Editor’s Note: Journalist Philip Moeller is here to provide the answers you need on aging and retirement. His weekly column, “Ask Phil,” aims to help older Americans and their families by answering their health care and financial questions. Phil is the author of the new book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.
Low-income people receiving Supplemental Security Income (SSI) payments are supposed to automatically be switched over to “regular” Social Security retirement benefits once they turn 62 years old.
The logic here is that the government should not be paying out SSI benefits if someone could otherwise receive their normal Social Security benefits, which they have already earned.
I doubt this provision is well known by SSI recipients and, as evidenced by a report recently released by Social Security’s internal auditors, it appears a lot of Social Security employees do not know about it either.
Across the country, more than 14,400 SSI recipients are 62 or older and fully entitled to Social Security, but when auditors looked at a random sample of 50 cases, they found about a quarter of them had not been signed up for Social Security.
Statistically, extrapolating these findings to all 14,400 affected SSI recipients is not advised because it gives you a fairly large margin of error at 14 percent. But, the auditors did not give us a larger sample to work with, so we will stick with their estimates.
The auditors said their findings indicate about 3,456 folks were receiving $49.5 million in annual SSI benefits when they should instead have been getting $54.3 million in Social Security retirement benefits. So, the government was underpaying SSI recipients by a rough estimate of $4.8 million.
What the report did not mention, but I will, is that people who unintentionally trigger their own Social Security retirement payments at age 62 are locking in big reductions in their Social Security for the rest of their lives. A person who defers Social Security until age 70 would receive 75 percent more money each month for the rest of their life than if they claimed at age 62.
Again, if a person is receiving SSI payments when they turn 62, they will automatically be transitioned to Social Security benefits. The only way to avoid this is to drop SSI and not claim Social Security before the age of 62.
Now, if someone is desperate for SSI payments, they may not care about this or have much choice. I get it. But early claiming of benefits is a big deal, and it’s particularly important for people without other sources of income. I have to wonder if the 75 percent of those 14,400 SSI applicants over age 62 who were required to file for Social Security were told about the adverse lifetime consequences of filing early for their benefits.
And now, on to this week’s reader mailbag.
Tips on suspending Social Security benefits
James: I began taking Social Security at 62. I am now 65. If I were to go back to work could I suspend Social Security and add to my monthly payout? I thought that option was stopped. And if so, would I need to wait until age 70 to turn it back on?
Phil Moeller: Once you reach your full retirement age, you can still suspend your benefits and earn delayed retirement credits. What the new law said is that if you suspend your benefit, no one can claim a benefit on your earnings. You do not have to wait until 70 to refile and could do so any time before that should you need the money. If you do suspend your benefit at age 66 and resume it four years later, it will be 32 percent larger each month for the rest of your life.
Cheryl – Colorado: My husband is receiving Social Security disability benefits. I understand that these will automatically change to regular Social Security retirement benefits when he reaches his full retirement age (FRA). At that time, I want to suspend my benefits but when I asked a Social Security representative about this, I was told that I could not do so. Is that true? Also, if I take spousal benefits now or at FRA, will that automatically mean I cannot defer own retirement benefits and allow them to grow until age 70?
Phil Moeller: It sounds like you are not yet receiving Social Security benefits. So, when you talk about suspending your benefit, I am confused. Might you instead be referring to filing a restricted application for just your spousal benefit while deferring your own retirement benefit until as late as age 70?
If you were at least 62 years old as of the beginning of 2016, you are permitted under current rules to file such a restricted application when you reach your FRA. Your husband must already be collecting his benefit to entitle you to file a restricted application but, as your note explains, he is already doing so.
Here is Social Security’s formal explanation of this rule:
Can I restrict my application for benefits and apply only for spouse’s benefits and delay filing for my own retirement benefit in order to earn delayed retirement credits?
