Social Security & Medicare: What to Know as You Approach Retirement
- RetireAdvisers℠ of Pension Consultants, Inc.
- Mar 19
- 8 min read
Key Takeaways:
Social Security and Medicare decisions often happen within the same timeframe. Because Social Security benefits can begin as early as age 62 and Medicare eligibility typically begins at age 65, many individuals evaluate both programs during the years leading up to retirement.
The timing of these decisions can influence retirement income and healthcare coverage. When you claim Social Security affects your monthly benefit, while Medicare enrollment timing can affect coverage and potential penalties.
Understanding how these programs fit into your broader retirement plan can help bring greater clarity to the transition into retirement. Evaluating Social Security, healthcare coverage, and retirement income together may help individuals better understand how their resources support long-term retirement goals.
More than 68 million Americans are enrolled in Medicare [1], and nearly 69 million people currently receive Social Security benefits [2]. That number is expected to grow even further, with projections suggesting more than 77 million Americans will be receiving Social Security benefits by 2035 [2].
For many retirees, these programs form the financial and healthcare foundation of retirement. Healthcare costs in particular can represent a meaningful portion of retirement spending. According to Fidelity’s annual retiree healthcare estimate, the average 65-year-old retired person may spend an average of $172,500 to cover healthcare expenses throughout retirement [3].
Because eligibility for these programs occurs within just a few years of one another—Social Security beginning as early as age 62 and Medicare eligibility starting at age 65—many individuals find themselves evaluating both decisions during the same stage of life.
Understanding how these systems work individually, and how they interact with your broader retirement plan, can help bring greater clarity to the transition into retirement.
Understanding Social Security: More Than Just a Monthly Check
Social Security is often the first retirement income source many people think about. However, the system involves several important decisions that can influence how much income you receive and when it begins.
The Social Security program was designed to provide a baseline level of income throughout retirement, helping retirees maintain financial stability as they transition away from employment income. Your benefit amount is determined by several factors, including:
Your earnings history
The age at which you claim benefits
Spousal or survivor benefit eligibility
For many households, Social Security becomes one of the most stable income sources available during retirement, which is why the timing decision can have long-term implications.
When Should You Claim Social Security?
One of the most common questions individuals ask is:
“When should I start taking Social Security?”
While eligibility begins at age 62, claiming benefits early results in a permanently reduced monthly benefit.
For example:
Each year you delay beyond full retirement age can increase your benefit through delayed retirement credits, potentially increasing the monthly payment by roughly 8% per year until age 70 [4].
However, the optimal timing decision varies depending on factors such as:
Expected retirement timing
Health considerations
Other retirement income sources
Spousal benefit coordination
Longevity expectations
While the age you claim Social Security affects the size of your monthly payment, the benefit itself is calculated using your lifetime earnings history. To help estimate future benefits, the Social Security Administration offers an online Quick Calculator that allows individuals to enter basic information such as their date of birth and estimated earnings. Based on the information provided, the calculator generates a rough estimate of potential Social Security benefits.
Because the calculator does not access your actual earnings record, the results should be viewed as approximate estimates rather than precise projections. However, it can still be a helpful starting point for understanding how different claiming ages may influence monthly income.
How Much Can You Really Spend in Retirement?
If you're evaluating your retirement expenses, you may also find our worksheet helpful. This interactive worksheet helps you estimate expenses, income, and potential savings withdrawals using the 4% rule.
Do I Have to Pay Taxes on Social Security?
Depending on your total income in retirement, a portion of your benefits may be subject to federal income tax; up to 85% of Social Security benefits may be included as taxable income [5]. For individuals filing a federal tax return, taxes may apply if combined income exceeds certain thresholds. Currently, taxes may apply when:
Individual filers have combined income above $25,000 [5]
Married couples filing jointly have combined income above $32,000 [5]
Combined income generally includes:
Adjusted gross income [5]
Tax-exempt interest income [5]
One-half of your annual Social Security benefits [5]
For those who receive Social Security benefits, it is possible to request voluntary federal tax withholding from benefit payments. This allows taxes to be withheld throughout the year rather than potentially owing a larger amount when filing a tax return. If too much tax is withheld, any excess is typically refunded when the annual tax return is filed.
