delayed filing by the higher-earning husband usually sets the stage for the widow to receive a higher benefit down the road, after his death.
Until recently, couples also could execute complex claiming maneuvers using “file-and-suspend” and “restricted claims” maneuvers, which allowed a household to delay some benefits while getting spousal payments flowing. Those strategies are being phased out under federal legislation passed in November; some couples that fall inside a birth-date window may still be able to execute file-and-suspend strategies.
All couples will still be able to benefit by considering a range of options. Should one or the other spouse start benefits early, should both delay, or should both file early? Most often, couples will benefit if the higher-benefit spouse delays filing to earn delayed credits. Divorced people also can qualify for a spousal benefit based on the ex-spouse’s wage history if they meet certain criteria.
For more details on how Social Security benefit amounts are determined, see my interview with Stephen C. Goss, chief actuary of the Social Security Administration.
Also, be sure to download my guide to the most frequently-asked Questions about filing strategies for couples. it’s available completely free with your sign up for the retirement revised email newsletter (which also is free).
Once upon a time, Medicare eligibility coincided with Social Security’s full retirement age. But that began to change with the Social Security reforms enacted in 1983, which began to push the FRA higher.
Medicare eligibility still begins at 65, and sign-up is automatic if you’re already receiving Social Security benefits. If not, it’s important to sign up sometime in the three months before your 65th birthday up through the three months following. In fact, failing to do so can lead to expensive premium penalties.
Monthly Part B premiums jump 10 percent for each full 12-month period that a senior could have had coverage but didn’t sign up. That can really add up: a senior who fails to enroll for five years ultimately would face a 50 percent Part B penalty–10 percent for each year.
Often, you can delay starting Medicare without penalty if you’re still employed when you turn 65. Medicare is the primary health insurance payor if you work at a company with fewer than 20 employees; at larger companies, the employer’s coverage is primary. In the latter situation, a claimer can postpone filing for Parts A (hospitalization) or B (outpatient services), though many choose to enroll for Part A anyway because it doesn’t require premium payments. Seniors can enroll later on without penalty for up to eight months following retirement. (Note, however, that if you are enrolled in a high-deductible health plan and have a Health Savings Account (HSA), you can no longer contribute to your HSA if you are enrolled in Part A or Part B.)
If you do opt to postpone enrollment, it’s wise to notify Medicare at age 65 of your decision in order to ensure that there won’t be problems with premium penalties at a later time. This can be done by checking off a box on the back of a Medicare card that has been sent, by calling the Social Security Administration, or by going to the SSA website.
Consider signing up for Part A no matter what, because there is no premium. If you continue to work, you can have access to your employer-provided health insurance, which will keep your cost lower, and you will avoid any risk of the 10 percent surcharge for a late sign-up.
Working seniors also should keep an eye on the high-income premium surcharges for Part B and Part D, which are paid by individuals with $85,000 or more in annual income and joint filers with total annual income of more than $170,000. You can find a summary of the current surcharges here.
Consider tax diversification strategies ahead of retirement that might keep you under the income trigger, such as contributing to a Roth IRA or converting assets from a traditional IRA to a Roth. Although most people assume they will be in a lower tax bracket after 70, leaving everything in a tax-deferred IRA or 401(k) actually can push you into a higher tax bracket in retirement because of required minimum distributions (RMDs), which begin at age 70-1/2. RMDs are not required with a Roth. At the same time, reducing the value of your tax-deferred holdings will reduce your required RMDs from those accounts.
For Medicare premium purposes, portfolio withdrawals from a Roth IRA are not counted in the definition of taxable income.
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