Medicare provides critical health benefits for millions of seniors 65 and over. Similarly, Social Security serves as a crucial source of income for countless retirees. And though the two often go hand in hand, you actually don't need to file for Social Security in order to receive coverage under Medicare.
Medicare coverage kicks in at age 65, and your initial enrollment period begins three months before the month you turn 65 and ends three months after the month you turn 65. But whether you're retiring at 65 or still working, you're allowed to sign up for Medicare without filing for Social Security simultaneously. In fact, in many cases, it pays to wait on Social Security for several years.
Why hold off on Social Security?
Though you're eligible for full coverage under Medicare starting at age 65, claiming Social Security at 65 might put you at a disadvantage. If you file for Social Security then, you'll wind up slashing your benefits as a result of not having reached full retirement age (FRA) yet.
Your FRA is based on the year you were born, and for today's older workers, that age is 66, 67, or somewhere in between. Meanwhile, your monthly Social Security benefit payment is calculated based on what you earned during your career.
If you wait until FRA to first file for Social Security, you'll get to collect your base benefit payment in full. But if you start taking benefits before reaching FRA, you'll reduce those payments for each year you file early.
Currently, eligible recipients are allowed to start collecting Social Security as early as age 62, which means that, if you decide to sign up for benefits at the same time your Medicare coverage kicks in, you'll be eligible for both programs concurrently. But if your full retirement age is 67 and you start getting Social Security benefits at 65, you'll reduce those payments by about 13.3%. Worse yet, that reduction will remain in effect for the rest of your life.
That's why it often pays to hold off on Social Security if you don't actually need the money right away. Imagine, for example, that you choose to retire at 65 and want Medicare for the health coverage. But let's say you've saved nicely for retirement, or have a side business that generates enough income for you to pay the bills. In this scenario, it makes sense to enroll in Medicare. (In fact, you absolutely should enroll in Medicare -- more on that in a minute, but not sign up for Social Security just yet.)
Furthermore, you should know that if you delay your Social Security benefits past FRA, you'll score an instant 8% boost in payments for each year you hold off. Though this incentive runs out at age 70, if your FRA is 66, you have an opportunity to increase your monthly benefits by 32% -- for life.
Don't wait on Medicare
While it pays to hold off on Social Security as long as possible to ensure that you get the most out of your benefits, delaying Medicare is a different story. In fact, if you fail to sign up for Medicare during your initial enrollment period (which, again, is the seven-month window starting three months before the month of your 65th birthday and ending three months after the month of your 65th birthday), you'll face a 10% increase in your Part B premiums that could raise your healthcare costs for life. You'll also face a penalty if you go too long without a Part D prescription drug plan.
Keep in mind that there are exceptions to this rule. If you're still working at age 65 and have health insurance through your employer, and your company employs 20 people or more, you don't have to enroll in Medicare right away. Rather, you'll get a special enrollment period that begins once you leave your job, or your group health plan is terminated. On the other hand, if you work for a company that employs fewer than 20 people, you'll need to sign up for Medicare during your initial enrollment period to avoid a penalty. But if you do, you're in no way compelled to file for Social Security at the same time.
Though many people tend to associate Medicare and Social Security with one another, the two are very different beasts. That's why it pays to read up on how these vital programs work, and then develop your own strategy for making the most of them.