Blog

Collecting Social Security Retirement and Working Penalties

This is an important post for everyone who is thinking about collecting their Social Security retirement.  You need to know about collecting Social Security retirement and working penalties.  If you receive early retirement benefits and continue to work, your Social Security payment may be reduced

In some cases, Social Security retirement benefits along with your savings and investments are not enough to live on comfortably.  Therefore, many people need to keep working for a few years after they claim early retirement benefits from Social Security.  Sometimes people decide to keep their job or take a new one in order to stay active and involved in the business world.

If you earn a high enough salary while you work, your lifetime earnings average can increase. This factor can increase your retirement benefit rate for the future.  However,  if you claim early retirement benefits and continue working,  once you earn over a certain amount annually, you may receive reduced  Social Security retirement benefits.  This  reduced rate can apply until you reach the full retirement age. The lower benefit amount will apply only during the years you continue to work.  This does not have a lasting consequence on the amount of  the benefits you receive for future payments.

Social Security subtracts money from your retirement payment if your annual earned income reaches a certain amount.  They can do this until you reach the full retirement age which is age 66 for most people

In 2017, the annual earned income limit is $16,920 which comes out to about $1,410 per month.  The amount of the annual earned income limit is adjusted up slightly every year. The benefits you receive from Social Security retirement are reduced by $1 for ever $2 you earn over the limit before you reach the full retirement age.   There is no limit on  the money you are able to earn once you reach the full retirement age.  This means that no matter how much money you make you will still receive your full Social Security benefit.

Collecting Social Security Retirement and Working Penalties

Please note; Social Security can withhold your monthly payments entirely until  you have paid the over the income limit penalty.  They do not reduce each monthly check by a small amount. However, if you are still working and lose your job, through no fault of your own, you can collect unemployment benefits.  You can collect your Social Security benefits as well as unemployment.

If you would like more details about how working can effect your Social Security benefits click here 

Special Rule as You Approach Full Retirement Age

There is a special exception for those that are making over the income limit in the year they turn their natural retirement age. If you will reach full retirement age in 2017, you may earn up to $3,740 per month without losing any of your benefits, up until the month you turn 66. But for every $3 you earn over that amount in any month, you will lose $1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.

Collecting Social Security Retirement and Working Penalties

Gaining Back the Reduction in Benefits From Working

The amounts of early retirement benefits you lose as a set off against your earnings are usually not  gone forever. When you reach full retirement age, Social Security will recalculate upward the amount of your benefits to take into account the amounts you lost because of the earned income rule. The lost amount will be made up on an annual basis until all penalized income is recovered.  Given it is only paid in small amounts, it could take up to 15 years to pay the money back.  Keep in mind, none of this readjustment will change the permanent percentage reduction in your benefits that was calculated when you claimed early retirement benefits (the early retirement penalty).

Medicare Advantage or Medicare Supplement Plan

Which is better, a Medicare Advantage or Medicare Supplement plan?  Medicare Supplements are also called Medigap plans.  This is a common question and the answer is “it depends”.  Medicare Advantage Plans and Medicare Supplement plans are very different.  They both have strengths and weaknesses.  The key is to know the difference between them as well as how they work with your situation.  We can start by pointing out how each plan works and how they are different.

Medicare Supplement plans

Medicare Supplement plans are private plans that insurance companies offer.  There are a number of different plans that range from A through N.  All have different benefit structures although they are standardized in most states. This means the benefits must be the same regardless of the company that offers the plan.  If 8 companies offer a plan N in a state, they must all have the same benefits. The only difference is price.

Medicare supplement plans are secondary to Original Medicare.  When someone goes to the provider, they show their Original Medicare card.  The provider bills the card and Medicare pays their portion of the benefits.  Your Medicare supplement company will receive a charge for the portion that is left over and they will then pay that portion. It is a very simply process and offers some big positives over an Advantage plan.  Below, we will list the advantages as well as disadvantages of using a Medicare Supplement.

