F.45 Social Security and Medicare planning Flashcards
(20 cards)
Mary, a diligent financial planner, is advising her client, John, who is approaching retirement age. John is curious about the eligibility criteria for Social Security retirement benefits. Mary wants to ensure that John understands the key requirements.
Which of the following is not a requirement for a person to be eligible for Social Security retirement benefits?
A) Being at least 62 years old
B) Having earned a certain amount of credits
C) Being a U.S. citizen
D) Being currently employed
Being currently employed
Explanation: To be eligible for Social Security retirement benefits, an individual does not need to be currently employed. However, they must meet the other requirements listed, including reaching the minimum age of 62, earning a certain number of credits through work history, and being either a U.S. citizen or an eligible non-citizen. Employment status at the time of applying for benefits is not a condition for eligibility.
F.45 Social Security and Medicare planning
Sarah is nearing her retirement age and is trying to determine the best time to start claiming Social Security retirement benefits to receive the highest possible monthly benefit. She is financially stable and in good health. Which age should Sarah consider for starting her Social Security retirement benefits?
A) At age 62
B) At age 65
C) At age 70
D) It doesn’t matter when she starts claiming
At age 70
Explanation: Sarah should consider starting her Social Security retirement benefits at age 70 to receive the highest possible monthly benefit. Waiting until age 70 allows for delayed retirement credits, which increase the monthly benefit amount. While she could start as early as age 62 (option A), doing so would result in reduced monthly benefits, and starting at age 65 (option B) would provide her benefits at full retirement age but still less than what she could receive at age 70. Option D is incorrect because the timing of claiming Social Security benefits does matter and can significantly impact the monthly benefit amount.
F.45 Social Security and Medicare planning
Jane, a financial planning client of yours, was born in 1960 and is planning her retirement. She comes to you with a question about Social Security benefits. She wants to know at what age she can receive her full Social Security retirement benefits. Which of the following is the correct full retirement age for Jane?
A) 62
B) 65
C) 67
D) 70
67
Explanation: For individuals born in 1960 and later, the full retirement age for receiving Social Security benefits is 67. Although one can start receiving benefits as early as age 62, the benefit amount will be reduced if taken before the full retirement age. Similarly, if Jane delays claiming her benefits past age 67, her benefits will increase due to delayed retirement credits until age 70. Understanding these age thresholds and the impacts of claiming benefits early, on time, or late is vital in creating a comprehensive retirement strategy for clients.
F.45 Social Security and Medicare planning
Sarah, a 62-year-old woman, has been considering when to start claiming her Social Security retirement benefits. She has a robust earning history as a former executive and is currently divorced after being married for 35 years. Sarah has been pondering about various factors that could affect the amount of her Social Security retirement benefits. In your role as a Certified Financial Planner, you want to ensure that her decision is informed by accurate understandings of the determinants of Social Security benefits.
Which of the following is NOT a factor that can affect a person’s Social Security retirement benefit amount?
A) Their age when they start claiming benefits
B) Their past earnings
C) Their marital status
D) Their gender
Their gender
Explanation: Social Security retirement benefit amounts are calculated based on a person’s earning history and the age at which they start claiming benefits. Although the marital status may affect the availability of certain types of Social Security benefits (like spousal or survivor benefits), it does not directly affect the benefit amount calculated based on the individual’s own earning record. Gender does not impact the amount of Social Security retirement benefits one can receive. The Social Security Administration uses the same formula to calculate benefits for men and women, ensuring that benefits are determined without gender bias.
F.45 Social Security and Medicare planning
Sarah, a 61-year-old woman, is discussing her retirement plan with her financial advisor. She plans to retire soon and is exploring ways to maximize her Social Security retirement benefits. Her work history has provided her with a stable income throughout her career, and her spouse, John, who is also approaching retirement, has a similar earning history. Sarah is considering different strategies for claiming Social Security benefits and wants to ensure she adopts a strategy that will maximize the benefits for both herself and John.
Which of the following strategies is NOT typically considered a way to maximize Social Security retirement benefits?
A) Delaying claiming until age 70 to receive an increased monthly benefit.
B) Claiming benefits as soon as possible at age 62.
C) Continuing to work and earn more credits to potentially increase future benefits.
D)Planning and coordinating spousal benefits to optimize the total household benefit.
Claiming benefits as soon as possible at age 62.
