(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO May 18 Delaying your Social Security
benefit as long as possible is a great way to boost retirement
income, but the strategy comes with one built-in downside. Most
seniors enroll in Medicare at 65, but those who are not yet
receiving Social Security run the risk of much larger annual
increases in their Part B premiums.
Healthcare inflation is resurgent, and more retirees are
delaying their Social Security claims. So that leaves a
question: how significant is the risk of higher Medicare costs,
and does it ever justify an earlier-than-planned Social Security
In most cases, the risk is small, and the benefits of a
delayed filing far outweigh the higher healthcare costs. I asked
Social Security Solutions (bit.ly/18ZvqOB), one of the
leading Social Security optimization services, to run scenarios
for hypothetical couples. We found that the net drag is modest -
anywhere from 4 to 6 percent of the higher Social Security
benefit gained through delay.
“Delaying your benefit is more than likely worth paying the
hold-harmless penalty,” said Robin Brewton, vice president of
client services at Social Security Solutions. “It’s important to
run your own numbers, because everyone’s scenario will be
different, but in most cases it won’t make sense to claim
earlier to protect yourself from higher Medicare costs.”
More on Brewton's calculations in a minute, but first a bit
GAUGING THE RISK
Medicare enrollees pay 25 percent of overall program costs
through premiums. Changes in the Part B premium costs paid by
enrollees are tied at the hip to Social Security’s
cost-of-living-adjustment (COLA), which is awarded annually
using a formula tied to the economy’s general inflation rate.
By law, Part B premium changes cannot exceed the COLA - a
feature designed to ensure that net Social Security benefits do
not fall. The rule prevents the dollar increase in the Part B
premium from exceeding the dollar increase in Social Security
The “hold harmless” provision protects about 70 percent of
the Medicare population from the full weight of healthcare
inflation - that is, those enrolled in both programs. But
occasionally, the hold-harmless rule can burden the remaining 30
percent of Medicare enrollees with very large premium hikes.
That includes anyone delaying their filing for Social Security
benefits, but others affected include some federal and state
government retirees. Affluent seniors who pay high-income
Medicare premium surcharges also are not protected.
The premium spikes occur in the rare instances when COLAs
are very low or flat - but that is precisely what has happened
over the past two years.
No COLA was awarded in 2016, and the 2017 COLA was 0.3
percent. This year, the monthly Part B premium rose 10 percent
to $134, but the hold-harmless provision kept the average
increase to $109, an increase of just $5. (With inflation
running a bit higher this year, a normal COLA is more likely for
Social Security benefits are calculated using a formula
called the Primary Insurance Amount (PIA). Although you can
claim benefits as early as 62, by waiting until your full
retirement age (currently 66), you will receive 100 percent of
PIA. Every 12 months you delay beyond that point, until age 70,
tacks on an additional 8 percent. And benefits are protected
from inflation by the program’s annual cost-of-living
TRADEOFFS OF A LATER CLAIM
Relatively few eligible seniors delay their Social Security
claim - just 6.1 percent of men, and 6.5 percent of women,
claimed at age 67 or higher in 2015, according to the Social
Security Administration. But their ranks are getting larger
For those who do delay, Part B premiums rise at the
unprotected rate; when you file for Social Security, your
premium stays at that level, but it is protected under the
hold-harmless clause going forward.
What is the drag on lifetime benefits imposed by the higher
Medicare costs? Social Security Solutions ran several
hypothetical cases for married couples and single people,
projecting total lifetime Social Security benefits using a 2.4
percent annual COLA (the average since 1990) and a consensus
estimate on healthcare inflation (4.5 percent). We assumed
average mortality (85 for men, 90 for women).
The gain in lifetime Social Security benefit from delayed
filing always beat the additional Medicare premium cost.
Consider, for example, the hypothetical married couple Martin
and Marilyn, who have typical PIAs ($2,400 for Martin, $2,000
for Marilyn). Delaying their filing from age 65 to 70 gets them
$253,000 in higher lifetime benefits even after subtracting the
higher Medicare premiums. The higher premiums take a bite of
roughly 4 percent from their Social Security.
Healthcare inflation remains a serious concern for retirees.
Overall Medicare program costs are rising at a faster rate than
gross domestic product; the costs are met through a combination
of general federal revenue and Medicare premiums.
"The secular healthcare cost trend is worth watching,” said
Juliette Cubanski, associate director of the program on Medicare
policy at the Kaiser Family Foundation. “And the out-of-pocket
cost of Medicare benefits are taking up a larger and larger
share of Social Security benefits."
But she agrees most retirees will still find it worthwhile
to delay their Social Security filing as long as they can. “Even
if you are subject to a higher premium during years when there
is no Social Security COLA or a really low adjustment, it will
(Editing by Matthew Lewis)