MONEY Social Security

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

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More people are catching on to the benefits of delaying Social Security. But the real issue isn't when everyone else claims—it's finding the strategy that fits your goals.

Retirement experts have been pounding the drums for years about deferring Social Security benefits and allowing them to grow until claimed at age 66 or even as late as 70. Yet average retirement ages have moved little—most people continue to file at or near age 62, the earliest that standard retirement benefits can be claimed, Social Security data show.

Now, thanks to some new research by the Center for Retirement Research at Boston College, this puzzling contradiction has been solved. It turns out that people are aware of the benefits of delayed filing and, in fact, have been claiming later for many years.

Why the discrepancy in these numbers? In its analysis, Social Security looks at when people file for retirement benefits and does a year-by-year calculation of average claiming ages. This approach works fine during periods of stable population growth, but not so much today.

Social Security’s method fails to account for the soaring numbers of Baby Boomers reaching retirement age. For example, nearly 900,000 men turned 62 in the year 1997, while in 2013, roughly 1.4 million men did so. Even so, a smaller percentage of 62-year-old men filed for Social Security in 2013 than in earlier years. But because the number of 62-year-old retirees make up such a big share of all claims, the average age has remained largely unchanged.

To get a better picture of claiming trends, the Center also used a lifecycle analysis. Instead of tracking the ages of everyone who began benefits in a certain year, such as 2013, it calculated the claiming ages of everyone by the year in which they were born. Looking at this so-called “cohort” data, it became clear that average claiming ages actually had increased far more than people thought.

In 2013, for example, 42% of men and nearly 48% who claimed that year were 62 years old. But only 36% of men and nearly 40% of women who turned 62 in 2013 actually filed for Social Security. “The cohort data reveal that the claiming picture has really changed,” the Center said.

I am cheered by these new findings. People should consider deferring their Social Security benefits and see how doing so would affect their retirement plan. But the key word in that sentence is “plan.” You need one, and it should include figuring out the best Social Security strategy for you, not what’s best for other retirees. Here are the steps to get there:

  • Compare the tax benefits. Our hearts tell us that preserving 401(k) dollars in our nest eggs is essential. But when it comes to spending down those assets in order to delay claiming Social Security, the deferral strategy looks very good. Between the ages of 62 and 70, Social Security retirement benefits rise 7% to 8% a year. They are adjusted upward each year to account for inflation. They are guaranteed by Uncle Sam. Federal taxes are never levied on more than 85 cents of each dollar of Social Security benefits, and most states don’t tax them at all. Compare these terms with 401(k) gains and taxation, and then decide which dollars are most worth preserving.
  • Assess the cost of early claiming. Social Security benefits claimed before Full Retirement Age (66 for people now nearing retirement) are hit with early claiming reductions and, if you are still working, subject to at least temporary benefit reductions caused by the Earnings Test.
  • Weigh the Medicare impact. If you have a health savings account (HSA) through employer group insurance and are eligible for Medicare, filing for Social Security will force you to take Part A of Medicare. It’s normally free but the consequences are not: the filing will force you to drop out of your HSA.
  • Consider longevity risk. Review your family health history, complete an online longevity survey, and estimate your probable lifespan. What does this number say about how long your retirement funds need to last and when you should begin taking Social Security?
  • Think about your family. Will you still have school-age children at home when you turn 62? If so, filing early for Social Security may allow your kids to claim benefits based on your earnings record. This is one case when filing early may put more money in your pocket.
  • Plan for your spouse. Survivor’s benefits are keyed to the Social Security benefits received by the deceased spouse. So, the longer a spouse waits to claim, the higher their partner’s survivor benefit will be. This is a real issue for millions of women who survive their husbands and whose own retirement benefits are smaller than their husbands because they have earned less money in their lives.

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 the Social Security Earnings Test Could Wipe Out Your Income

MONEY Ask the Expert

How the Social Security Earnings Test Could Wipe Out Your Income

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

Q: My wife and I had an appointment with Social Security today—she is 72, and I just turned 62. I know my benefits will be reduced by filing early at 62 but doing so would enable my wife to collect spousal benefits. She didn’t work enough to qualify for her own benefits, so I figured this would be the best way to maximize our benefits. But it turns out that I earn too much to get any benefits myself and, because of this, my wife can’t get any benefits, either! Everything I researched indicated that I would only be hit with a reduction while she would receive the spousal benefits. This whole system is just too complicated to really understand. —Lou

A: Lou has run into Social Security’s Earnings Test. These rules may seem benign, but as he found out, there are hidden snags that can seriously derail your retirement dreams.

