2016 and continue to be held harmless. However, he cannot withdraw his benefits and receive this treatment. The reason is that suspending benefits maintains a person’s eligibility to receive them, while withdrawing from Social Security ends it. Without that eligibility, there is no basis for the person to be held harmless.

(Not to get too detailed, but if Mike withdrew his benefits, he would need to repay any payments from Social Security, and he would effectively get a do-over, meaning he would be regarded as never having filed for Social Security benefits at all. And when Ms. Clark uses the word “eligibility” she means Mike has currently filed to receive benefits. If he were not receiving benefits but was qualified to file for them, he would be considered “entitled” for benefits.)

To summarize, Mike can file for Social Security in time to receive his November payment in December, qualifying him to be held harmless against any Part B premium increase in 2016. He then can suspend his Social Security early in 2016 and continue to be held harmless in 2016. While his Social Security benefits are suspended, they will qualify for delayed retirement credits, permitting them to rise in value at the rate of 8% a year.

Mike will need to go to a lot of trouble to be held harmless, however, and the savings may be short-term. Even if Part B premiums do rise for the unlucky minority, they are likely to be rolled back once Social Security starts paying COLAs again. Back in 2010 and 2011, there were no COLAs either, and the hold-harmless provision raised the lowest Part B premium from $96.40 a month in 2009 to $110.50 in 2010 and $115.40 in 2011. With the reinstatement of a COLA in 2012, Medicare could spread the financial pain to everyone, and the premium dropped to $99.90 a month.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Why Social Security Is More Crucial Than Ever for Your Retirement

MONEY Medicare

Why Medicare Premiums May Jump 50%

Some 30% of Medicare beneficiaries, including new enrollees, may be hit with higher Part B premiums.

This story corrects an earlier column, “3 Ways to Dodge Big Medicare Premiums Next Year,” which included inaccurate information.

Earlier this week, I wrote a piece for Money about 50% increases in Part B premiums that Medicare trustees projected would be levied next year on about 30% of Medicare users. My heart was in the right place but not my facts.

The story had some inexcusable gaffes. Thanks to Money readers who pointed them out. Apologies to all Money readers for receiving bad information, which led me to deliver some equally bad advice.

The gist of the piece is that the law requires Medicare to recover 25% of Part B expenses for covered doctor, outpatient and medical equipment expenses through Part B premiums. These expenses are rising, causing the trustees to project a fairly large hike in Part B premiums. Normally, all Medicare beneficiaries with Part B coverage would pay higher premiums.

This is not expected to be the case in 2016, however. That’s because most Part B premiums are paid out of people’s monthly payments from Social Security, and it has what’s called a “hold harmless” provision. According to this rule, Medicare beneficiaries who pay the lowest Part B premium this way—about 70% of all beneficiaries—can’t be required to pay premium increases next year that are larger than the amount of the annual cost-of-living adjustment (COLA) in their Social Security benefit that they receive.

This year there’s been little inflation. So, as the trustees said in their annual report on Medicare, there likely won’t be a Social Security COLA in 2016. Holding all those basic-premium payers harmless means they will continue to pay $104.90 a month for Part B in 2016—the same amount they are paying this year.

Still, Medicare has to recoup that 25% of Part B expenses somehow. It has no choice but to look to the other 30% of beneficiaries to pick up the entire tab for higher Part B premiums. This group includes seniors with higher incomes, those new to Medicare next year, and those who aren’t paying Part B through Social Security, mostly because they haven’t begun taking Social Security yet.

Read next: How Medicare’s New Rules May Improve Eldercare Benefits

These beneficiaries thus could be saddled with premium hikes the trustees projected at 52%. Medicare officials say they will look for ways to soften the blow but the hikes are still expected to be substantial. This is how the trustees’ report breaks them down:

  • For incomes below $85,000 ($170,000 if filing jointly)—Part B premiums would rise from $104.90 to $159.30. (This is what newcomers to Medicare and those who pay premiums directly will pay next year if they are in the lowest income bracket.)
  • For incomes between $85,000 and $107,000 ($170,000 to $214,000 if filing jointly)—from $146.90 a month this year to $223.00.
  • For incomes between $107,000 and $160,000 ($214,000 to $320,000 if filing jointly)—from $209.80 a month this year to $318.60.
  • For incomes between $160,000 and $214,000 ($320,000 to $428,000 if filing jointly)—from $272.20 a month this year to $414.20.
  • For incomes above $214.000 ($428,000 if filing jointly)—from $335.70 a month this year to $509.80.