Explanation: Claiming Social Security retirement benefits at the earliest eligible age of 62 often results in a permanently reduced monthly benefit. The reduction can be significant, as much as 25-30% less than if you wait until your full retirement age (which varies depending on your year of birth). The general guideline for maximizing Social Security benefits usually involves delaying the claim (up to age 70) to benefit from delayed retirement credits, which increase the monthly payout. Strategies like coordinating spousal benefits and earning additional work credits by continuing to work can also potentially increase the overall benefits received. Therefore, option b is not typically recommended for maximizing Social Security benefits unless there are specific circumstances that warrant early claiming, such as health concerns, financial need, or other personal considerations.
F.45 Social Security and Medicare planning
Jane, a 62-year-old woman, has recently been contemplating when to start claiming her Social Security retirement benefits. She has a strong employment history, but recently she was diagnosed with a terminal illness that, unfortunately, limits her life expectancy to a few more years. Jane is considering whether to claim her Social Security benefits early or wait until her full retirement age.
Which of the following is the most plausible reason why Jane might choose to claim her Social Security retirement benefits early?
A) She wants to continue working full time without facing the Social Security Earnings Test.
B) She has a terminal illness.
C) She expects to live a long time.
D) She has a terminal illness.
She has a terminal illness.
Explanation: Choosing to claim Social Security retirement benefits early can make sense in a scenario where an individual, like Jane, is facing a terminal illness and therefore has a limited life expectancy. In this case, claiming benefits earlier allows her to utilize those funds when she might need them most, even though the monthly amount will be lower than if she waited until her full retirement age or later to claim them. While the other options (a, c, and d) might be valid considerations in different contexts, given Jane’s circumstances, her terminal illness provides a compelling reason to claim benefits early.
F.45 Social Security and Medicare planning
Margaret, a financial planner, is assisting her client, Tim, with retirement planning. Tim, who has a high-earning career, is curious about how much of his earnings will be subject to the Social Security payroll tax in 2023. Margaret needs to ensure that she provides accurate information about the current tax policies. What is the maximum amount of earnings subject to the Social Security payroll tax in 2023?
a) $142,800
b) $150,000
c) $160,200
d) There is no maximum amount
$160,200
The maximum amount of earnings subject to the Social Security payroll tax can change annually due to adjustments that consider changes in average wages. In the absence of the precise figure for 2023, it is critical to note that using accurate, up-to-date figures is vital in financial planning. It is beneficial for financial planners, especially those sitting for the CFP exam, to keep abreast of such annual adjustments to provide precise advice to their clients. For the sake of this question, we use option (c) $162,000 as a placeholder, but please verify with the most recent data from the Social Security Administration (SSA) or IRS.$142,800. This is the maximum amount of earnings subject to the Social Security payroll tax in 2023. Earnings above this amount are not subject to the tax.
F.45 Social Security and Medicare planning
Caroline, age 65, recently retired and is meticulously planning her finances to ensure a smooth and steady income flow throughout her retirement. She’s currently exploring various strategies to minimize her Social Security tax liability during her retirement years. Given her circumstances, she is evaluating different approaches and consulting her financial planner about potential strategies.
Which of the following strategies is NOT likely to reduce Caroline’s Social Security taxes in retirement?
A) Delaying claiming Social Security retirement benefits until she reaches the age of 70 to take advantage of delayed retirement credits.
B) Moving to a state with lower or no state income taxes on Social Security benefits.
C) Converting funds from her traditional IRA to a Roth IRA, paying taxes upon conversion to enjoy tax-free withdrawals later.
D) Starting a small home-based business to leverage business expense deductions and potentially reduce taxable income.
Moving to a state with lower income taxes
Explanation: While moving to a state with lower or no income taxes may reduce state taxation on income, it does not directly reduce federal Social Security taxes. Federal taxation of Social Security benefits is based on your combined income (your adjusted gross income + nontaxable interest + half of your Social Security benefits), not the state you live in.
Delaying claiming Social Security might allow the individual to have higher benefits when they do start claiming, which can be especially helpful if other taxable income is reduced or eliminated in those years, potentially affecting the taxability of Social Security benefits.
Converting traditional retirement account funds to a Roth IRA involves paying tax upfront, but it also allows for tax-free withdrawals in retirement which does not contribute to the combined income that determines the taxation of Social Security benefits.
Starting a small business allows individuals to employ certain strategies to manage their income and take deductions which may impact their taxable income and consequently, the taxability of Social Security benefits.
F.45 Social Security and Medicare planning
Sam, a 67-year-old retiree, is attending a seminar on healthcare coverage during retirement. The speaker discusses the various Medicare plans available to help retirees manage their healthcare costs and needs. Sam recalls there are distinct parts to Medicare, each designated with a different letter and providing unique benefits.
Which of the following is NOT a type of Medicare plan?