Recent legislation has also introduced a temporary tax provision that may affect some retirees. Under current law, individuals age 65 and older may qualify for an additional deduction available from 2025 through 2028. Some key features of this provision include:
Eligible individuals age 65 or older may claim an additional $6,000 deduction [6].
This amount is separate from and added to the existing standard deduction available to seniors.
Married couples may qualify for up to $12,000 in additional deductions if both spouses meet the age requirement [6].
The deduction begins to phase out for individuals with modified adjusted gross income above $75,000 and $150,000 for joint filers [6].
Because retirement income often comes from multiple sources—such as Social Security, retirement accounts, pensions, or investment income—understanding how taxes apply can become an important part of retirement planning. We explore some of these tax considerations further in our article, Tax Season May Be Over — But Here’s What to Know About Your Retirement Plan.
Medicare: Understanding Healthcare Coverage at Age 65
While Social Security focuses on income, Medicare focuses on healthcare coverage. Medicare provides access to a wide range of healthcare services for older Americans, but it does not cover every type of medical or long-term care expense.
Standard Medicare coverage generally focuses on hospital care, physician services, and certain outpatient treatments. However, services such as long-term care, routine dental care, vision services, and hearing aids are typically not included in the basic Medicare benefit. Some of these services may be offered through Medicare Advantage plans or supplemental coverage, depending on the plan selected.
Because healthcare needs often evolve during retirement, understanding what Medicare does and does not cover can help individuals better prepare for potential out-of-pocket costs. Here’s a breakdown of the various parts to Medicare:
Part A: Hospital (Inpatient) Coverage
Medicare Part A generally covers inpatient hospital stays, skilled nursing facility care following hospitalization, hospice care, and certain home health services.
Many individuals qualify for premium-free Part A if they have worked and paid Medicare payroll taxes for a sufficient number of years. However, hospital stays and extended care services may still involve deductibles or daily cost-sharing requirements, depending on the length of care.
Part B: Medical (Outpatient) Coverage
Part B focuses on outpatient medical services, including doctor visits, preventive care, diagnostic testing, and certain medical equipment.
Unlike Part A, most beneficiaries pay a monthly premium for Part B coverage. In addition, Part B typically includes an annual deductible, and many covered services require the patient to pay a percentage of the cost after the deductible is met. Premium amounts may also vary based on income levels.
When enrolled in both Part A and B, this is known as having traditional or Original Medicare.
Part C: Medicare Advantage Plans
Medicare Advantage plans, sometimes referred to as Part C, are offered through private insurance companies approved by Medicare. These plans combine Part A and Part B coverage, and many also include prescription drug coverage and additional benefits that are not part of Original Medicare.
Because Medicare Advantage plans operate through private insurers, their premiums, provider networks, and cost-sharing structures can vary significantly. Some plans may also require participants to receive care within a specific provider network.
Part D: Prescription Drug Coverage
Part D provides coverage for prescription medications and is typically offered through private insurance plans approved by Medicare. Individuals enrolled in Original Medicare may choose a stand-alone Part D plan, while many Medicare Advantage plans include drug coverage as part of their benefits.
Costs associated with Part D coverage may include monthly premiums, deductibles, and cost sharing, and these elements can differ depending on the specific plan selected.
Medigap: Medicare Supplement Plans
Some individuals enrolled in Original Medicare choose to purchase Medicare Supplement Insurance, often called Medigap, to help manage out-of-pocket healthcare costs.
Medigap policies are offered by private insurance companies and are designed to work alongside Medicare Part A and Part B. These plans may help cover certain expenses that Original Medicare does not fully pay for, such as deductibles, copayments, and coinsurance. Because these policies supplement Original Medicare coverage, they cannot be used in combination with Medicare Advantage plans.
The level of coverage provided by Medigap can vary depending on the specific plan selected, but the overall purpose is to help reduce some of the out-of-pocket costs associated with Medicare-covered services.