The measure of income used to calculate these brackets is called Modified Adjusted Gross Income, or MAGI for short.

Up to this point, my reporting was accurate, but then I made two big mistakes:

I said higher-income taxpayers could try to soften the blow next year by taking steps to reduce their reported MAGI this year. This can’t happen because Social Security uses a two-year look-back period in determining the MAGI used to calculate Part B premiums—a key point that I forgot. So, premiums due next year in 2016 will be based on 2014 tax returns. Because of this, there is nothing anyone can do this year to change the income figure that will be used to determine their 2016 Part B premiums.

I also said people who pay their Medicare Part B premiums directly might be able to join the hold harmless club if they could figure out a way for their premiums to be deducted from their Social Security payments.

This is not true. There is no personal preference at work here. As a passage from the Social Security handbook explains, “Medicare Part B premiums must be deducted from Social Security benefits if the monthly benefit covers the deduction.” So, people do not have a choice. Once again, my advice was wrong. Strike two.

I avoided totally whiffing because my third piece of advice was correct: For those turning 65 and planning to sign up for Medicare next year, consider delaying enrollment. The initial enrollment period begins three months before you turn 65 and includes your birthday month, plus the three months following your birthday. Perhaps you can stay within this window while still pushing your enrollment date into 2017.

Or if you have the choice, you may be better off working another year. Even if they have reached 65, most people need not enroll in Medicare if they are still working and have group health insurance from their employer (the major exception is people who work for an employer with fewer than 20 employees).

It also remains true that avoiding a big Part B premium hike next year can pay off because these unusually high premiums will recede in future years, once Social Security starts paying COLAs again. As I wrote, there were no COLAs in 2010 and 2011, either, and the hold harmless provision raised the lowest Part B premium from $96.40 a month in 2009 to $110.50 in 2010 and $115.40 in 2011. With the reinstatement of a COLA in 2012, Medicare could spread the financial pain to everyone, and the premium dropped to $99.90 a month.

Again, apologies to Money readers for these mistakes. You deserve better.

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3 Ways to Dodge Big Medicare Premium Hikes Next Year

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Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Medicare

How Medicare’s New Rules May Improve Eldercare Benefits

caregiver helping woman with cane
Dave and Les Jacobs—Getty Images

As the number of elderly Americans soars, Medicare is testing improved benefits for seriously ill seniors.

Medicare recently announced new rules that may ease the challenges of senior health care. The changes put a new focus on improving treatment of the seriously ill, as well as better planning for end-of-life care.

These reforms are much needed and long overdue. As millions of baby boomers move into retirement, record numbers of Americans are growing older. And these seniors, along with their family members, will need all the help they can get to help them navigate their final days. Here’s how Medicare is attempting to cope with these demands.

The Caregiving Challenge

Right now, the nation’s current caregiving system relies heavily on the efforts of family members—and it falls far short of meeting demand. As a recent AARP study amply documents, family caregivers are already experiencing a rising financial, emotional, and career toll. It’s unlikely that the system will be able to meet even greater demand from a growing number of aging Americans.

Seniors who need assistance with daily living can’t get much help from Medicare, which does not cover long-term care. The program restricts its coverage to short-term stays in skilled nursing facilities for seniors who have diagnosed medical needs—usually following hospital stays. Private long-term care insurance is costly and insurers have been leaving the industry or raising premiums as they struggle with higher-than-anticipated claims expenses.

Medicaid is the long-term care insurer of last resort, but that program faces its own enormous financial challenges. And the quality of care provided by many nursing facilities is uneven, at best, and scandalous at worst. The widespread use of antipsychotic drugs in many nursing homes can amount to warehousing of the worst kind.

More Comprehensive Care

In its first move towards addressing these issues, Medicare announced in early July that it would pay physicians to have end-of-life conversations with patients and their families. This is a major reform, since the program typically reimburses doctors only for procedures, such as testing or treatments.

The details of this rule, which would take effect next year, are still to be finalized. But it’s clear that these conversations are the farthest thing possible from the mythical “death panels” that Sarah Palin and others were talking about before the 2012 elections.

