Social Security and Medicare

Social Security and Medicare are the two basic federal programs available to retirees.  Understanding the benefits and shortcomings of each is fundamental to sound financial planning.

Social Security

Social Security is a government-guaranteed, inflation-protected lifetime annuity.  In a climate of vanishing employer-provided pensions, it represents one of the few remaining guaranteed income sources for today's retirees. 

Benefits eligibility

A person becomes eligible for benefits upon completion of 10+ years of Social Security-covered employment.  This includes both U.S. and non-U.S. citizens. 

Benefits are based on the highest 35 years of Social Security-covered earnings, indexed for inflation.  Your average indexed monthly earnings (AIME) is subject to a 3-part formula that determines your "primary insurance amount" (PIA) - the benefit you are eligible to receive at full retirement age (FRA).  FRA varies with birth year - 66 for those born 1943-1954, 66 + 2 months for every year between 1955-1959, and 67 for those born 1960 and later. 

Calculate your benefits HERE

Penalties and Bonuses

A person may receive benefits as early as age 62, but that results in a permanent reduction by as much as 30%.  Conversely, delaying benefits past FRA can have advantages.  For each year of delayed benefits beyond full retirement age, a person receives "delayed retirement credits" (DRCs) of 8% until age 70.  In addition, any applicable cost of living adjustments (COLAs) in those years are also applied to future benefits. 

There is no "one size fits all" solution to the question of when to take benefits, but in general the longer a person lives, the greater the benefits of delaying Social Security until age 70 both in terms of retiree and potential survivor benefits for a spouse/partner.  With today's increasing life expectancies, it is therefore important to work with your financial planner to coordinate Social Security benefits with other potential income sources. 

Spousal, ex-spousal and widow(er) benefits

Social Security also provides benefits for spouses, ex-spouses, widow(er)s, divorced widow(er)s and dependent children.  Benefits are available to non-US citizens and spouses, although pension income from a job not covered by Social Security may affect primary and/or spousal benefits.  For more on these aspects of Social Security, as well as tax treatment of benefits and claiming strategies, please contact our office.


Created in 1965 under President Lyndon Johnson, Medicare is the cornerstone of retiree health insurance for most Americans.  Like Social Security, it is funded through payroll taxes, but unlike Social Security there is no cap on earnings subject to the tax, and high-income earners may pay an additional Medicare surtax as part of the Affordable Care Act. 

Medicare is packaged in two major parts. Part A is hospital insurance protection. It covers hospitalization, some hospice care, and a limited amount of post-hospital skilled nursing and home health care. Part B, which is medical insurance, helps cover physicians’ services, outpatient hospital care, physical therapy, diagnostic tests, and a variety of other services. More recently, Medicare added Part D, prescription drug coverage.

Medicare Costs

Every time you go to the hospital, you have to pay a certain amount of your hospitalization costs, unless your visits are separated by fewer than 60 days. If that’s the case, you pay the deductible only the first time. If you stay in the hospital longer than 60 days, you will be required to pay a copayment every day for days 61 through 90.

You also have a lifetime reserve of 60 days that can be used in conjunction with more than one extended stay. These days also have an associated copayment. Medicare won’t cover any stays longer than 90 days once you have depleted your 60-day reserve.

Supplemental Coverage

Medicare supplemental insurance, or “Medigap,” is designed to pick up where Medicare stops. As such, it usually pays the deductibles and copayments required by Medicare. Coverage will vary according to the benefits outlined in each specific policy, but plans are standardized nationwide for ease of comparison.  For example the "F" plan, the most popular and comprehensive, includes the same coverage regardless of where a person lives; only the premium will vary.  In addition, if applied for in a timely fashion, medigap policies are "guaranteed issue" - applicants may not be denied coverage based on pre-existing health conditions. 

What About Long-Term Care?

Medicare provides only limited coverage for skilled nursing care and pays for only up to 100 days of care following a three-day hospital stay. Medigap does not fill the gaps in this coverage.

If you are concerned about meeting your potential long-term-care needs, you should look into additional insurance to help fill in the gaps. In many cases, it may be best to consider purchasing a private long-term-care insurance policy to help protect against these potentially devastating costs.

The retiree healthcare landscape is ever-changing, and there are several key enrollment periods to be aware of.  We are authorized to offer AARP Medicare Supplemental plans.  For guidance on maintaining your health coverage into retirement, please schedule an initial phone consultation.