The Earnings Test applies to people who take benefits before what’s called Full Retirement Age. This is 66 for most people now and gradually rises to age 67 for people born in 1960 and later years.

If you take benefits before your FRA, they will be reduced if you continue to work and your wage earnings are above two thresholds in 2015—$15,720 or, in the year you reach FRA, $41,880. These amounts are adjusted upward each year as average wages rise.

If you earn more than $15,720, your Social Security retirement benefits are reduced by $1 for every $2 your wage income exceeds that limit. For the higher income test, the reduction is $1 in benefits for every $3 you earn above $41,880.

As Lou found out, his income is so far above $15,720 that he cannot receive any Social Security benefits whatsoever. In its consumer notices, Social Security emphasizes that benefits forfeited by the Earnings Test are not truly lost. When a person who takes early retirement benefits reaches FRA, the agency will automatically restore the lost income by permanently increasing his or her monthly payment to make up the difference.

Well, that’s better than nothing. And perhaps Lou would have settled for a lower, postponed benefit – claiming at 62 reduces your payout by 25% vs filing at FRA—if it meant his wife could begin receiving spousal benefits.

But she won’t.

There’s no mention of this in the agency’s online explanation of the effects of the Earnings Test. But the agency brochure, How Work Affects Your Benefits, includes this eye-opener:

“If other family members get benefits based on your work, your earnings from work you do after you start getting retirement benefits could reduce their benefits, too.”

So, not only does Lou earn too much money to get any benefits for himself, he also he earns too much money for his wife to qualify to receive any spousal benefits at all, as he discovered.

Lou doesn’t have any school-age children at home. But if he did, their benefits based on his earnings record would also be wiped out by the Earnings Test.

Here’s a sample provided by a Social Security spokesman that shows how the Earnings Test can affect family-member benefits.

“Mr. Doe is entitled to a Social Security retirement benefit of $378 [a month]. His wife and child are each entitled to a benefit of $160. Mr. Doe worked and had excess earnings of $2,094. These earnings are charged against the total monthly family benefit of $698 ($378 plus (2 x $160)). Therefore, no benefits are payable to the family for January through March (3 x $698 = $2,094).”

Got that? In this example, the test cancels out benefits for part of the year. In Lou’s case, of course, the benefits are wiped out for the entire year.

Under the rules, Lou’s lost benefits would be restored when he reaches his FRA in four years, as I mentioned earlier. And his wife’s lost spousal benefits would be restored as well, when she is 76.

But Lou and his wife are better off waiting four years to file, or at least until his earnings no longer cancel out their benefits. At 66, he can file and suspend his benefits. This will entitle his wife to a full spousal benefit equal to half his retirement benefit. He then can defer his own benefit for up to four years, allowing it to increase by an inflation-adjusted 8% a year.

I feel for Lou, and I fully agree with him that the system is too complex for the vast majority of Americans to understand. At the very least, the family-wide impact of the Earnings Test should be prominently featured in all Social Security materials mentioning this rule.

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 Little-Known Pension Rule May Slash Your Social Security Benefit

 

MONEY Medicare

How to Make Sure Medicare Really Covers Your Hospital Stay

hospital patient in bed
Masterfile—Radius Images

Many Medicare patients are surprised to learn they weren’t officially admitted to the hospital—and they face big bills. Here's how to avoid the problem.

If you’re on Medicare and you have to be admitted to the hospital, don’t make the mistake of assuming your costs are covered. Find out whether your visit is being treated as an inpatient admission or a so-called observational stay. The distinction could cost you a lot of money—and it may even limit your access to a skilled nursing facility if you need follow-up care.

There’s a growing likelihood that you may be given observational status—a kind of Medicare limbo that is akin to being an outpatient. Observational hospital visits soared 90% between 2006 and 2012, according to federal data.

The reasons for the shift are partly driven by Medicare’s efforts to restrain increases in health care spending, which include financial penalties for hospitals and doctors if they readmit too many patients. Classifying patient visits as observational helps to limit those readmission penalties—and in some cases, it may reduce costs. Medicare research in 2013 found savings to both Medicare and patients from observational stays vs inpatient stays lasting fewer than two nights.