Instead, these conversation can be life panels. Doctors can provide invaluable support and clarity about medical decisions that people need to think about, including the care they wish to receive near the end of their life, and how patients’ families can provide the help and support that are so important.

Easing Access to Hospice

Following easing of physician reimbursement rules, the Centers for Medicare & Medicaid Services (CMS) announced a second significant shift in end-of-life care. Beginning in 2016, Medicare will launch a large-scale test that will cover expanded hospice care. In addition to providing palliative care, which provides physical and emotional comfort to seriously ill patients, the Medicare pilot project will cover continued curative treatments to slow, if not halt, those underlying conditions.

Right now, ailing seniors and their families are faced with a wrenching choice: continue receiving curative therapies or end their efforts for a cure and enroll in a hospice program. Once in hospice, they normally have been required to end efforts to aggressively treat their illnesses and agree to receive only palliative care.

The hospice care model, including at-home care, has become increasingly popular as a more nurturing and less costly means of providing care than more traditional institutional settings. Some research also has found that hospice patients often survive longer than patients with similar diseases in active-care treatment settings.

The new test program will allow participating patients to continue treatments aimed at prolonging their lives. About 140 hospices around the country will participate in the test, half beginning next year and half in 2018. Their goal is to treat 150,000 Medicare beneficiaries during the five-year test period—that’s five times more patients than the test program originally planned.

Better Consumer Data

At the same time, Medicare is also working to provide improved performance information about the care that seniors receive. Last week, CMS announced it would begin providing “star” ratings that measure the quality of care of home health agencies, which have become increasingly important providers of care to Medicare beneficiaries.

Earlier this year, the agency beefed up its evaluations of nursing homes and now also provides star ratings of their performance.

Seniors, and especially adult family members who help them, need to learn more about their options about end-of-life care. Of equal importance, they need to have discussions before a crisis hits about how they wish to end their lives, including creating living wills, health care proxies and other advanced care directives. The Conversation Project is a good source of help for approaching these crucial family discussions.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Cutting the High Cost of End-of-Life Care

MONEY Social Security

Why Kids Can Be Social Security Game Changers

senior adult teaching child to ride bike
David Jakle—Getty Images

If you're still raising children, the usual strategies for social security may not apply.

Did you wait until later in life to have kids? Then you might want to ignore conventional wisdom and take Social Security on the early side.

You may already know that children can collect Social Security based on the earnings of a parent who is disabled or dead. But it’s also true that once you claim retirement benefits, your unmarried children are due money until their 18th birthday—even if both parents are alive and in good health. (If your children are still in high school, they can collect until they finish up or turn 19, whichever comes first; other rules apply to kids who are disabled.) The money is for your kids, but you are free to control minor children’s spending.

This extra payment for kids adds a wrinkle to claiming Social Security benefits. As a rule you get a better financial deal by delaying, since between the ages of 62 and 70 your benefits increase 7% to 8% for each year you wait. But if you claim early and collect your kids’ benefit along with your own, you can have more money in the earlier years of retirement and possibly reap more in total over your lifetime.

The Money Adds Up

Here’s how the benefits work: When you file for retirement, each of your kids can get money equaling half of what you would be entitled to receive at full retirement age, currently 66. Even if you took a smaller benefit by claiming early, your child would get half of that larger, full-retirement-age amount.

Say you’re a 62-year-old parent of a 14-year-old. You could wait four years to collect $2,000 a month at full retirement age. Or you could immediately receive $1,500 while your child gets $1,000 a month until reaching the age cutoff—$2,500 monthly for the next four years, then back down to $1,500.

More Now, Less Later

Since this is Social Security, count on complications. One is a limit on how much your family can get based on one worker’s earnings. It’s usually 150% to 180% of what you are due at full retirement age—$3,000 in this case—however many kids you have. In a two-income family, parents’ combined records can enable a larger maximum.

Another twist: If you earn wages after filing at 62, Social Security’s earnings test may reduce your family’s benefits until you’re 66.

Your lifetime benefits can suffer too. In the above example, starting in your mid-eighties the total money you’d get after claiming early would be less than what you would have collected starting at full retirement age. If you can afford to, you can avoid that by suspending your own benefits at age 66 and restarting them at 70. The math is complicated, so work it out with a financial planner or use a calculator like MaximizeMySocialSecurity.com ($40), run by my co-author Laurence Kotlikoff.

