Social Security and Medicare: Planning Beyond their Limits
By Leu & Peirce, PLLC
On August 14, 1935, on the heels of the Industrial Revolution and the Great Depression, President Franklin D. Roosevelt signed the Social Security Act into law. The Act created a “social insurance” program designed to pay workers 65 and older a continuing income after retirement. Fast forward almost a century, and Social Security remains an integral part of the retirement plan of almost every American worker.
Social Security retirement benefits are individualized: the amount you receive depends on the amount you earned throughout your career, and your age when you begin receiving benefits. When you work and pay Social Security taxes, you earn credits toward Social Security benefits. An individual born since 1929 needs 40 credits, or 10 years of work, to qualify for retirement benefits. The more you earn during your working years, the higher your benefits will be. Full retirement age depends on birth year. Full retirement age was 65 for many years, but began increasing monthly in 2000, and is 66 for those born from 1947 to 1954. Full retirement age begins increasing again in 2020; for anyone born in 1960 or later, full retirement age will be 67. Individuals who elect to receive their retirement benefits before full retirement age will receive reduced monthly benefits.
If you have not worked, or do not have enough Social Security credits to qualify for your own retirement benefits, but you are married or were married for at least 10 years, you may still qualify for spousal benefits. To qualify for spousal benefits, you must be at least 62 years old (60 if widowed) or caring for a child entitled to receive benefits on your spouse’s record (younger than 16 or disabled). If the latter, you may qualify for spousal at any age. Your full spousal benefit could be up to one-half the amount your spouse is entitled to receive at full retirement age.
Additionally, even if you have enough credits to qualify for retirement benefits on your own work history, you may still apply for spousal benefits if your amount is lower than half of your spouse’s benefit. The Social Security Administration provides a helpful online tool called the Retirement Estimator (www.ssa.gov/estimator), which provides personalized retirement benefit estimates and calculations of various scenarios to compare your options.
One aspect of retirement that has changed dramatically over the years is the financial impact of funding long-term care needs as life expectancy has increased. Currently, 70% of individuals turning 65 will need some form of long-term care in their remaining years. Long-term care costs range from $3,000 to $16,000/month in the DFW area. Social Security was simply not designed to provide sufficient income to support such extensive costs.
Unfortunately, Medicare was also not designed to pay for long-term care. Signed into law in 1965 by President Lyndon B. Johnson, Medicare was another type of “social insurance” designed to serve as a basic health insurance program for all individuals age 65 or older who had paid into the system. Traditional Medicare consists of two parts, Part A and Part B. Medicare Part A provides coverage for in-patient hospital care and was funded by the Medicare taxes paid. Medicare Part B is an optional medical insurance program that covers medically necessary services and supplies, and for which participants pay a monthly premium, which typically is deducted from their Social Security benefits. Contrary to popular belief, no Medicare program, whether traditional Medicare, Medicare Advantage, or a Medicare supplement plan, covers long-term custodial care. For example, Medicare does not pay for the cost of assisted living or memory care, and only pays for a portion of skilled nursing care following a hospital stay of at least three days. Even then, the maximum paid by Medicare for skilled nursing is 100 days. All individuals approaching retirement age should have a plan in place for funding their long-term care needs, beyond Social Security and Medicare.
As you contemplate retirement, it is important to understand fully the benefits you can expect to receive under Social Security and Medicare. It is even more important to understand the limitations of these two programs, so you can prepare adequately. For a better understanding of available planning options for funding your retirement and long-term care, and to find an Elder Law attorney in your area, go to www.naela.org.
Lori Leu, Erin Peirce, Lauren Olson, Laura Chavero, and Brisha Gardner are Elder Law Attorneys with Leu & Peirce, PLLC. They can be reached at 972-996-2540.