Still, whether you see any cost savings will depend on your health care needs. Observational and inpatient stays are paid for by different parts of Medicare, even if the services provided are identical. Out-of-pocket costs for observational stays may be much higher, though patients and their doctors may be unaware of this until the bills are presented. Medicare does not require that patients be informed how their stay is classified, so some consumers have been hit with unexpected charges after being discharged.

Observational status may also limit your coverage for follow-up care in a skilled nursing facility. That’s because Medicare coverage kicks in only after you spend at least three days as an admitted hospital patient. If your stay is classified as observational, it won’t count toward this total. For many seniors, that rule has limited access to skilled nursing care.

A recent AARP report, based on an analysis of Medicare hospital visits in 2009, found that most visitors placed under observation required only outpatient services. But 10% of observational patients wound up with larger health care bills than they would have had if they had been admitted as inpatients. These patients were also likely to face higher costs for follow-up care.

So how do you know which category is really best for your finances? You don’t. As the AARP report noted, inpatient status may mean lower costs if you need nursing care later. But for some short stays, your unreimbursed expenses may be lower with observational status. “Few Medicare patients will be able to anticipate into which group they are likely to fall,” the report said. “If they guess wrong, they are likely to face higher out-of-pocket costs.”

AARP advocates changing the rules for Medicare hospital stays, including capping out-of-pocket costs for observational stays and allowing that time to be credited toward skilled nursing care. Reforms are supported by several Medicare advocacy groups and the Medicare Payment Advisory Commission, which advises Congress on Medicare issues. Legislation to amend hospital stay rules is also pending.

Still, it may be years before any rule changes take place. So if you or your family members are on Medicare now, here are three guidelines for reducing the risks of observational status:

  • Find out your status. Demand that the doctors and hospital clarify how your stay is being classified. If you disagree with the decision, bring it up with your doctor right away. This is especially important if the patient is likely to need follow-up care at a nursing facility after their hospital visit.
  • Understand what’s covered. Check out the differences in Medicare payment rules between inpatient expenses (covered by Medicare Part A) and observational or outpatient expenses (covered by Medicare Part B). You can find some of this information here and here.
  • Ask to use your own meds. Many hospitals do not allow use of medications brought from home. But if yours does, you’ll be able to sidestep the steep costs of hospital dispensaries.

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 You’re Really Going to Spend on Health Care in Retirement

MONEY

Why It Pays to Delay Social Security Benefits

There's a flaw in the thinking that drives many people to start taking benefits early.

Social security is a great insurance policy. But sometimes people mistakenly regard it as just one more investment that they should try to maximize.

That kind of thinking might persuade you to take benefits sooner rather than later and can have a big impact on how much money you and your family receive.

Central to this problematic point of view is a breakeven analysis. Between the ages of 62 and 70, your benefits rise about 7% or 8% for each year you defer taking them. Wait until age 70, and your monthly benefit will be 76% higher, on an inflation-adjusted basis, than if you claimed at age 62.

Here’s the breakeven puzzle: Let’s say you wait to take Social Security so you can get a higher monthly benefit. How old will you be before the total value of your higher benefits catches up with the amount you would have received had you started taking Social Security years earlier?

Roughly calculated, the typical breakeven age is about 80½. Until then, you’ll get more money by taking benefits early. If you don’t spend those benefits but invest them instead, the breakeven age can be even higher.

So based on guesses about your lifespan and what you’ll earn by investing your benefits, you might think it best to take benefits early.

Why Breakeven Is Misleading

But this feels wrong to me. Once you start doing this breakeven analysis, you’re looking at Social Security as an investment on which you want to earn the highest return. And it isn’t an investment. Rather, Social Security is a gilt-edged insurance policy that protects you from a major risk: living a very, very long time—long enough to outlast your money.

Think about other types of insurance. You buy home insurance, for example, to protect against the possibility of damage or total loss.

If your home never burns down, is the money you spent on insurance premiums a loss? No. You pay for protection, not profits. That’s true for Social Security also.

The Ultimate Payoff

Social Security benefits are for as long as you live. The average 65-year-old will live about 20 more years; many people that age will live much longer (see the chart).

Source: United States Life Tables, 2010, Centers for Disease Control and Prevention (November 2014)

Those benefits are immune to a stock market collapse. They rise to offset inflation. While most 401(k) and traditional IRA distributions are fully taxable, no more than 85% of Social Security payments are subject to federal tax, and most states don’t tax Social Security.