Read next: How to Choose the Social Security Claiming Age That’s Right for You

Philip Moeller, co-author of Get What’s Yours: The Secrets to Maxing Out Your Social Security, is now working on a companion book about Medicare.

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MONEY Medicare

What You Can Expect from Medicare on Its 50th Anniversary

Doctor prescribing medication to senior man
Getty Images

As it turns 50, Medicare faces big financial shortfalls and sweeping changes.

America’s landmark government health care programs, Medicare and Medicaid, celebrate their 50th anniversaries on July 30th. (The other key safety net, Social Security, turns 80 in August.) Decades into operation, the future of these plans is still hotly debated in Washington, as policymakers wrangle over needed changes in their finances. Two major reforms are already underway, which I’ll address in a moment.

Meanwhile, outside the Beltway, where real people (aka voters) live, there is little debate about the value of these programs. We like our Medicare and Medicaid—a lot. Republicans, independents and Democrats all feel this way, and by big, big majorities.

The Kaiser Family Foundation, which closely tracks Medicare developments, recently conducted an anniversary opinion poll. Here’s how the public responded:

*Keep Medicare intact. By two-to-one margins, people of all political persuasions favor preserving Medicare in its current form, as opposed to replacing it with vouchers or other forms of premium support.

Among people ages 65 and older, 85% of Republicans, 89% of independents, and 92% of Democrats say Medicare is very important. And roughly 90% of those using Medicare and Medicaid report positive experiences with the programs. While Medicaid was once viewed as health insurance for poor people, any stigma associated with the program has largely disappeared. If people need it, they’ll sign up for it, Kaiser said.

*Improve Medicare’s finances. People are concerned about the future of Medicare, and two-thirds of those surveyed support changing the program to make sure it’s around for future generations. Nearly 60% also support raising Medicare premiums for wealthier seniors. There was little support for raising the Medicare eligibility age or general cost increases for all beneficiaries.

By contrast, nearly nine in ten people want to empower Medicare to negotiate with drug companies over their prices, making it the most wisely supported financial reform. This move is expressly forbidden under the 2003 law that created Part D prescription drug insurance.

*Not enough coverage. Kaiser also found that nearly a third of Medicaid beneficiaries and more than 20% of those on Medicare reduced their use of dental, vision, and hearing care because they couldn’t afford them and the items were not covered by the programs.

Reforms on the way

While the public expects Medicare tomorrow to look much like it does today, the Centers for Medicare & Medicaid Services (CMS) has announced major reforms that will change the way healthcare providers are paid for their services. Instead of being reimbursed for based on the number of services or tests conducted, providers will increasingly be paid based on the quality of the work they do and on how well it helps improve patient health.

That policy is likely to include paying physicians to have conversations with patients about how they would want to be treated if they are too ill to express their wishes. Previous plans to encourage end-of-life discussions were derailed in 2009, when Sarah Palin denounced the plan as an effort to set up “death panels.” Today, with millions of boomers aging and more patients wanting a say in their own treatment, these policies have broad support.

At the same time, CMS is pushing providers to coordinate care for Medicare patients. Doctors, hospitals and other care providers will be expected to work together, and their compensation eventually will also be determined by patient outcomes and improved health.

Looking 50 years ahead

These reforms, while significant, are modest compared to the vision that Medicare’s creators had for the program 50 years ago. Back in 1965, Medicare was expected to be the first big step toward universal health care. As Jonathan Oberlander and Theodore R. Marmor write a new collection of 50th anniversary essays about the programs:

“They never imagined that, a half-century after its birth, Medicare would look as it does today, with seniors comprising the vast proportion of its enrollees. Medicare, they expected in 1965, would soon expand far past social insurance protection for the elderly and would evolve into a full-scale system of national health insurance for all Americans.”

There are many reasons why this did not come to pass. But perhaps the single most important factor was the Vietnam War, which soaked enormous sums from the federal budget and diverted the attention of Presidents Lyndon Johnson and Richard Nixon away from any serious efforts to expand Medicare as its creators had hoped.

Will Medicare ever grow into the broader health care program its creators envisioned? Today’s political gridlock makes that scenario unlikely. Of course, over the next decades, it’s possible that a new consensus will emerge that brings about a national health insurance program. But the American people will have to make it a priority. Let’s check back in 2065.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Here’s What to Do When You’re Ready to Sign up for Medicare

MONEY Social Security

Here’s What You Can Really Expect from Social Security

Senior Couple
Getty Images

The projected Social Security shortfall is likely to hit younger workers hardest.

