Preparing For Retirement Part III
- This is Part III of a three-part series on retirement.
- We’ll review some of the most complicated aspects of retirement: Social Security and Medicare.
- For both of these benefits, there are a lot of choices and decisions to be made.
For the final part of our retirement series, we’re reviewing what can be some of the most complicated aspects of retirement. These are the governmental benefits of Social Security and Medicare. Each has their own set of rules, so it’s a good idea to make an appointment with your local Social Security office to review the choices for both benefits.
Starting with Social Security, you may know that you can start taking benefits at age 62. In some cases, if you’re a widow or widower, you can begin benefits at age 60, but for the majority of the population, the starting age is 62. Full retirement age has been changing over the years, with 66 and four months to age 67 being where it is right now.
What is full retirement age? It’s the point in time where your benefits are fully amortized. However, the Social Security Administration allows you to wait until age 70 to take your benefits, which gives your benefits time to grow. Generally, from ages 67 to 70, benefits grow by about 8% each year.
To demonstrate what this looks like, let’s use the example of benefits at age 67 being $2,500 per month. If they grow by 8% each year, that’s around $200 per month. In this example, monthly benefits would be:
- $2,500/month at age 67
- $2,700/month at age 68
- $2,900/month at age 69
- $3,100/month at age 70
In addition to deciding when to take Social Security benefits, if you’re married, there’s a decision to be made regarding spousal benefits. If you and your spouse both worked for at least 10 years each (40 quarters), you both have benefits.
What’s important to look at is how best to optimize both when to take the benefits, but also whether to use the spousal benefit. Each married person has their own primary benefit and a spousal benefit that their spouse can take.
Going back to the example of age 67 (for both spouses) and a primary benefit of $2,500 per month, let’s say your spouse could receive a spousal benefit of $1,250 per month. If their personal/primary benefit is $900/month, it would make sense that they would instead take your spousal benefit, as it’s the higher amount.
If one of you passes away, the IRS allows you to take the highest benefit. In the example we’re using, that would be $2,500 per month. You would lose the $1,250 benefit in this scenario.
Of course, there are many other factors that contribute to the benefit amounts, such as income needs, age of spouse, pre-retirement earnings, and more. The Social Security office can help you navigate this and calculate your actual benefit.
Another benefit that comes up in retirement is Medicare. You become eligible for it at age 65 and you will need to decide what types of coverage you want. Medicare is very complex, comprised of Part A, Part B, Part C, Part D, and so forth, plus a component called Medigap.
Starting with the basics, everyone can get Parts A and B. This starts at a cost of around $170 per month, and it’s a means-based cost that can increase to around $600 per month. Parts A and B are for hospitalization and doctor visits.
For the additional areas of Medicare, we have this matrix with nine questions to help you understand which components make sense for you.
If you want to keep costs down and select HMO coverages, then you would select Part C, which is Medicare Advantage. This means you would get Parts A, B, and C. If you want to customize your plan and get more benefits, you would select Parts A, B, and D (drug benefits) and a Medigap policy.
Then there are Parts E through N, with benefits that are costlier. It can be up to $1,000 per month for the higher levels of coverage. Much of this depends on whether you want to be able to see certain doctors and if you want coverage when you’re travelling overseas. Again, take the time to talk with someone in the Social Security office; they’ll help you navigate the options.
This concludes our three-part retirement series, but for those who’d like more information, we have a video series retirement course called Ready, Set, Reinvent. It includes a lot more detail and walks you through the entire process of getting ready for retirement. If you’d like information on it, just contact us at firstname.lastname@example.org and we’ll get you the course.
Of course, if you have any questions, please contact us at Coyle Financial and we’ll be happy to help make sure you’re getting off on the right foot as you step into your reinvention of retirement. Until next time, enjoy.
Gary Klaben serves as a Financial Advisor, and visionary for Coyle Financial Counsel. He has over 30 years of experience and is the author of Changing the Conversation, Wealth of Everything and co-author of The Business Battlefield. Whether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.
Learn more about The Coyle Process, approach designed to get your arms around the big picture, so you can make informed financial decisions. Ask Gary about The Coyle Process and schedule a complimentary consultation and start living the Good Life Managed Well™.
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