Finally, waiting to receive a larger benefit means that survivor benefits based on your earnings will be larger too. That helps your surviving spouse (if your spouse isn’t collecting a larger amount based on his or her own work record). This is terribly important for women, who on average outlive their husbands and are more likely to need survivor benefits. Breakeven analysis can turn out to be a bad break for them.

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 a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Ask the Expert

The Pitfalls of Claiming Social Security in a Common-Law Marriage

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

Q. I lost my WWII husband on January 14, 2014. It was a common-law marriage. I worked for over 50 years in the fields of education and medicine. However, many of the places where I worked did not have Social Security. I have turned in all the evidence required to prove that we presented ourselves as husband and wife. Texas recognizes common-law marriages. I am confined to a wheelchair. I served our country, as a civilian commissioned as a 2nd Lt., in the Air Force and Army overseas. Please help me as I am going to be homeless. – Joan

A. In the six weeks since Joan wrote me this note, she found a place to live. But she is no closer to resolving her problems with Social Security. It is easy to paint the agency as a heartless bureaucracy preventing an impoverished, 80-year-old veteran from getting her widow’s benefit. But there’s nothing about Joan’s story that is easy, and her problem is one that is becoming all too common.

Today more and more couples are living together without getting married, especially Millennials and Gen Xers. And many of them are having children and raising families. More than 3.3 million persons aged 50 and older were in such households in 2013, according to the U.S. Census Bureau.

There can be sound reasons for avoiding legal marriage. But when it comes to Social Security, you and your family may pay a high price by opting for a common-law union. Quite simply, it may be difficult, if not impossible, to claim benefits. And that can damage the financial security of your partner, children and other dependents. If you are in a common-law marriage, here are the three basic requirements for claiming benefits:

1. Your state recognizes common-law marriage. And yours may not. Only 11 states plus the District of Columbia recognize these marriages—among them, Colorado, New Hampshire, and Texas, which is Joan’s state of residence.

For your partnership to qualify, these states generally require that you both agree that you are married, live together and present yourselves in public as husband and wife. But the specifics of these rules are different in many states and usually complicated.

Social Security rules follow state laws when determining eligibility for spousal and survivor benefits. (The same policy applies to same-sex marriage.) If you do qualify, you will be able to receive the same benefits as you would with a traditional marriage, including spousal or survivor benefits.

2. You’ve got plenty of documentation. Social Security requirements for claiming survivor benefits call for detailed proof of the union. For an 80-year old, wheelchair-bound person like Joan, that’s a challenge to provide, especially in the case of a deceased spouse. Among other documents, she must complete a special form, plus get similar forms filled out by one of her blood relatives and two blood relatives of her late partner, John.

3. You’re prepared to fight bureaucratic gridlock. Joan has had multiple meetings with Social Security postponed for reasons she does not understand. She has been told she does not qualify as a common-law spouse under Texas laws. But the reasons she has been given may be incorrect. She says, for example, a Social Security rep told her that she and John needed to own a home to qualify. This is not true. She needs only to document that they lived as husband and wife and held themselves out to be married. Beginning in 2003, Texas made it harder for couples to qualify as common-law spouses, which could complicate Joan’s case.

Making matters even more difficult, Social Security has other convoluted rules that can change or even invalidate her benefits. Joan, it turns out, took a lump-sum payment from her government pension decades ago. That triggers something called the Government Pension Offset rule, which may prevent her from receiving a survivor’s benefit based on John’s earnings record. (For more on that rule, click here.)

Clearly, older Americans need more help than we’re giving them to navigate Social Security, Medicare, Medicaid and other highly regulated and complicated safety-net programs. This is hard stuff even for experts. It is not possible for the rest of us to understand without more knowledgeable assistance.

Meanwhile, for those in common-law marriages it’s important to plan ahead now. If you can’t qualify for Social Security benefits, you will need to save more while you’re still working. If your state does recognize common-law marriage, find out what documentation you’ll need, so you’ll have it when you file your claim. The last thing you’ll want to do in retirement is struggle with the Social Security bureaucracy.

“I am pushing 80 and this has been going on now for two years,” said Joan, a former special-needs educator, in a recent email. “I hope my health holds up as I have no life. What a way to treat an American citizen in a wheelchair who can teach the deaf to talk, the dyslexic to read and the stuttering to talk. I am just useless living in a room.”