Social Security turns 80 next month and, as always, one of big unknowns for this octogenarian program is how much longer it will be around—at least in its present form.

Social Security has two trust funds: the Old-Age and Survivors (OAS) fund, and its smaller sibling, the Disability Insurance ( DI) fund. Most people lump the funds together as the OASDI retirement program. But they operate separately. Out of the 6.2% payroll tax that workers and their employers each must pay into Social Security, 5.3% goes into the OAS fund and 0.9% to the DI fund.

The bigger OAS fund is what most people focus on when they worry about Social Security’s long-term sustainability. Every year program trustees issue an report that includes the latest projections about how long the fund will last.

Money Running Out

Last year’s report said the combined reserves of both funds would be exhausted in the year 2033, at which time it could pay only 77¢ on the dollar of its benefit obligations. The DI fund, however, faces a more immediate crisis. It will run out of money in 2016—as in next year—and its 0.9% payroll tax levy will then collect only enough to pay 81% of its benefit obligations.

The DI fund has faced shortfalls before, and Congress has papered over the problem by transferring money into it from the larger OAS fund. When the Republicans assumed control of both houses of Congress this year, however, they rejected this short-term fix and said they would be seeking a longer-term solution before DI funds ran out. Expecting anything more before next year’s elections than a last-minute bailout from the OAS fund is a long shot.

Regardless of the DI fund situation, the biggest concern for future retirees remains the OAS fund. On paper, there are loads of reasonable ways to return the fund to long-term sustainability. But there is no sign yet that Congress is any more willing to tackle this issue than it has been during the many years since it became a well-known problem. If anything, Democrats have seized on rising income inequality to mount a campaign that Social Security benefits should be increased, not reduced.

Future Benefit Cuts

All of which raises the big question: What should current workers and near-retirees expect from Social Security now?

For anyone 55 or older, relax—it’s highly unlikely that your Social Security benefits will change substantially. Even the reform proposals with the steepest benefit cuts tend to leave this age group alone.

Younger generations, however, have more reason to be concerned. Opinion polls regularly find that many younger workers think Social Security will not be there for them when they retire.

While I think Social Security certainly will be around for another 80 years, I do think it makes sense for people younger than 50 to build a contingency in their retirement plans that would allow for, say, a 10% haircut in benefits for those ages 45 to 55, and a 20% trim for those who are younger.

Personally, I do not think these cuts will occur. But even under existing Social Security rules, Social Security’s so-called replacement rate—benefits as a percentage of pre-retirement incomes—has been slowly declining and is projected to continue doing so.

Lifting the Wage Ceiling

Younger high-income earners, in particular, should plan for smaller Social Security benefits. That’s because one of the most likely ways to improve system finances, as well as one of the most politically popular, is to substantially increase the level of annual wage income on which payroll taxes are levied. It stands at $118,500 this year but could easily be doubled and then some under many proposals. And some progressive reformers would remove the wage ceiling entirely, exposing all wage income to Social Security taxes.

However, more drastic benefit reductions are unlikely. Why?

More than half of couples aged 65 and older depend on Social Security for more than half of their total household income. For single beneficiaries, nearly 75% are reliant on Social Security for most of their income.

These figures will be cited with increasingly frequency as the 2016 Presidential campaign picks up steam. So will the reality these older Americans tend to show up to vote at a higher-than-average rate. There is a reason Social Security is called the “third rail” of American politics—and it hasn’t lost that juice at all.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: This Is the Maximum Benefit You Can Get from Social Security

MONEY Medicare

Here’s What to Do When You’re Ready to Sign Up for Medicare

Just follow these three steps to get coverage.

You’ve probably heard that Medicare enrollment rules are complicated. And it’s true—knowing when to sign up, or even if you need to if you working at 65, takes some research. But the good news is that actually signing up for the benefit is a relative breeze.

To enroll, there are three key steps to follow. But before you do anything, be sure you know exactly what kinds of Medicare coverage you want. Part A (hospital insurance) is free to those who have worked long enough to also qualify for Social Security retirement benefits. You can also qualify for free Part A if your spouse qualifies for Social Security.

Medicare Part B covers expenses for doctors, equipment and other outpatient expenses. The Part B application form itself has only a dozen lines for things like your name, address, and Social Security number. Still, it is surrounded by four pages of explanation.

