Understand Social Security and Medicare

To build a secure retirement,you will likely take advantageof multiple buildingblocks to establish youroverall plan. People mostoften take advantage of Social Securityand Medicare. Unfortunately, whilemany will eventually rely on these programsto assist their retirement funding,relatively few people have a good understandingof how these programswork. The following are the answers tosome commonly asked questions, tohelp educate you a little more on thesubject and to provide you with sourcesyou can turn to for more informationabout these programs.

•What is the minimum age forSocial Security retirement benefits?

You can begin receiving early SocialSecurity retirement benefits at age 62.However, if you retire at 62, yourmonthly benefits will be permanentlyreduced. Under the current system,which includes varying rates based onyour birth year, that reduction starts at20% for those born in 1937 or before,and climbs to as high as 30% for thoseborn in 1960 or later. In addition, thefull-retirement age—the age when youcan claim your full benefits—is actuallyincreasing. Previously, retirees whowaited until age 65 to apply wouldreceive full benefits. Now, however, thefull-retirement age is gradually increasingto age 67.

•How much can I work and stillreceive my Social Security benefits?

No matter how much you earn fromyour job, you can receive all of yourbenefits, provided you have reachedfull-retirement age or older. However, ifyou're younger than full-retirementage, you must limit your on-the-jobearnings to avoid losing benefits. Theearnings limit for most workers is$12,480 in 2006. If you exceed thelimit, $1 will be withheld from yourbenefits for every $2 earned in excess ofthe limit. Keep in mind, only employmentearnings count against the limit.Pensions, interest, dividends, capitalgains, and other investment income donot count, nor does money distributedfrom IRAs or from 401(k), 403(b), orother deferred-compensation plans.

•When can I qualify for Medicare?

Medicare coverage does not beginuntil age 65 for most individuals, evenif they start receiving Social Securitybenefits at age 62. Three groups thatcan receive Medicare coverage beforeage 65 include: people who receiveSocial Security disability benefitsbecause they have amyotrophic lateralsclerosis (ie, Lou Gehrig's disease);other disabled people who havereceived Social Security disability benefitsfor at least 2 years; and patients ofall ages who need kidney dialysis or akidney transplant because of end-stagerenal failure.

While these are just a few of themany questions you may have aboutSocial Security and Medicare, the ideais to get you thinking about how theseprograms will fit into your retirementplan. Remember, these certainly won'tbe able to cover all your retirementexpenses, but they can be an importantpart of your overall strategy. To findout more about Social Security, youcan visit www.socialsecurity.gov or call800-772-1213. To learn more aboutMedicare, go to www.medicare.gov orcall 800-MEDICARE.

Joseph F. Lagowski is vice president, investments,and a financial consultant with AGEdwards in Hillsborough, NJ. He welcomesquestions or comments at 800-288-0901, orvisit www.agedwards.com. This article wasprovided by AG Edwards & Sons, Inc, member SIPC.