Joan has another Social Security appointment scheduled this week.

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 a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: The One Investment You Most Need for a Successful Retirement

MONEY Viewpoint

Why the Medicare “Doc Fix” Bill Isn’t a Fix for the Rest of Us

The problem it tries to address is real—but this isn't the right solution.

The “doc fix” bill that passed the House last week on a 392-37 vote is a piece of cheese that could smell really, really bad by the time the Senate comes back from its spring break to consider the measure.

If signed into law, the bill would halt a scheduled 21% cut in the fees that doctors get for treating Medicare patients. The fear is that if their pay is reduced—and especially if reduced this drastically—many doctors would simply choose to stop treating Medicare patients.

So who proposed the 21% cut in the first place? It stems from a 1997 law that automatically trims physician reimbursement rates if and when medical costs rise faster than overall economic growth. That’s happened so often in recent years that cuts were scheduled 17 times—but each time Congress voted to override the cut. So when the latest scheduled cuts came around, lots of folks expected Congress to kick the can down the road yet again.

All of sudden, however, Congressional leaders of both parties decided they’d had enough short-term fixes and the “doc fix” bill was born.

Here’s what everyone should know about it:

It’s got a real shot of passing

Before leaving town, a solid majority of Senators seemed to be in favor of the measure, even if some liberals and fiscal hawks are holding their noses. And the Obama White House has already signaled support.

It’s a fix, but a very expensive one

The stated price tag is more than $200 billion over 10 years, $140 million of which would hit the federal budget with no compensating spending offsets.

The 17 earlier short-term fixes were funded with $165 billion in offsetting savings from other parts of Medicare. But the bill approved by the House does not provide such offsets, which is why it will raise federal deficits so much.

How much? The Committee for a Responsible Federal Budget, a nonprofit Washington watchdog group, estimates that it will lead to more than half a trillion dollars of additional debt by 2035.

On top of that, affluent seniors will pay more for Medicare; everyone with a Medicare Supplement policy will get nicked with a higher price tag; and health care providers—other than doctors, of course—would be dinged with higher costs.

It could change everything about the way health care is delivered

This is where Messrs. Limburger and Roquefort enter the room. The bill could become a powerful enabler to drastically change, if not end, the traditional fee-for-service model of Medicare.

That’s because the law would create—get ready for two more healthcare acronyms—MIPS and APM. MIPS stands for the Merit-Based Incentive Payment System, which would reward or penalize doctors based on patient health outcomes compared with performance thresholds. APM is short for Alternative Payment Model programs, which provide different rates and incentives for doctor payments. These programs could trigger big changes in how Medicare works and in how doctors perform medicine.

There’s a better solution

A better approach would be an 18th year-long fix. It wouldn’t cost much and thus won’t worsen federal deficits. Rethinking the way we deliver healthcare to Medicare beneficiaries absolutely needs to be done, but not in such a hurry. Take the next year to do this very important but complicated piece of work, and then come back with a true fix worthy of the name.

Of course, this won’t happen. It’s hard enough to get one Congressional consensus these days, let alone two. And we pick a new President next year, which also argues against expecting Congress to again be in a cooperative mood.

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 a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Ask the Expert

How to Max Out Social Security Benefits for Your Family

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

Q. Does the family maximum benefit (FMB) apply only to one spouse’s individual’s work history or to both spouses in a family? That is, assume two high-earning spouses both delay claiming a benefit till, say, 70. Would the FMB rules limit their overall family benefits? Or does the FMB include just the overall family benefits derived from the earnings record of one particular worker? —Steve

A: Kudos to Steve for not only knowing about the family maximum benefit but having the savvy to ask how it applies to two-earner households. The short answer here is that Social Security tends to favor, not penalize, two-earner households in terms of their FMBs.

To get everyone else up to speed, the FMB limits the amount of Social Security benefits that can be paid on a person’s earnings record to family members—a spouse, survivors, children, even parents. (Benefits paid to a divorced spouse do not fall under the FMB rules.) The amount may include your individual retirement benefit plus any auxiliary benefits (payouts to those family members) that are based on that earnings record.

Fair warning: the FMB is far from user-friendly. Few Social Security rules are as mind-bendingly complex as the FMB and its cousin, the combined family maximum (CFM). And Social Security has a lot of complex rules. Unfortunately, you need to do your homework to claim all the family benefits you are entitled to receive.