Together, Parts A and B constitute basic or “original” Medicare, which is the coverage choice for some 70% of Medicare beneficiaries. The other 30% opt for Medicare Advantage plans through private insurers. But they still need to sign up first for Parts A (automatic for most enrollees) and Part B. Now here’s how to enroll:

1. Start with Social Security. Medicare enrollment is administered by the Social Security Administration, which offers three options for signing up for basic Medicare. Given how important this is, my feeling is that it’s best to enroll in person. I suggest you make an appointment at your local Social Security office—don’t just drop in unannounced. You can call 1-800-772-1213 to schedule your visit. Make sure you check out the hours when the office is open.

If you choose not to take the in-person route, you can simply enroll by phone. Just call the number listed above. But be very clear that you want to sign up for Medicare only (assuming that’s the case.) The person on the other end of the line is there to handle applications for lots of Social Security benefits as well, not just Medicare. You don’t want to accidentally sign up for Social Security as well.

You can also sign up online, which Social Security has been encouraging people to do both for retirement benefits and Medicare. Their online application emphasizes that you need not visit an office. If you do opt for online enrollment, make sure you read this brief guide or view the video that explains how to sign up. The agency also provides a checklist of information you will need before signing up.

2. Take care of Medigap. Once you have basic Medicare in place, you’ll need to make decisions quickly on other forms of coverage. If you want a Medigap policy, which covers many things not covered by basic Medicare, you should sign up within six months of getting Part B coverage. During this period, you have what’s called a guaranteed issue right of being able to buy a policy regardless of any adverse existing health issues. You are protected from excessive premiums related to either your age or your age.

If you miss this window, however, all bets may be off. Insurance companies are not required to sell you these policies and can charge you much higher rates if they do. (There are special circumstances, such as losing access to a retiree health insurance policy, that will trigger a 63-day window during which your guaranteed rights are restored.)

3. Consider Medicare Advantage and Part D. If you want a Medicare Advantage plan or a Part D drug plan, their enrollment windows are the same as for Medicare Part B. You must first sign up for basic Medicare before contacting a private insurer for a Medicare Advantage Plan or a stand-alone Part D plan.

Signing up for Medicare would be even easier if the government made additional efforts to educate people about the process and alerted them to their possible upcoming enrollment windows.

Five U.S. House members recently sent a letter to the heads of the agencies responsible for Medicare, asking them to do just that. A spokeswoman for the group said their letter was based in part on a report last fall from the Center for Medicare Rights.

“No federal entity is currently responsible for notifying people nearing Medicare eligibility about the need to enroll if they are not already receiving Social Security benefits,” the report said. After 50 years in business, Medicare can do a lot better here.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

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MONEY Medicare

How to Time Your Medicare Enrollment

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Robert A. Di Ieso, Jr.

Q: When should I sign up for Medicare?

A: Most pre-retirees know that Medicare coverage kicks in when you turn 65. But that’s not the whole story. If you want to enroll in Medicare without hassles and costly penalties, you need to know exactly when to sign up for the program you want. There are different enrollment periods, so it’s trickier than you might think. Many older Americans fail to sign up at the right time, which can lead to higher premiums or leave you with coverage gaps, studies have found.

First, though, there are exceptions to the age 65 sign-up date. You may still be covered by your employer’s health care plan, for example, or if you are eligible for Medicare due to a disability, you can sign up earlier.

Initial Enrollment Window: Medicare has established a seven-month Initial Enrollment Period, which includes the three months before you turn 65, your birthday month, and the three months afterward. This window applies to all forms of Medicare—Parts A (hospital), B (doctor and outpatient expenses), C (Medicare Advantage), and D (prescription drugs).

Medigap Enrollment: There is a separate six-month open enrollment period for Medicare Supplement policies (also called Medigap), which begins when you’ve turned 65 and are enrolled in Part B. During this period, insurers must sell you any Medigap policy they offer, and they can’t charge you more because of your age or health condition. This guaranteed access may be crucial because if you miss this window and try to buy a Medigap policy later, insurers may not be obligated to sell you a policy and may be able to charge you more money.

General Enrollment: If you missed enrolling in Part A or B during the Initial Enrollment Period, there is also a General Enrollment Period from January 1 through March 31 each year. Waiting until this period could, however, trigger lifetime premium surcharges for late Part B enrollment, which can end up costing you thousands of dollars. And your coverage won’t begin until July.

