Should You Sign Up for Social Security When You Enroll in Medicare?

Social Security is one of the most important senior benefits today. The average retiree collects a paycheck from Social Security worth $2,086 per month. But there are many retirees who receive a much larger monthly benefit, and many who receive a lot less.

There are two main factors that go into your Social Security benefits. The first is your earnings history, and the second is your filing age.

You may be wondering if it makes sense to sign up for Social Security at the same time you enroll in Medicare, but there can be a big downside to claiming benefits when you're first eligible for Medicare.

When Medicare eligibility begins

Medicare eligibility generally begins at age 65. In some situations, it's possible to sign up for Medicare earlier, such as for people who have end-stage renal disease.

Assuming you qualify at 65, your initial Medicare enrollment window starts three months before the month you turn 65 and ends three months after that month. So all told, you have a seven-month window to enroll in Medicare around your 65th birthday.

When Social Security eligibility begins

You're able to sign up for Social Security as early as age 62. But if you don't wait for full retirement age (FRA), which is 67 for anyone born in 1960 or later, your benefits will be reduced.

If you claim Social Security as early as possible, you'll be looking at a 30% reduction compared to waiting until an FRA of 67. But if you file for Social Security in conjunction with Medicare, it means you're only signing up for benefits two years ahead of FRA, not five years. And in that case, the reduction is smaller.

For the first three years you file for Social Security ahead of FRA, your benefits are reduced by 5/9 of 1% per month. That amounts to a reduction of about 6.67% per year. So if you claim Social Security at 65, you'll reduce your monthly benefits by about 13.3%.

That reduction will generally remain in effect for the rest of your life. And if you're the higher earner in your household, a reduced claim for signing up ahead of FRA could also leave your spouse with a smaller survivor benefit from Social Security if they end up outliving you.

The upside of enrolling in Social Security and Medicare simultaneously

Enrolling in Social Security and Medicare at the same time could make your life easier. That's because Social Security recipients do not have to actively send payment for Part B. Instead, premiums for Part B are deducted from Social Security benefits automatically.

This can be beneficial not just from a convenience standpoint, but also a financial one. Thanks to the hold harmless provision, Social Security benefits cannot decrease from one year to the next due to a rise in the cost of Medicare Part B. So depending on the situation, your Part B increase in a given year could be lower than the actual increase if you're on Social Security.

Let's say you collect $2,000 a month in Social Security and there's a very small COLA of 1%. That would increase your benefit by $20 a month. But let's say the cost of Medicare Part B rises by $21 per month that same year.

When we add $20 to a $2,000 benefit but then deduct $21, it leads to a monthly check of $1,999. But that actually can't happen due to the hold harmless provision. So in a situation like this, you'd be looking at not paying the full Part B increase.

The downside of claiming Social Security when you sign up for Medicare

Of course, the downside of signing up for Social Security and Medicare at the same time is that you'll reduce your monthly benefits. If you don't have a lot of retirement savings or other income streams, you may find it hard to get by on reduced checks.

If you sign up for Medicare before Social Security, you have plenty of easy options for paying your Part B premiums. You can send a check each month, set up online bill-paying through your bank, or authorize Medicare to take your payments automatically so you don't even have to think about them.

Bottom line

If you're ready to enroll in Medicare, you may be tempted to sign up for Social Security benefits at the same time. But that could be one of the biggest surprising financial mistakes you make in retirement.

Before you make plans to sign up for both programs simultaneously, think about your financial picture and whether you can afford a permanent reduction to your monthly benefits. If you can't, you may want to sign up for Medicare alone at 65 and wait for FRA before claiming Social Security. You may even want to delay your claim past FRA for boosted monthly checks.

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