New research from The Street estimates the total lifetime value of Social Security and Medicare is $570,000 for the average worker. Your total lifetime benefit might be quite different from the average, depending on your earnings and the number of years you work. But one factor that shouldn't significantly change the value of your lifetime benefits is the timing of your Social Security application.
Social Security income versus lifetime benefit
It is true that the size of your monthly Social Security checks will be higher or lower based on when you begin receiving benefits. These adjustments hinge on what's called your full retirement age (FRA). That's the age you qualify for your full Social Security benefit as calculated from your earnings history. If you were born after 1943, your FRA is somewhere between 66 and 67. You can file for Social Security earlier than that -- as early as age 62 -- but your benefit is reduced by up to 30%. You can also file as late as age 70, in exchange for a benefit increase of up to 24%.
Those adjustments obviously affect your monthly Social Security income, but they shouldn't affect your cumulative lifetime benefits. Here's why. When you claim earlier, you get a longer stream of smaller payments. Claim later and you receive a shorter stream of larger payments. The formula is designed to deliver a similar lifetime benefit either way. In other words, those timing adjustments amount to something like the difference between 12 payments of $50 or six payments of $100.
Medicare eligibility isn't affected by work status
As for Medicare, you become eligible for benefits at age 65, even if you're still working. If you are employed by a small company with fewer than 20 employees, Medicare will be your primary coverage and your employer plan will be secondary. If your employer is a large company that offers a group health plan, your coverage through work will pay your claims first and Medicare will operate as your secondary insurance.
Intentionally delaying Medicare enrollment could change your lifetime benefit value, but there aren't many situations when this strategy works in your favor. Most people don't pay a premium for Medicare Part A, which covers inpatient services. So there's no real upside to forgoing this coverage. Medicare Part B for outpatient services does have a monthly premium. You could save yourself that monthly cost by delaying your benefits, but that's only an option if you work for a large company. If you're not on a health plan with more than 20 workers, you could actually get penalized by delaying your Part B enrollment.
Check your Social Security status
The $570,000 estimate of lifetime Social Security and Medicare benefits is based on a single male worker who earns average wages and retires in 2020 at age 65. If you don't match that description, your benefit value will be higher or lower. You can check your own benefits by setting up an account at my Social Security. The online portal doesn't estimate lifetime benefit or Medicare, but it does show you the value that fluctuates most -- your projected monthly income from Social Security at different claiming ages.
Social Security timing is still important
Practically speaking, the timing of your Social Security claim is a major financial decision, even if it doesn't materially change your lifetime benefit. Your income needs and your health are two factors that will likely drive your timing strategy. If you're short on savings, a higher Social Security benefit can help offset your shortfall. In that case, you'd delay your Social Security benefits as long as possible. But if you've been pushed out of your job and can't find another opportunity, you may need to claim early just to keep the bills paid.
Deteriorating health may be another good reason to claim early. If you're worried about how many functional years you have left, you might accept lower Social Security income now so you don't miss the chance to enjoy the retirement lifestyle. The good news is you can make that decision knowing that it ultimately shouldn't shrink your lifetime benefit.