To address Steve’s question, these FMB calculations may be based on the combined earnings records of both spouses. More about this in a bit, but first, here are the basics for an individual beneficiary.

The ABCs of the FMB

The FMB usually ranges from 150% to 187% of what’s called the worker’s primary insurance amount (PIA). This is the retirement benefit a person would be entitled to receive at his or her full retirement age. Even if you wait until 70 to claim your benefit, it won’t increase the FMB based on your earnings record.

Now, I try to explain Social Security’s rules as simply as possible—but there are times when the system’s complexity needs to be seen to be believed. So, here is the four-part formula used in 2015 to determine the FMB for an individual worker:

(a) 150% of the first $1,056 of the worker’s PIA, plus

(b) 272% of the worker’s PIA over $1,056 through $1,524, plus

(c) 134% of the worker’s PIA over $1,524 through $1,987, plus

(d) 175% of the worker’s PIA over $1,987.

Let’s use these rules for determining the FMB of a worker with a PIA of $2,000. It will be $3,500, which equals (a) $1,584 plus (b) $1,273 plus (c) $620 plus (d) $23. The difference between $3,500 and $2,000 is $1,500—that’s the amount of auxiliary benefits that can go to your family. Got that?

And here’s a key point that trips up many people: Even if the worker claimed Social Security early, which means his benefits were lower than the value of his PIA, it would not change the $1,500 limit on auxiliary benefits. However, when the worker dies, the entire $3,500, which includes the PIA amount, becomes available in auxiliary benefits.

It’s quite common for family claims to exceed the FMB cap. When this happens, anyone claiming on his record (except the worker) would see their benefits proportionately reduced until the total no longer exceeded the FMB. If, say, those claimed auxiliary benefits actually totaled $3,000, or double the allowable $1,500, all auxiliary beneficiaries would see their benefits cut in half.

How CFM Can Boosts Benefits

Enter the combined family maximum (CFM). This formula can substantially increase auxiliary benefits to dependents of married couples who both have work records—typically multiple children of retired or deceased beneficiaries.

The children can be up to 19 years old if they are still in elementary or secondary school (and older if they are disabled and became so before age 22). Because each child is eligible for a benefit of 50% or even 75% percent of a parent’s work PIA, even having only two qualifying auxiliary beneficiaries—say a spouse and a child, or two children—can bring the FMB into play.

But with the CFM, the FMBs of each earner in the household can be combined to effectively raise the benefits to children that might otherwise would be limited by the FMB of just one parent. Under its rules, Social Security is charged with determining the claiming situation that produces the most cumulative benefits to all auxiliary beneficiaries.

Using our earlier example, let’s assume we now have two workers, each with PIAs of $2,000 and FMB’s of $3,500. A qualifying child would still be limited to a benefit linked to the FMB of a single parent. But the CFM used to determine the size of the family’s benefits “pool” has now doubled to $7,000 a month, permitting total auxiliary benefits of up to $3,000.

Well, they would have totaled this much—except there’s another Social Security rule that puts a cap on the CFM. For 2015, that cap is $4,912. Subtracting one of the $2,000 PIAs from this amount leaves us with up to $2,912 in auxiliary benefits for this family. That’s not $3,000 but almost.

So it’s quite possible that three, four, or possibly more children would get their full child benefits in this household. Even if they totaled 200% of one parent’s FMB, they would add up to a smaller percentage of the household’s CFM, and either wouldn’t trigger benefit reductions, or at least much small ones.

And if eligible children live in a household where one or both of their parents also has a divorced or deceased spouse, even more work records can come into play. This is complicated stuff, as borne out in some thought-twisting illustrations provided by the agency.

Before moving ahead with family benefit claims, I recommend making a face-to-face appointment at your local Social Security office. Bring printouts of your own earnings records, which you can obtain by opening an online account for each person whose earnings record is involved. I’d also print out the contents of the Social Security rules, which are linked in today’s answer, or at the very least, write down their web addresses so the Social Security representative can access them.

Good luck!

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 a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Why Social Security Rules Are Making Inequality Worse

MONEY retirement planning

The Smart Way to Choose a Retirement Community

The decision to move to a retirement community is never easy. But new pricing information can help you plan.

Moving into a retirement community is a complex and often emotional decision, especially if health issues are a reason. Figuring out the finances of this move adds to the challenge. But by understanding the expenses you’ll need to pay, seniors and their families can make the best possible choices.