Healthcare coverage decisions can also influence how retirement income is structured. Planning for medical expenses alongside other retirement income sources may help provide a clearer picture of long-term financial sustainability. We explore this further in our article: Building a Retirement Distribution Plan: Turning Savings Into Sustainable Income.
How Social Security and Medicare Interact With Each Other
Individuals who are already receiving Social Security benefits before turning 65 are typically automatically enrolled in Original Medicare when they become eligible. For those who have not yet started Social Security, enrollment in Medicare usually requires enrolling during what’s known as the Initial Enrollment Period (IEP). The IEP typically includes:
The three months before your 65th birthday
Your birth month
The three months after
Enrolling during this period can help avoid potential coverage gaps and may prevent late enrollment penalties that can increase premiums later. However, some individuals may delay enrollment in certain situations, such as if you are still working and have qualifying employer-sponsored health coverage. In these cases, Medicare rules may allow enrollment at a later time without penalty.
If the IEP is missed, some individuals may still qualify for a Special Enrollment Period, which allows them to enroll under specific circumstances without waiting for the general enrollment window.
Because the timing of Medicare enrollment can influence healthcare coverage and potential costs, understanding how these rules work alongside Social Security eligibility can help individuals make more informed decisions as they approach retirement.
To learn more about Medicare enrollment periods, you can visit the official Medicare website.
Why Planning Ahead Can Make a Difference
Because Social Security and Medicare decisions occur near the retirement transition, many individuals find themselves evaluating multiple financial decisions at the same time.
Planning ahead allows individuals to explore:
Different Social Security claiming scenarios
Medicare enrollment timelines
How retirement savings may support income needs
Healthcare cost planning
Tax considerations related to retirement income
Taking time to understand these systems can help create a clearer framework for how retirement may function financially.
Can You Retire Early?
For some individuals, evaluating Social Security and Medicare decisions is closely connected to determining when retirement itself may begin. Retirement timing can influence income planning, healthcare coverage decisions, and long-term financial flexibility.
Understanding These Decisions in the Context of Your Retirement Plan
Social Security and Medicare represent two of the most important systems supporting retirees today. Yet many individuals first encounter the complexity of these decisions only as retirement approaches. Understanding when benefits begin, how healthcare coverage works, and how these programs interact with broader retirement income strategies can help make the transition into retirement more intentional.
Because these decisions often connect to other parts of retirement planning, such as income strategy, investment structure, and long-term spending, many people find it helpful to evaluate them within the context of their overall financial picture.
If you would like to explore how Social Security timing, Medicare enrollment, and retirement income planning may fit into your overall retirement strategy, you can schedule a conversation with one of our RetireAdvisers℠ consultants.
The concepts expressed herein represent the views and opinions of Pension Consultants, Inc., and are not intended as legal, tax, or investment advice for any specific individual, account, or plan.
Sources:
[1] Cubanski, J., Freed, M., Ochieng, N., Cottrill, A., Fuglesten Biniek, J., & Neuman, T., Medicare 101. In Altman, Drew (Editor), Health Policy 101, (KFF, October 2025) https://www.kff.org/health-policy-101-medicare/.
[2] McNish, Martha, and SSA. Fact Sheet: Social Security, https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf.
[3] Fidelity. “Fidelity Investments® Releases 2025 Retiree Health Care Cost Estimate, a Timely Reminder for All Generations to Begin Planning.” Fidelity Newsroom, Fidelity, 30 July 2025, newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2025-retiree-health-care-cost-estimate--a-timely-reminder-for-all-gen/s/3c62e988-12e2-4dc8-afb4-f44b06c6d52e.
[4] “Benefits Planner: Retirement | Delayed Retirement Credits | SSA.” Www.ssa.gov, www.ssa.gov/benefits/retirement/planner/delayret.html.
[5] “Must I Pay Taxes on Social Security Benefits?” Ssa.gov, www.ssa.gov/faqs/en/questions/KA-02471.html.
[6] “Check Your Eligibility for the New Enhanced Deduction for Seniors | Internal Revenue Service.” Irs.gov, 2026, www.irs.gov/newsroom/check-your-eligibility-for-the-new-enhanced-deduction-for-seniors.