Part D drug coverage is not legally required. But if you don’t sign up for it when you first can, and later decide you want it, you will face potentially large premium surcharges. For example, if you missed enrolling during your initial enrollment period and then bought a policy, a premium surcharge would later take effect if you were without Part D coverage for 63 days.

Special Enrollment: There are lots of special conditions that can expand your penalty-free options for when you sign up for Medicare. And there also are what’s called Special Enrollment Periods for people who’ve moved, lost their employer group coverage or face other special circumstances. These special periods may have enrollment windows that differ in length from the standard ones.

Philip Moeller is an expert on retirement, aging, and health. He is co-author ofThe New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

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MONEY Medicare

How to Avoid Losing Out on Medicare If You’re Still Working at 65

Older workers need to watch out for these Medicare enrollment mistakes.

For anyone who plans to keep working after they turn 65—and that’s a growing number of people—planning for Medicare can be complicated. Last week’s column discussed the dizzying array of enrollment periods and other sign-up timetables for people who turn 65 and sign up for Medicare. In this column, I’ll explain the tricky transition from employer insurance to Medicare.

Roughly a third of Americans aged 65 to 69 remain in the work force—a rate 50% higher than only a decade ago. So the adage that everyone must get Medicare when they turn 65 is not true for more and more older Americans.

If you continue to work and have employer group health insurance, you probably do not need to sign up for Medicare. Also, if you lose employer coverage and do get Medicare, and then get a new job with employer health coverage, you usually will not need to keep Medicare. This often surprises people who think they must remain covered by Medicare for the rest of their lives once they get it the first time.

That said, there are exceptions and caveats to that general rule. So to avoid potential stumbling blocks, consider these three key guidelines:

Small business workers may need to sign up. If you’re about to turn 65, and you work for an employer with fewer than 20 workers, yes, you probably need to sign up. In these small-employer plans, Medicare becomes what’s called the primary payer of covered insurance claims for employees 65 and older. Your employer plan is the secondary payer.

If you fail to enroll, Medicare can deny you primary health insurance for many months. And when you finally do sign up, you often face premium surcharges that will last the rest of your life, which could cost you thousands of dollars. As a I mentioned last week, the initial enrollment window for Medicare lasts for seven months—three months before turning 65, the month you turn 65, and three months after your birthday month.

Check your employer’s Part D plan. For people working for larger employers, you don’t face this enrollment rule. However—and there are almost always howevers when it comes to Medicare—there’s a technical requirement for avoiding Medicare coverage, which could be a potential stumbling block to coverage.

Medicare requires that a person’s employer drug coverage be “creditable”—meaning that it must be at least as good as a Medicare Part D prescription drug plan. If that’s not the case, the person would need to sign up for a Part D plan. If you don’t, you will face lifetime premium surcharges for failing to do so on a timely basis.

How likely is it that your drug coverage would not be credible? Honestly, I have never gotten a reader question or spoken to anyone whose employer drug coverage was found to fall short. But if it did, the employee likely would not know until it was too late. Since it is a rule, employees approaching 65 should get confirmation from their human resource manager that your drug coverage passes this test.

Consider signing up for Part A anyway. Even if you do not need to enroll for Medicare at age 65, you should probably sign up for Medicare Part A, which covers hospital expenses and short-term stays in nursing homes. Part A premiums are waived for people whose work records qualify them for Social Security. Normally, this requires working 40 quarters in jobs where Social Security payroll taxes are paid.

Medicare Part A is a secondary payer in this scenario, which means it can help out with expenses not covered by employer group insurance. It does carry a steep-sounding deductible of $1,260 for each covered stay. But the cost of even brief hospital stays easily can soar to many multiples of this deductible, making Part A a nice benefit to have.

Signing up for Part A does have a big downside. By doing so, you will no longer be eligible to contribute to a tax-advantaged health savings account (HSA). If you have an HSA now, you will need to compare the potential benefit of Part A coverage with the loss of your ability to contribute to the account. If you choose to give up contributing to your HSA, however, you will still keep any accumulated funds for as long as you wish. And that money won’t be taxed if you spend it on qualified medical expenses.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: This Is the Biggest Mistake People Make When Signing Up for Medicare

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