Do you know that Social Security benefits are based on your 35 highest yearly earned income totals? Also, did you know that your yearly income totals are indexed to adjust for inflation? These facts, along with many others, were shared recently when Mission Wealth Management invited Elaine Ruiz, a technical expert from the local Social Security Administration office, to give a presentation on the most up-to-date information regarding Social Security and Medicare program benefits.

Marcie Malone

Marcie Malone

In 2010, nearly 53 million Americans received $703 billion in Social Security benefits, with the maximum monthly benefit reported at $2,323 and the average at $1,170.

Do you know when you’re eligible to start collecting Social Security benefits? Ruiz explained that the Full Retirement Age (FRA) is no longer 65. It is based on the year you were born. For example, the FRA for someone born in 1960 is actually 67.

One of the reasons the Full Retirement Age is increasing is because of the changes in life expectancy. In 1935, the remaining life expectancy of a 65-year-old was 12½ years. Today, it is 18 years.

Ruiz shared that there are advantages for putting off collecting benefits past your FRA, especially if you don’t need the money now and are in good health. Each month past your FRA that you delay receiving benefits, your benefit amount will increase, up until age 70. There is no reward for delaying benefits after that age.

Conversely, for people who are still working and begin taking Social Security before their FRA, an “earnings test” may be applied. Earned income in excess of $14,160 may cause a permanent reduction in your Social Security benefits.

Determining when to begin taking Social Security can be tricky. Many people talk with their financial advisor to weigh the pros and cons of each option.

In certain cases, income records other than your own may be taken into consideration for determining your benefits. You may have the option of your own income record, a deceased spouse’s record or a former spouse’s record (if you were married for at least 10 years).

Additionally, if you didn’t work outside of the home, or if you earned significantly less than your spouse, you may be eligible for a benefit amount that is 50 percent of your spouse’s benefit. In this case, your spouse must be collecting his or her own benefit for you to begin yours. The Social Security Administration can help you determine which income record provides the highest amount of benefits.

Medicare benefits begin at age 65. It’s important to apply for Medicare coverage at the right time. If you want your coverage to start right at 65, you must apply two to three months before your 65th birthday. Keep in mind that although you can start Social Security early, at 62, there is no early option for Medicare. You must wait until you turn 65.

Ruiz recommended that at age 65, everyone should sign up for Medicare Part A, and most people should sign up for Part B (the only exception would be for those who continue to work and receive health insurance through their employer). For Medicare Part A, there are no premiums; but premiums for Part B are automatically deducted from your monthly Social Security benefit check. Note that Medicare Part A covers hospitalizations, while Part B covers office visits to primary care providers and others.

In addition to signing up for Medicare Parts A and B through the Social Security office, you should consider signing up for Medicare Parts C and D (a private prescription plan and supplemental insurance) separately. You are responsible for premiums associated with these.

Did you know that Medicare doesn’t completely cover all of your health-related expenses? When you need health care, Medicare will pay 80 percent of what is determined a reasonable fee, and you are responsible for the remaining 20 percent as well as the portion of the fee that Medicare determined was not reasonable. Unfortunately, many medical costs in Santa Barbara are considered not reasonable. For example, a medical office may charge $50 for an EKG. If Medicare believes an EKG should reasonably cost $30, it will pay $24 to the medical office and you are left with $6 (20 percent of reasonable fee) plus $20 (the unreasonable portion) for a total bill of $26.

If you are interested in learning more about Social Security and Medicare benefits and how they tie in to your financial plan, Mission Wealth Management is available to work with you to provide valuable resources for your financial needs.

— Marcie Malone is an executive assistant at Mission Wealth Management. She can be reached at 805.690.3878 or