How Do Social Security and Medicare Fit into Your Retirement Planning?
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How Do Social Security and Medicare Fit into Your Retirement Planning?
As you move closer to retirement, determining your retirement income and healthcare coverage becomes increasingly important. Americans are living longer than ever before at a time when retirement and healthcare expenses are increasing. At age 65, the typical retirement age, the average man will live until age 83, while the average woman will live until age 85, according to the Social Security Administration.
Factoring Social Security into Retirement Planning
Social Security provides monthly income to retirees based on the contributions they made while they were employed. The exact amount of the monthly benefits depends on how much you earned during the years you worked and the age at which you retire. Some people who collect Social Security will have to pay income taxes on their benefits.
If you are divorced and haven’t remarried, you can claim your former spouse’s benefits if those benefits are higher than what you could get with your employment record. Social Security also provides coverage to spouses and widows and widowers.
Social Security benefits last as long as you live. While Social Security is an important component of retirement planning, Social Security benefits are not meant to provide enough retirement income to live on.
While most Americans born after 1938 are eligible to collect Social Security benefits beginning at age 62, in most cases, you might be better off if you wait until ages 65 or 67 because you will collect a larger benefit and ultimately receive more money over your lifespan. For example, a 54-year-old who is earning $30,000 a year with enough employment credits to qualify for benefits who plans to retire at age 62 will receive approximately $934 per month. However, if that same 54-year-old waits until age 67 to begin receiving Social Security, that benefit increases to about $1,373 per month. And it increases even more, to about $1,716, if the 54-year old waits until age 70. (These figures are in today’s dollars and are not adjusted for inflation. They also make certain assumptions about your past earnings.)
To find out more about what kind of Social Security benefit you might receive at retirement, check out these Social Security calculators. You can get more information about your earnings history and how that impacts your future benefits by logging into your Social Security account online.
Medicare and Retirement Planning
Medicare provides health insurance coverage beginning at age 65. Medicare has four parts, including:
- Part A: Hospital insurance that pays for hospital stays and services
- Part B: Medical insurance that pays for doctor’s visits and outpatient services
- Part C: Medicare Advantage plans through which you can choose to receive your hospitalization and medical coverage
- Part D: Prescription drug coverage
Medicare is an important component of retirement planning because healthcare costs are a rising portion of retirement budgets. While Medicare isn’t free, monthly premiums, co-pays and deductibles are fairly reasonable. For more information about what Medicare is likely to cost you during retirement, check out the government’s Medicare Website.
When working on a retirement budget, it is important to factor these Medicare-related costs in and to plan on some of those costs increasing over time. In addition, Medicare doesn’t cover long-term care costs such as assisted living or nursing homes, although it does cover some rehabilitative services after surgeries or medical events such as a stroke.
If you are low-income
Medicare does offer some financial assistance for low-income people who don’t have the ability to pay some or all of their premiums, co-pays and deductibles for hospitalization, outpatient services and even prescription drug coverage. If you meet Medicaid income levels and you are 65 or older, you may be eligible for Medicaid, which may then pay for more of your health insurance expenses, including long-term care. More information is available at the Medicare Website.
