Many Americans rely on Social Security and Medicare, but what makes these programs so essential? This month, we’ll take a look at some of the facts about Social Security and get some straightforward answers about Medicare, too.
9 facts on Social Security
Social Security provides financial protection for workers and their families when earnings are lost due to retirement, disability or death.
The program is incredibly important for many people’s wellbeing, but it’s often misunderstood. Let’s take a look at nine key facts about Social Security.
1. A significant portion of the population receives Social Security benefits
Benefits will be paid out to about 64 million people in 2020—that’s roughly one out of every five people.
2. Social Security provides more than just retirement benefits
In addition to retirement benefits, Social Security also provides benefits in the event of disability or death.
Currently, workers and their dependents account for 74% of benefits being paid. Another 16% of benefits are received by disabled workers and their dependents, with the remaining 10% being paid out to survivors.
3. It’s the only retirement plan for many people
The average worker’s monthly Social Security retirement benefit in 2020 is $1,503.
4. Social Security benefits are updated yearly
Benefits are adjusted annually using the cost-of-living adjustment (COLA) in order to keep pace with projected inflation.
With factors such as an aging population, longer life expectancies and lower birth rates all greatly affecting Social Security, it’s important that the program is adjusted each year to allow for the continued payment of future benefits.
Effective in December 2019, there was a 1.6% COLA increase.
5. Approximately 176 million workers pay Social Security taxes
Currently, 2.8 workers pay Social Security taxes for each one person collecting benefits. Workers’ taxes are matched by employers to help fund the program.
6. Administrative costs of the program are historically low
The most recent figure on the administrative cost of running the program was just 0.7% of total expenses.
7. Benefits are payable for life
Once benefits start, they are paid monthly. These payments can be direct deposited into a bank account, too, for faster access.
8. Social Security benefits can help offset potential risks of personal investments
The payments can help minimize the impact of possible financial losses, including:
- Poor investment performance
- Market downturns
- Outliving any income-producing assets
9. Social Security is the largest source of income for the majority of people age 65 and over
For 70% of single people age 65 and over (50% of married couples), Social Security accounts for at least 50% of their income.
For 45% of single people (21% of married couples), it’s 90% or more of their income.
In total, more than nine out of 10 people age 65 and over receive Social Security benefits.
What you should know about Medicare
Medicare is a federal health insurance program covering approximately 60 million people age 65 and over, as well as many disabled people.
Understanding the ins and outs of Medicare can get confusing at times, so here are the answers to the top five most frequently asked questions about Medicare.
Q: What is the difference between Medicare Parts A, B, C and D?
A: Medicare consists of four separate parts.
- Part A is hospital insurance that pays some of the costs of hospitalization, limited skilled nursing home care and hospice care. Part A is paid for by a percentage of the Social Security tax.
- Part B is medical insurance that primarily covers doctors’ fees, most hospital outpatient services and certain related services not covered by part A (including some home health services). Part B is paid for by monthly premiums from enrollees, with the U.S. Treasury covering the rest.
- Part C refers to Medicare Advantage (MA) plans that let you choose to receive all health care services through a provider organization and could lower your costs for medical services. These include Health Maintenance Organization (HMO) plans, Preferred Provider Organization (PPO) plans and Private Fee-for-Service (PFFS) plans. Please note, though, that you must have both Parts A and B to enroll in Part C.
- Part D is the Outpatient Prescription Drug Plan, a voluntary prescription drug coverage plan. Part D is paid for by monthly premiums from enrollees and Medicare.
Q: How do I qualify for Medicare?
A: Generally, people age 65 and over who are eligible for any type of monthly Social Security benefit are eligible for Medicare Parts A and B.
You may qualify for Medicare before age 65 if: you were entitled to Social Security disability benefits for two years; have amyotrophic lateral sclerosis (Lou Gehrig’s disease); or have end-stage renal disease (kidney failure) and require dialysis or a kidney transplant.
Q: Can I get Medicare if I retire at age 62?
A: No. Medicare eligibility begins on the first day of the month when you reach age 65. Although the retirement age to receive Social Security benefits is scheduled to rise to age 67, the age for Medicare eligibility is not.
If you’re still working, you should continue your coverage through your employer group health insurance. If you’re not working, health insurance coverage can be purchased separately until Medicare begins at age 65.
Q: How do I enroll in Medicare?
A: There are three typical ways to get into Medicare coverage.
- If you are receiving Social Security or Railroad Retirement benefits, enrollment in Medicare Parts A and B is automatic on the first day of the month you turn 65. If you’re still working, you should probably delay Part B enrollment since it provides little, if any, additional coverage over your employer’s health coverage. Also, you should notify the Social Security Administration about your employer health coverage.
- If you are 65 and not receiving Social Security benefits, you should apply online for retirement benefits and/or Medicare at www.socialsecurity.gov/applyonline. You can also call the Social Security Administration at 1-800-772-1213.
- If you are under 65 but were entitled to Social Security disability benefits for two years, you are entitled to Medicare. The two years are waived for those affected by Lou Gehrig’s disease and end-stage renal disease.
Q: How does the 1.6% COLA impact the Part B premium?
A: The standard Part B monthly premium increased to $144.60 in 2020.
This applies to current, new, and high-income Medicare beneficiaries and for people whose Medicare premiums are paid by Medicaid. The income-related Part B premium applies to roughly 7% of the current enrollees and is based on the 2018 federal income tax return filing status and adjusted gross income.
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