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Will my Social Security benefit increase if my startup business takes off?

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; and he will answer as many as he can.

Ann – N.C.: I worked in management and made a good living for 25 years. After my last layoff at age 50, employers would not hire me because of my age. I did not work for three years, then started working at jobs that paid much less than I was earning before. Then I got laid off again and was forced to claim Social Security early at age 62 because I needed the money. I got some annual statements from Social Security showing that my benefits would be about $1,800 a month but when I filed I wound up with only $1,300. That did not sound right but the lady at Social Security I spoke with insisted it was correct. I have three questions:

  • Can I go back and ask them to review my monthly benefit?
  • I was married to my ex for 12 years and he earned a lot, but Social Security told me my benefit was greater than his. This doesn’t make sense to me.
  • I am a vibrant 66-year-old and started a business which appears to be taking off. If I pay into Social Security, will they increase my monthly benefit? Or, can I ask them to stop my benefit at restart it at 70?

Phil Moeller: I am sorry things have been rough; your tales track with what other older job seekers often tell me.

First off, Social Security benefits taken at 62 are at least 25 percent less than if taken at full retirement age (FRA). So, that $1,300 figure seems about right if your estimates were based on claiming at your FRA.

Now, on to your specific questions:

  • Sure, you can ask for a review. If your higher estimate was based on age-62 benefits, it sounds like you’d have a good claim.
  • The maximum spousal or ex-spousal benefit, if taken at FRA, is only half of the other person’s FRA retirement entitlement. Further, Social Security benefits are progressive, meaning that people with lower incomes get benefits that represent larger percentages of their wages than do better-paid persons. Adding these two facts together, your ex might need to earn triple what you’ve made for your ex-spousal benefits to be greater than your own.
  • Social Security benefits are based on your 35 years of highest earnings, as adjusted for wage inflation. From what you say, your business will be generating earnings that would rank among your top 35 (congrats!), so your benefits will rise whether you suspend them or not. However, if you can afford to suspend your benefits and forego this income, they will earn delayed retirement credits and could be substantially higher by the time you turn 70 and resume them.

Nadine: It may sound crazy, and it probably is, but, I don’t want Medicare. I’m 33 and have been on long-term disability with my former employer for five years. I have Lupus Nephritis and cannot work. Thankfully, the policy I have under my former employer includes long-term disability benefits until retirement age, which includes medical and prescription coverage. Unfortunately, their rules require that I applied for Social Security disability benefits in order to qualify for their long-term disability benefit. I have finally been approved for those benefits but was told that I would also be enrolled in Medicare.

I currently have a team of doctors, nurses, and prescribed medication that may not be covered by Medicare. There’s one particular medication I need – Benlysta — that my life depends on, and that Medicare may not cover due to the cost. I’ve spoken to my health benefits department, and they gave me a glimmer of hope. If I get documentation stating I’m not on Medicare, I’ll be able to keep my employer benefits.

I have already received my Medicare card showing that I had both Part A and Part B. I don’t think I was ever notified of this information by Social Security. When I called Medicare, the person I spoke with was stumped that I had even been enrolled yet in Medicare!

So, my questions to you are, can I get out of Medicare, will they give me the documentation I need, and if so, how? Also, if I drop Medicare, will I be able to get it back when I reach retirement age? If so, will I be penalized for late enrollment?

Phil Moeller: You are always free to terminate Part B of Medicare. The question is whether you will be socked with late-enrollment penalties later when you sign up for it again. The good news here is that you won’t! When you turn 65, you will have a new enrollment period and will not be exposed to late enrollment penalties. Here are the official Social Security rules explaining this situation.

I can understand why Medicare was stumped that you already had Part B. It normally takes at least two years for a person to get Medicare after they are approved for Social Security disability benefits. Perhaps the actual award date was earlier than you thought? The benefits company that oversees your long-term disability should be able to address this.

You will need to keep Part A, which by law you must have to receive any kind of Social Security benefit payment.

You should receive formal acknowledgment from Social Security about your Part B disenrollment. You then can provide this to your disability benefits plan and continue your current coverage (which sounds like a fantastic benefit for you). Best of luck in your effort to deal with your health challenges.

Charlotte: If you receive a government pension that is subject to the Government Pension Offset rule and your pension check increases, could that also decrease your Social Security benefit and does that have to be reported to Social Security right away?

Phil Moeller: I put your question to Social Security. They said that an increased pension can result in a lower Social Security benefit and that you should call Social Security and report such changes. Here is a further explanation from a Social Security publication:

If you get a pension from non-covered work
You should tell us if you start receiving a retirement or disability pension from a job for which you did not pay Social Security taxes — for example, from the federal Civil Service Retirement System or some state or local pension systems. Your Social Security benefits may need to be recalculated, and they may be reduced. Also, tell us if the amount of your pension changes.

Susan – Ill.: I read your book, which was very helpful in determining whether to go with Medigap or Medicare Advantage. Then I read that changes to Medigap rules in 2020 would close Medigap plans F and C to new purchasers. My husband and I are 69 and 67 and newly retired this year on Medicare Parts A and B. We are basically healthy and were going to select a zero premium Medicare Advantage HMO plan, since our primary physician is in the network, as are our few specialists. However, we would like to join Medigap F or G in 2019 before the F plan is closed to us. Should we still go with the HMO until then, or is it better to move now to a Medigap plan? The volatility of medical insurance and government makes us wary. Also, we live in Illinois where finances in our state government couldn’t be worse.

Phil Moeller: Based on my own research, I am advising people to get plan G. It covers everything that F does except it does not pay the Part B annual deductible, which is $183 in 2018. However, F plans are so popular that insurers can afford to set their annual premiums far higher than $183 above their G premiums! Given this, and the uncertainty about what will happen to Plan F premiums after the plans are closed to new purchasers, I think plan G is the more prudent choice.

Before buying anything, you should be aware that you might have trouble finding a Medigap plan, or one that is fairly priced. When you first got Medicare, you also had a six-month enrollment period for Medigap. During this period, insurers were required by law to sell you a plan and could not charge you more for it because of your health conditions. After that period ended, insurers in most states do not have to provide you these guaranteed access rights. You can find more about these rights on page 21 of Medicare’s annual guide to Medigap plans.

Donald: I currently receive $1,887 a month in Social Security benefits at age 67. I just got a letter from Social Security saying my Medicare Part B premiums are doubling because I had to take $70,000 out of my 401k in 2016 for unexpected medical bills for my daughter. By the way, after I turned 66 and filed for Social Security, the IRS taxed my benefits for the entire year and not just for the brief part of the year when I was younger than full retirement age. How can they take 100 percent more every month? Is this legal?

Phil Moeller: Based on your note, I think Social Security raised your Part B premium because your 401(k) withdrawal raised your taxable income and triggered Medicare’s high-income surcharges for 2018.

It’s possible to get these surcharges removed if you have a life-changing event that qualifies. On the face of it, taking money out of your 401(k), even if for a very good cause, does not seem to me to qualify. However, here’s the appeal form if you want to give it a try.

As for your benefits being taxed, all Social Security benefits are subject to being taxed by the IRS, not just those received prior to full retirement age. You might be thinking of Social Security’s earnings test, which can reduce benefits that are claimed prior to full retirement age.