The ABCs ( and Ds) of MEDICARE

Plus, how to get the most out of Social Security.

If figuring out Medicare and Social Security I makes your head spin, we’re here to help with these must-knows.

Signing up for Medicare isn’t necessarily automatic

It sounds simple, but not everyone remembers to sign up for Medicare, the federal health insurance program for Americans ages 65 and older, says Jean Chatzky, host of the HerMoney podcast. The timing of when to do so is also really important: You’re eligible for Medicare starting three months before you turn 65 and ending three months after the month you turn 65. “If you don’t sign up for Medicare on time, you risk a 10 percent surcharge on your Medicare Part B premiums,” she says. “You also risk a delay in coverage.” The one exception to this: If you opt for Social Security benefits when you turn 65, you’re typically enrolled in Medicare at the same time.

Medicare isn’t free health care

It’s true there is no charge for Part A, which covers your hospital and inpatient needs. But there may be a deductible or coinsurance costs or your coverage may run out if you’re in the hospital for more than 90 days. Part B, which in 2021 costs $148.50 per month, covers doctor visits, certain lab tests and preventive care, such as flu shots, but it doesn’t include deductibles, coinsurance or prescription drugs. Part D helps cover prescription drug costs. In addition to parts A, B and D, experts often recommend private supplemental insurance, which covers more of what A and B don’t.

An alternative option is Part C, now called Advantage plans, which bundle A, B and D. While the airwaves are flooded with ads for “free” Medicare Advantage plans, that’s not quite accurate, says Rhian Horgan, founder and CEO of Silvur, a financial app dedicated to helping Americans ages 50 and older navigate retirement decisions. “Once you add in deductibles and out-of-pocket costs, the total cost of a Medicare Advantage plan can be $500-plus per month. Before choosing a plan, consumers need to look at the total cost—not just the monthly premiums. Even with these plans, most Americans are spending $5,000 to $8,000 per year for health care during retirement,” Horgan says.

Medicare costs vary depending on where you live

Since Medicare Parts A and B are federal programs, the costs for coverage are the same no matter where you live in the U.S. However, drug plans and supplemental plans vary in price depending on your zip code. “This in itself should influence where you choose to live during retirement and help you make sustainable financial decisions during this phase of life,” Horgan says.

Social Security checks are based on your earnings peak

While the original premise of Social Security to provide economic security to retiring Americans still stands, there are some misconceptions about what to expect in terms of the `ollar figure on your first -ocial -ecurity check. “Your benefit is based on your highest 35 years of earnings,” Horgan says. “This is important because if you take time out of the workforce to take care of children or an aging parent and you’re out of work for three to four years, for example, you’ll end up with zero in your records. This will lower your retirement benefit an` this can be a real issue, especially for women.” Open a Social Security account at ssa.gov to see your personal payout estimates.

Start thinking about a ‘claiming strategy’ for Social Security

Instead of saying, “I’m 62, I’m eligible for Social Security,” Chatzky urges people to think carefully about the timing of when to sign up. “Social Security represents the lion’s share of income for the majority of American seniors,” she says. “And the difference in your monthly benefit between taking it at 62 when you’re first eligible and waiting until age 70 is enormous.” That’s because you get an 8 percent increase in benefits for every year that you wait to claim your Social Security benefits. (Payout estimates for 62, 65 and 70 are available on ssa.gov.)

“If you can, it might make more sense to tap into your other retirement assets in the interim,” she says. “This way you’ll accrue that increase in your monthly check once you do start taking Social Security.” To help you decide on your best option, Chatzky suggests plugging your financial information into such Social Security calculators as maximizemysocialsecurity.com. By doing so, you can assess your financial situation an` help decide when the time is right to finally sign up for the monthly checks you so deserve after a lifetime of hard work.