If you turn 62 before Jan. 2, 2016, deemed filing rules will not apply if you file at FRA or later. This means that you may file for either your spouse’s benefit or your retirement benefit without being required or “deemed” to file for the other. In your case, you may also restrict your application to apply only for spouse’s benefits and delay filing for your own retirement in order to earn delayed retirement credits. However, if you turn age 62 on or after January 2, 2016, you are required or “deemed” to file for both your own retirement and for any benefits you are due as a spouse, no matter what age you are.
I know this stuff is really confusing! Please let me know how things turn out.
Medicare late-enrollment penalties
Edna – Ohio: My mother is 84 years old and has never had a Medicare D drug plan. How much of a penalty will she have if she starts one this next year?
Phil Moeller: Wow. This penalty is the largest I’ve personally heard about! Medicare charges late-enrollment penalties to discourage healthy people aged 65 or older from simply not paying for Medicare until they think they need it.
It’s applied to the national average monthly premium for a Part D plan, which has been about $35 a month. The penalty is 1 percent a month for each month she is late. If she is 19 years late, this would be 228 months late! By my rough math, her penalty would be about $80 a month and would be added to whatever premium she winds up paying for the Part D plan she selects. This is certainly a big percentage penalty but might be a bargain depending on how much insurance help she gets with her medications.
Medicaid and income limits
Richard – California: I’m 62 and my income is low enough to qualify me for Medicaid coverage through California’s Medi-Cal program. When I’m 66, I plan to begin taking Social Security benefits and understand that Medicare will be taking a portion of those benefits. It doesn’t seem right that I will have to pay for coverage after retirement when it’s all covered now – including 11 prescription drugs! Clearly, I need some clarification and hopefully you can provide that.
Phil Moeller: Social Security payments count as income, so the issue will be whether your benefits will increase your income enough to affect your qualifications for Medi-Cal. If not, your Social Security payments should not deduct for Medicare premiums. But if so, you would see the deduction.
You should be able to find this out ahead of time by finding out your projected Social Security benefit and then finding out from Medi-Cal how this income would affect Medi-Cal eligibility.
Anonymous – Texas: I have been on Medicaid for several years. My ex-husband is wanting to leave his assets to me. Will I have to pay Medicaid back if I inherit the assets?
Phil Moeller: Medicaid rules are set at the state level, and I am not an expert on these different state rules. If there is much money involved, you might think about hiring an attorney to help fashion your ex-husband’s bequest in the most favorable possible way.
The State Health Insurance Assistance Program (SHIP) provides free Medicare counseling. Perhaps it has someone in a Texas office who can help you with Medicaid rules.
Social Security and Medicare premiums
Ted – Illinois: Can my monthly Medicare premium amount be deducted on a pre-tax basis from my monthly Social Security benefit check?
Phil Moeller: Not only can it; it must! By law, your Part B premium must be deducted from your Social Security payment. In some cases, your Part D drug plan premium also may be deducted. Other private Medicare premiums are paid directly to insurers.
Priscilla – Pennsylvania: My employer, a small nonprofit with six employees, asked me to go off its health insurance plan and get Medicare since I had turned 65 years. I was told I would be made “whole” and would not be out of pocket since the other employees do not pay anything for company health insurance. Unlike the other affected employees, however, I receive Social Security benefits and was told that by law my Part B Medicare premium must be deducted from my Social Security. The other two employees, while 65, do not yet receive Social Security and pay Medicare premiums directly to the government. They are reimbursed by my employer for these out-of-pocket expenses, but I am not! Is this legal? What difference does it make how the monthly premium comes out of a person’s money?
Phil Moeller: Yes, it’s legal, as I said in my answer to Ted. However, I know of nothing to prevent your employer from reimbursing the Medicare premiums of all three of you. Here is a piece I wrote that explains the rules under which small employers can create such reimbursement accounts. Having said that, I do not know if your employer’s decision not to repay you is legal. Morally, it seems clear enough that he should repay you if he makes them whole.