A) Medicare Part A
B) Medicare Part B
C) Medicare Part C
D) Medicare Part E
Medicare Part E
Explanation: Medicare does not have a “Part E.” The actual parts of Medicare include:
Medicare Part A, which covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
Medicare Part B, which covers certain doctors’ services, outpatient care, medical supplies, and preventive services.
Medicare Part C, also known as Medicare Advantage, that provides all Part A and Part B benefits and may offer additional benefits through private companies contracted with Medicare.
Medicare Part D, which adds prescription drug coverage to Original Medicare and is available through private plans approved by Medicare.
F.45 Social Security and Medicare planning
Imagine your client, Jane, is approaching 65 years old and considering her options for health insurance in retirement. She has been receiving Social Security benefits since she was 62 years old and is aware that she will be automatically enrolled in Medicare Part A when she turns 65. However, she is contemplating whether to enroll in Medicare Part B immediately upon eligibility or to delay enrollment since she is still covered under her employer’s health plan. Jane wants to ensure that she fully understands the financial implications of her decision.
Which of the following accurately describes the penalty for not enrolling in Medicare Part B when first eligible?
a) 1% of the premium for each year of delay
b) 5% of the premium for each year of delay
c) 10% of the premium for each year of delay
d) There is no penalty
10% of the premium for each year of delay
Explanation: When individuals do not enroll in Medicare Part B during their initial enrollment period and decide to enroll at a later date, they may face a penalty. The penalty for late enrollment in Medicare Part B is an additional 10% for each full 12-month period that the individual could have had Part B but didn’t sign up for it. This penalty will be added to the monthly Part B premium and must be paid for as long as the individual has Part B, potentially for life. This fact emphasizes the importance of understanding the enrollment periods and the implications of delaying enrollment in Medicare plans, as such penalties can significantly impact healthcare costs in retirement.
F.45 Social Security and Medicare planning
John, 67 years old, has never worked outside the home and thus has never personally paid into the Social Security system. Considering this, is he eligible for Social Security retirement benefits based on his spouse’s earnings record?
A Yes, but only if his spouse has claimed benefits
B) No, because he has not earned any credits
C) Yes, as long as his spouse has earned enough credits
D) It depends on whether John has any other sources of income
Yes, as long as his spouse has earned enough credits
Explanation: Even if John has never worked outside the home and has not earned Social Security credits himself, he may be eligible for Social Security benefits based on his spouse’s earnings record. To be eligible, his spouse must have earned enough Social Security credits (typically, this means having worked and paid Social Security taxes for at least 10 years). The spousal benefit can be equal to one-half of the working spouse’s full retirement benefit. It is also worth noting that John can claim spousal benefits even if his spouse is not yet receiving benefits, as long as they are eligible and have reached full retirement age. However, specific rules and nuances apply, so it’s vital to consult the Social Security Administration or a financial planner for detailed, personalized advice.
F.45 Social Security and Medicare planning
Mary, who is 64 years old and planning to retire at age 65, currently earns an annual income of $50,000. If she decides to delay claiming her Social Security retirement benefits until she reaches age 70, taking into consideration the factors that influence the calculation of Social Security benefits, how much will her monthly benefit be?
a) Approximately $1,500
b) Approximately $2,000
c) Approximately $2,500
d) It depends on Mary’s past earnings
It depends on Mary’s past earnings
Explanation: The Social Security benefit amount is calculated based on the average indexed monthly earnings (AIME) during the 35 highest earning years of an individual’s working career, not just the earnings at retirement age. The Primary Insurance Amount (PIA) is then calculated based on this AIME using a formula that includes fixed percentages and bend points (specific dollar amounts). Additionally, the benefit amount will be adjusted based on the age at which Mary starts claiming her benefits. If she waits until age 70, she would receive delayed retirement credits, which would increase her monthly benefit above her full retirement age amount. However, without specific information about Mary’s earnings history, the exact monthly benefit cannot be determined. So, the accurate answer is that it depends on Mary’s past earnings.
F.45 Social Security and Medicare planning
Bob, age 68, has been reaping the benefits of his Social Security retirement for the past three years. Recently, he has decided to re-enter the workforce on a part-time basis. Will this decision potentially impact his Social Security retirement benefits?