• Advantages
  • No network. Since Original Medicare is primary, the person using a Medicare Supplement can go to any provider that accepts Medicare. The company offering the supplement makes no difference.
  • No Managed Care. This usually means you do not need to get prior authorization on services such as surgeries, major or advanced radiology, skilled nursing and other services.
  • You can determine the exact amount of Medicare coverage you want based on which supplement plan you choose.
• Disadvantages
  • Monthly premium. In addition to your monthly part B Medicare premium, you will also pay a monthly premium for the Medicare supplement.  Premiums can range from $35 a month to $270 a month depending on the plan and state you live in.
  • Medicare supplements do not include drug coverage.   Additionally, you must purchase a stand alone part D plan if you want drug coverage.

Medicare Advantage Plans

In fact, Medicare Advantage plans are also called MAPD’s, Medicare Replacement Plans and Managed Medicare Plans. Medicare Advantage plans are not secondary to Original Medicare.  The Medicare Advantage plan becomes the primary insurance.  The insured is still in the Medicare program but Original Medicare is not used for insurance. An advantage plan works in a similar manner to a group or individual health insurance plan. (they are not the same but have a similar set up.)  This means the client has set benefits which are in the form of co-pays and cost shares.  There are some major pro’s and Con’s with Advantage plans which we have listed below.

• Advantages
  • Advantage plans have little to no premium in most states.  The insured will still pay the monthly Medicare Part B premium of $134 a month, but there will be no additional charge for the advantage plan.
  • Advantage plans include a part D drug benefit.  There is no additional premium charge for the drug plan and you can use one ID card for both Medical and RX.
  • Advantage plans may have additional value added benefits that are not covered by Original Medicare such as; dental and vision benefits.
• Disadvantages
  • Advantage plans have networks.  On an HMO advantage plan you must stay in the network to have your expenses covered. (The exception to this would be emergency room visits and urgent care)
  • Advantage plans have co-pays which can lead to higher out of pocket costs.  The out of pocket max on many advantage plans is as high as $6,700.
  • Advantage plans have prior authorization requirements on some services.
  • Some advantage plans may require referrals to see a specialist.

Overall – Medicare Advantage or Medicare Supplement Plan

In general, someone with minimum health care needs may want to try an advantage plan.  They will not be laying out any premium on a monthly basis and will only pay a copay when they do see a provider.  If someone does not want to be limited by a provider network or if they utilize a lot of healthcare, they may want to consider a Medicare supplement instead. The supplement allows them to go to any provider they want (as long as they accept Medicare) and they can choose a plan that leaves them with very little out of pocket.  The negative is the premium they will pay for the supplement and Part D Rx plan regardless of if they utilize care or not.

Medicare Advantage Trial Right

A Medicare Advantage Trial Right can be a huge benefit to someone trying a Medicare Advantage plan for the first time. Unfortunately, most people do not know it exists. The Medicare Advantage Trial Right is applicable to those trying a Medicare Advantage plan for the very first time.  If you decide you do not want the advantage plan within the first 12 months, you have a trial right that lets you dis-enroll from the Medicare Advantage plan and switch back to the Medicare supplement plan you had previously.

This means that during the first 12 months of your Medicare Advantage Plan coverage, you can change back to Original Medicare, Part A and Part B, and get your Medicare Supplement plan back (if it’s still available). If your original Medigap plan isn’t available, you can use your trial right to enroll in any Medigap Plan A, B, C, F,G K, or L, M, or N that’s sold in your state.   You can make the change for the 1st of any month during the first 12 months.

This rule can be highly valuable

For those that want to try a Medicare Advantage plan with the ability to change if they do not like it. Medicare Advantage plans typically have a very low or even $0 monthly premium. Advantage plans are very different from a supplement.  Some folks may find they do not like them once they get into it.   Having this 12-month trial period allows people to try the Advantage plan out. No medical underwriting is allowed when using the Trial Right which means the insurance company must enroll you regardless of your health.

Under normal rules you would not be able to change from your advantage plan to a supplement until the Open Enrollment Period ,which allows for a January 1 change every year.  To learn more about the differences between a Medicare Advantage plan and a Medicare Supplement Plan CLICK HERE FOR AN ADVANTAGE VS. SUPPLEMENT COMPARISON

Please note that you can use a Trial Right regardless of when you first enroll in an Advantage plan. Some people may initially enroll in a Medicare Supplement plan and then decide to try a Medicare Advantage plan for the first time at age 68.  If it is the first time in an Advantage plan, they will have a 12 month Trial Right.

Medicare Advantage Commissions 2022

Learn about all the benefits Crowe and Associates offers to agents