The good news is more cost data is now available. A Place for Mom, a senior community placement service, just released what it claims is the first pricing survey of these residences—one that is does not rely primarily on data reported by the communities themselves. Its Senior Living Price Index is based on reports from seniors it has placed. The company works with 20,000 residences around the country and advises an average 50,000 families a month.

The prices are listed by category of residence—independent living, assisted living and memory care (for those with dementia) —as well as by region. (The prices for independent living do not include health care expenses, but they are included for assisted living and memory care.) The survey only covers larger communities—those with more than 20 residential units.

Here are the top-level results for each type of community by region, showing average monthly prices:

  • Independent Living — $2,520 (U.S.); $2,532 (West); $2,362 (Midwest); $2,765 (Northeast); $2,587 (South)
  • Assisted Living — $3,823 (U.S.); $3,771 (West), $3,825 (Midwest); $4,315 (Northeast); $3,562 (South)
  • Memory Care — $4,849 (U.S.); $4,787 (West); $4,958 (Midwest); $5,779 (Northeast); $4,345 (South)

Clearly, senior living can be expensive. But keep in mind, these are averages covering a wide range of prices, says Edward Nevraumont, chief marketing officer at A Place for Mom. So look at these figures as just a starting point. And be sure to consider future price hikes, which are likely to outpace inflation, thanks to rising demand for living units.

Prices don’t tell you everything you need to know about a residence—other factors can be just as important, though harder to compare. There are communities geared to a wide range of preferences, budget levels, and health status. Some provide a full range of food services and on-site healthcare. Some are tightly regulated (nursing homes), while others are less so (independent living). “In our space, people have no idea of what they’re even looking for,” says Nevraumont.

That’s largely because families tend to wait till the last minute to start planning a move—typically when an aging family member is having health issues. The average person working with A Place for Mom adviser is 80 years old vs. 77 a few years ago. Of the clients the company helps place, five of every eight are single women, while two are men, and one is a couple. The average length of stay is 20 months.

For those considering a senior community, Nevraumont offers these tips:

Start shopping before a move is needed. Aside from the research that you’ll need to do, many residences have waiting lists that are months long. You’ll also need to have a conversation with all the affected family members to avoid potential conflicts.

Expect the move to take time. You may think you’ll be able to get Uncle Matt into a new apartment in a couple of weeks. The actual process takes an average of three months—or longer, if you’re on a waiting list.

Keep cash on hand. No getting around it—senior living communities are costly, especially for those with serious health care needs. So you’ll need to build a cash cushion to tap for those bills. “For both your emotional sanity and your financial sanity,” Nevraumont said, “figuring out this stuff early is really important.”

For more advice on choosing a retirement community, take a look at this checklist from AARP.

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 a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: The Secrets to Making a $1 Million Retirement Stash Last

MONEY Medicare

Why the Bill to Fix Medicare Keeps Soaring

150311_RET_MedicareCosts
Getty Images

Congress must act to prevent a big cut in fees to Medicare doctors. But a short-term solution now will mean soaring costs for older Americans later.

A perennial congressional battle over Medicare is about to erupt. And the result is likely to be a steep increase in the program’s long-term costs—with older Americans eventually paying many of those bills.

As of April 1 fees paid by Medicare to participating doctors will be slashed by a steep 21%. This cut is the result of a 1997 budget formula, called the Sustainable Growth Rate (SGR), which should have been junked years ago. Physicians have already been complaining about Medicare’s low level of reimbursement, and if the cut happens, there could be a mass exodus of physicians from the program.

Congress has had plenty of opportunities to reset the the SGR formula to permit fair fees and annual adjustments but instead has opted for short-term fixes 17 times. Last year lawmakers agreed on a long-term plan to set physician rates—a so-called “doc fix”—and this consensus proposal has been reintroduced in the new Congress. But the long-term price tag for the adjustment threatens to make it a non-starter.

How much would a long-term doc fix cost? The Congressional Budget Office (CBO) estimated the 10-year budget hit of a permanent reform at $138 billion in early 2014. A year later, the 10-year bill has risen to nearly $175 billion. For perspective, the agency’s latest 10-year price tag for the Affordable Care Act is “only” $142 billion.

