Government Benefits: Social Security and Medicare
Social Security
Benefits are based on the 35 highest indexed earning years. Claiming before full retirement age (67 for those born in 1960 or later) permanently reduces benefits by 5/9 of 1% per month for the first 36 months and 5/12 of 1% per month thereafter, producing a 30% reduction at 62. Delayed retirement credits add 8% per year up to age 70 and stop there. Spousal benefits max out at 50% of the worker's primary insurance amount when claimed at the spouse's FRA, and survivor benefits can reach 100%. A divorced spouse can claim on a marriage lasting at least 10 years if currently unmarried. Up to 85% of benefits may be taxable, and the earnings test reduces benefits before FRA. The WEP and GPO provisions were repealed in early 2025; older prep material may still test them.
Medicare
Eligibility generally begins at 65 with 40 quarters of covered work. The initial enrollment period spans the seven months around the 65th birthday. Part A is premium-free with sufficient work history; Part B carries an income-related premium under IRMAA based on MAGI from two years earlier; Part D covers drugs and includes a statutory annual out-of-pocket cap; Part C is Medicare Advantage. Medigap supplements original Medicare and generally does not coordinate with Advantage plans.
Traps
- Assuming Medicare covers custodial long-term care. It does not.
- Missing the Part B late enrollment penalty, roughly 10% per 12-month delay and generally permanent.
- Assuming a spouse can stack a personal and spousal benefit; they receive the larger of the two.
- Believing delayed credits continue past age 70.
Rule of thumb
For a healthy client, or the higher earner of a couple, delaying to 70 often maximizes lifetime value because it locks in the largest survivor benefit.