A) Yes, his benefits will be reduced if he earns more than a certain amount
B) No, his benefits will not be affected because he is over the full retirement age
C) It depends on how much he earns and how many credits he has earned
D) Bob cannot work and receive Social Security retirement benefits at the same time
No, his benefits will not be affected because he is over the full retirement age
Explanation: According to the rules of Social Security, once an individual reaches their full retirement age (FRA), there are no limits on how much they can earn while receiving Social Security benefits. Therefore, they can work and still receive their full benefits. In Bob’s case, since he is 68 years old and has been receiving benefits for 3 years, he is over his FRA and his benefits will not be reduced regardless of his earnings from part-time work. It is essential to note that the FRA is based on the birth year, and for people born between 1943 and 1954, the FRA is 66. Thus, Bob’s part-time work will not impact his Social Security retirement benefits.
F.45 Social Security and Medicare planning
Jack and Jill, both aged 65, are planning to enroll in Medicare. Throughout their working lives, Jack has accumulated 40 quarters of work in which he paid Medicare taxes, while Jill has accumulated only 30 quarters of work in which she paid Medicare taxes. Based on this information, determine their eligibility for premium-free Medicare Part A:
A) Both Jack and Jill will be eligible for premium-free Medicare Part A
B) Only Jack will be eligible for premium-free Medicare Part A
C) Neither Jack nor Jill will be eligible for premium-free Medicare Part A
D) It depends on their income level
Only Jack will be eligible for premium-free Medicare Part A
Explanation: To be eligible for premium-free Medicare Part A at age 65, an individual must have worked and paid Medicare taxes for at least 40 quarters (approximately 10 years). Jack, having worked and paid Medicare taxes for 40 quarters, is eligible for premium-free Medicare Part A. However, Jill, with only 30 quarters of paying into Medicare taxes, would not qualify for premium-free Part A and may have to pay a premium if she wants Part A coverage.
F.45 Social Security and Medicare planning
Sarah, 62 and recently retired, has a pension covering her living expenses and plans to delay claiming Social Security retirement benefits until age 70. Will her decision to delay claiming affect her Medicare eligibility?
A) Yes, she will not be eligible for Medicare until she claims Social Security retirement benefits.
B) No, her Medicare eligibility will not be affected by her decision to delay claiming.
C) It depends on how much she has earned in the past.
D) Sarah cannot delay claiming Social Security retirement benefits until age 70.
No, her Medicare eligibility will not be affected by her decision to delay claiming.
Explanation: Medicare eligibility generally begins at age 65, irrespective of when an individual chooses to begin receiving their Social Security retirement benefits. Therefore, Sarah can enroll in Medicare at age 65, even if she decides to delay claiming her Social Security benefits until age 70. It’s crucial to note that enrollment in Medicare Part A (Hospital Insurance) can be done without claiming Social Security benefits, but enrolling in Medicare Part B (Medical Insurance) might have implications on premiums if not enrolled in a timely manner. Delaying Social Security benefits can indeed increase the monthly benefit once Sarah starts claiming them, but this decision is not directly tied to her Medicare eligibility.
F.45 Social Security and Medicare planning
Tom, aged 63, possesses a high income and has opted to delay claiming his Social Security retirement benefits until he is 70. However, he intends to enroll in Medicare at age 65. Which of the following statements correctly describes the impact of Tom’s income level on his Medicare premiums?
A) His income level may result in higher Medicare premiums.
B) Medicare premiums are not affected by income level.
C) It depends on how much Tom has earned in the past.
D) Tom cannot delay claiming Social Security retirement benefits until age 70.
His income level may result in higher Medicare premiums.
Explanation: Medicare premiums, specifically for Part B (medical insurance) and Part D (prescription drug coverage), can be influenced by an individual’s income level. This concept is known as the Income-Related Monthly Adjustment Amount (IRMAA). Individuals with a higher income may pay higher premiums for these parts of Medicare. This adjustment is determined based on the modified adjusted gross income reported on IRS tax returns from 2 years ago (as it’s the most recent tax return information provided to Social Security by the IRS). Therefore, considering Tom’s high income, it is plausible that his Medicare premiums may be affected, resulting in higher monthly payments.
In contrast, Medicare Part A, which provides hospital insurance, is usually premium-free if the individual or their spouse has worked and paid Medicare taxes for a certain amount of time, and the premium is not affected by the enrollee’s current income. So, Tom’s income level won’t affect his Part A premium but may impact his Part B and Part D premiums.
F.45 Social Security and Medicare planning
Ellen, aged 66, has been availing Social Security retirement benefits for the last year. Recently, she has been diagnosed with a serious medical condition that necessitates costly treatment. Regarding Ellen’s eligibility to apply for Social Security disability benefits, which of the following statements is most accurate?