It’s hard to believe that Congress will be able to find $175 billion in spending offsets in the next couple of weeks, or that Republicans would agree to boost the deficit in order to pay the long-term tab. So expect another one-year fix—number 18. It would cost an estimated $6 billion, which would not have much of an immediate impact on consumers.

If Congress doesn’t vote in a fix, higher Medicare costs would slam older Americans and their families. As a new Kaiser Family Foundation analysis points out, under current law beneficiaries would automatically absorb their share of Part B Medicare costs if the formula is changed. That out-of-pocket price tag would be nearly $60 billion over 10 years, Kaiser estimates.

That’s just for physician fees. Consumer out-of-pocket costs are likely to rise even higher once other effects of the change are factored into Part B premiums and co-insurance payments. “One option under discussion would require beneficiaries to assume a portion of the $175 billion federal price tax, above what they will automatically pay in premiums and cost-sharing,” the Kaiser analysis says.

Other major Medicare service providers, including insurers and drug companies, could also be asked to take a haircut to finance high doctor payments. Of course, those costs are likely to be passed along to consumers eventually.

Paying higher Medicare costs is asking a lot of most older Americans. Half of all Medicare recipients live on incomes of about $23,500 or less. And seniors already spend triple the amount of money on health care, as a percentage of their household budgets, compared with younger households.

Still, a permanent doc fix has to happen at some point. And Kaiser’s report notes that Congress has been getting closer to a serious response to the problem.

So if you depend on Medicare, you would do well to set aside what savings you can to meet those inevitable health care bills. And at the very least, expect a big increase in Washington rhetoric over Medicare.

Philip Moeller is an expert on retirement, aging, and health. He is the co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: The New Rules for Making Your Money Last in Retirement

MONEY Ask the Expert

The 3 Secrets to Maxing out Social Security Spousal Benefits

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

Q: My wife was born in 1950 and will be 65 this year; I was born in 1953 and will be 62. As I have earned more in my lifetime, my Social Security benefit is estimated to be larger than hers at full retirement age. But her spousal benefit would be less than half of her individual retirement benefit. When the younger spouse has a higher estimated benefit, what are some strategies to explore? —Jack

A: If there’s one set of rules worth understanding, it’s spousal benefits. Every year, couples leave literally billions of dollars on the table because they make the wrong claiming choices. Here are three secrets to getting this claim right, and how they apply to your situation:

1. To get spousal benefits, the primary earner must file for retirement benefits first. Spousal benefits can equal as much as half of the amount the person would receive in individual Social Security benefits at full retirement age (FRA). For anyone born in 1943 through 1954, FRA is 66; it will gradually rise to 67 for people born in 1960 or later.

2. If you file for a spousal benefit before your FRA, you will end up with a smaller amount. You can file as early as age 62 but if you do, you will be hit with benefit reductions. Retirement benefits will rise each month they are deferred between FRA and age 70. Spousal benefits peak at FRA, so there is no reason to defer claiming them past that point.

An early filing will also trigger a Social Security provision called deeming—this means the agency considers you to be filing both for your individual retirement benefit and you spousal benefit. You will be paid an amount roughly equal to the greater of the two benefits. But you lose the opportunity to get increases for delayed claiming on your individual benefits. This is a bad deal.

3. Use a file-and-suspend strategy. If both spouses defer claiming until FRA, the higher-earning spouse can file and suspend benefits then. This way, the lower-earning spouse can file for spousal benefits, allowing his or her individual retirement benefit to grow due to delayed retirement credits. Then you can each file for maximum retirement benefits at age 70.

So what’s the right approach for you? If you both defer filing, you can file and suspend your benefit at age 66. This will enable your spouse, who will have turned 69, to file for her maximum spousal benefit. Meanwhile, she can continue to allow her individual benefit to grow due to delayed credits up to age 70

Alternatively, your wife can file and suspend at 69, allowing you to file for your maximum spousal benefit at 66 and collect it for four years, while deferring your own retirement benefit until 70. Even though you are the higher earner. this strategy seems likely to maximize your family’s total benefits.

There’s another advantage to waiting until 70: if you die before your wife, she will receive a widow’s benefit that will equal your maximum retirement benefit. (She can only collect the greater of her retirement or widow’s benefit.)

Of course, choosing the best spousal claiming strategy for a couple depends on many factors, including relative ages, finances and health. This is something married partners need to talk about.

Best of luck!

Philip Moeller is an expert on retirement, aging, and health. He is the co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: New Rules for Making Your Money Last in Retirement

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