By Catherine Siskos,
From Kiplinger’s Personal Finance
Q: It’s often said that Social Security benefits increase annually by 8 percent every year that someone waits. Many financial experts use this figure too, but I found the 8 percent assumption to be false. Are there any reasons why someone who waits wouldn’t see an 8 percent bump in benefits per year?
A: It depends on the starting point. Your primary insurance amount (your benefit at full retirement age) increases 2/3 of 1 percent every month you delay between your full retirement age and age 70, or 8 percent for a full year. These increases are called delayed retirement credits.
Before your full retirement age, however, instead of earning delayed credits, your benefit is reduced at a different rate if you claim early. “The reduction works backward going down from full retirement age by 5/9 of 1 percent every month over the first 36 months,” says Martha Shedden, executive director for the National Association of Registered Social Security Analysts. Thereafter, it declines 5/12 of 1 percent per month.
So, for someone with a full retirement age of 67 who claims at the earliest age possible, 62, the benefit is reduced 5/9 of 1 percent per month to age 64 and then 5/12 of 1 percent monthly to age 62, she says. Waiting to claim between age 62 and your full retirement age increases the benefit at those rates, which works out to 5 percent per year between ages 62 and 64 and 6.66 percent annually from ages 64 to 67. That higher 8 percent rate is earned only after full retirement age.
Q: My husband will enroll in Medicare and will have additional coverage from my job that will take the place of a medigap plan. That coverage will end when he is 68. Will switching him to another medigap plan at that time fall under guaranteed issue access, with no higher premium or waiting period?
A: Yes, he will have guaranteed issue access, with no penalty in terms of coverage or premium because he lost that insurance through no fault of his own, says Danielle Roberts, co-founder of Boomer Benefits, an insurance agency that helps older adults with Medicare. “If you lose access to any kind of retiree health plan, you will have 63 days to enroll in a Medicare plan.” This is true whether the plan is considered primary or secondary health insurance, she says.
A few months before your husband’s 68th birthday, Roberts suggests that you start shopping around for a medigap plan. “Most people contact us before they lose coverage, and we use that 63-day window to set up the new medigap plan to start the day after they lose retiree coverage.”
(Catherine Siskos is managing editor at Kiplinger’s Retirement Report. For more on this and similar money topics, visit Kiplinger.com.)
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