A) Ellen can apply for Social Security disability benefits if she meets the eligibility criteria
B) Ellen cannot receive both Social Security retirement and disability benefits at the same time
C) It depends on Ellen’s age and past earnings
D) Ellen cannot apply for Social Security disability benefits after age 65
Ellen cannot apply for Social Security disability benefits after age 65
Explanation: Generally, once an individual has reached full retirement age (which can range from age 65 to 67, depending on the year of birth) and starts receiving Social Security retirement benefits, they cannot apply for Social Security disability benefits. The rationale behind this is that the disability benefits automatically convert to retirement benefits when a recipient reaches their full retirement age. Therefore, once Ellen started receiving retirement benefits at age 66, she would no longer be eligible to apply for disability benefits. This does not impact her ability to potentially qualify for other assistance programs based on her medical condition and financial need.
F.45 Social Security and Medicare planning
Mark, aged 70, has been availing Social Security retirement benefits for the last 5 years. Recently, he entered into a new marital bond with a spouse who is 60 years old. The couple is navigating through their retirement planning and is exploring the possibilities regarding Social Security spousal benefits.
Considering the age and marital status of Mark and his new spouse, can his new spouse claim Social Security spousal benefits based on Mark’s earnings record?
A) His new spouse can claim Social Security spousal benefits based on Mark’s earnings record
B) His new spouse cannot claim Social Security spousal benefits because she is more than 5 years younger than Mark
C) It depends on how long Mark and his new spouse have been married
D) Mark cannot receive Social Security retirement benefits after remarrying
His new spouse can claim Social Security spousal benefits based on Mark’s earnings record.
Explanation: Under Social Security rules, as long as a person is at least age 62 and the spouse (Mark in this scenario) is receiving retirement or disability benefits, the person may be eligible for spousal benefits. Age does play a role in the percentage of benefits received. If the spouse begins to collect benefits before “full” retirement age, the spouse will receive a reduced benefit. However, if taking care of a child under age 16 or disabled, the age rule does not apply. Therefore, the age difference or the time for which they have been married does not directly impact the eligibility to claim spousal benefits, although the benefit amount could be affected. Always remember to consult the most current and applicable laws and guidelines, as rules regarding Social Security may change.
F.45 Social Security and Medicare planning
Karen, a 67-year-old retiree, has recently enrolled in Medicare. Given her chronic medical condition that demands persistent treatment, she’s concerned about the potential financial burden she might face. What can you tell her about how Medicare will handle the medical expenses related to her chronic condition?
A) Medicare will cover all of Karen’s medical expenses related to her condition
B) Medicare only covers certain types of medical expenses and Karen may have to pay out-of-pocket for some services
C) It depends on Karen’s income level
D) Karen cannot enroll in Medicare at age 67
Medicare only covers certain types of medical expenses and Karen may have to pay out-of-pocket for some services
Explanation: Medicare provides substantial health coverage, but it does not cover all medical expenses. Original Medicare, Part A and Part B, covers inpatient and some outpatient care respectively, but it often comes with deductibles, copayments, and coinsurance. Moreover, certain services and supplies, especially most prescription drugs, long-term care, and routine dental or eye care, might not be covered at all. Karen might consider enrolling in additional Medicare plans, such as a Medicare Advantage Plan (Part C) or a Prescription Drug Plan (Part D), to obtain broader coverage. In addition, she might explore Medigap (Medicare Supplement Insurance) policies to help cover the out-of-pocket costs that Original Medicare doesn’t cover. So, while Medicare will likely cover many of the expenses related to Karen’s condition, it’s probable that she will have to pay some costs out of pocket, particularly if she only has Original Medicare. It is crucial for Karen to understand the specifics of her coverage and explore additional insurance options to minimize her out-of-pocket costs, especially considering her ongoing treatment needs.
F.45 Social Security and Medicare planning
Lisa, a fully insured individual for Social Security benefits, has recently passed away, leaving behind her 14-year-old disabled son, Mike. Mike has a disability that will prevent him from ever being able to work. Under Social Security, Mike is entitled to survivor’s benefits. At which point will Mike’s survivor’s benefits terminate?
A) When he reaches the age of majority
B) When he finishes high school
C) When he marries an able-bodied person
D) When he reaches full retirement age
When he reaches full retirement age
Explanation: Disabled children who are eligible for survivor’s benefits due to a parent’s Social Security record may continue to receive benefits as adults if the disability began before age 22. The survivor’s benefits typically continue until the individual reaches full retirement age, or in some cases, for their entire life, as long as they remain disabled and do not engage in substantial gainful activity. The other options (A, B, C) are not standard termination points for survivor’s benefits for a disabled child according to the Social Security Administration’s guidelines.
F.45 Social Security and Medicare planning
