An unexpected layoff just a few years before you plan to retire can throw your financial plans into disarray. That includes how you’ll handle health insurance before you qualify for Medicare and whether or not to change you Social Security claiming strategy. 

Columnist Phil Moeller, the author of Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs and the co-author of the updated edition of The New York Times bestseller How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security, has advice for a reader facing that very problem.

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Joyce Z.: My husband was just laid off from a job in automotive. He is only 64, and we really don’t know what to do about Medicare or Social Security. I’m only 62, and I started collecting my Social Security this past fall. Can you offer any guidance?

We don’t know what to do about COBRA, or whether to get other health insurance. He will not go back in the business for fear of another layoff.

Phil Moeller: Joyce, I’m so sorry to hear about your husband getting laid off. I can understand his reluctance to go back into that business, and I hope he finds something that is good for his soul and for the family pocketbook. 

The good news, of course, is that the economy is booming and the unemployment rate is expected to remain low for at least the near-term.

Your concerns about Medicare are understandable but premature. Unless a person is disabled, they will not be eligible for Medicare until they turn 65.

In your case, I’d look at the cost and coverage details of the COBRA policy available from his workplace and compare that with what you are able to get on your state health insurance exchange. 

There has been enormous uncertainty about the Affordable Care Act, but it’s not going away anytime soon now that Democrats have regained control of the House of Representatives. 

Open enrollment for 2019 plans is now underway and extends to Dec. 15, so the timing is good for you to make these decisions. If you’re worried about not having insurance between now and the end of the year, talk with the COBRA insurer to see about short-term coverage.

Most COBRA policies are good for 18 months, so if you decide this is the way to go, make sure your husband gets Medicare anyway when he turns 65. COBRA policies move from a primary to a secondary insurance role when a person turns 65 and becomes eligible for Medicare.  

Why waiting for Social Security pays off

In terms of Social Security, I’d urge your husband to consider holding off on filing. I can imagine that money may be tight, but his monthly benefit will rise at the rate of nearly 8% a year until he turns 70 if he can defer filing.

His benefit thus would grow by about 50% from age 64 to 70. That’s a huge increase that he would get for the rest of his life. 

The tax rate on Social Security income is always lower than what you’ll owe on retirement fund withdrawals.

Doing so also could benefit you. If he dies before you do, which is statistically likely, you would continue to receive the larger of your or his Social Security. Because you’ve already claimed, this certainly would be his benefit. 

By allowing his benefit to reach its maximum amount, both of you would be guaranteed to receive this benefit for the rest of your lives.

Further, Social Security payments receive annual cost of living adjustments, so they’re protected from inflation. Also—and this is something most people don’t know—the tax rate on Social Security income is always lower, and sometimes much lower, than what you’ll owe on 401(k) and other retirement fund withdrawals.

How some couples can boost their benefits

To make “doing the right thing” easier, see if your husband is one of a shrinking number of people who quality for one of the few remaining Social Security “bargains.” Instead of filing for his own Social Security retirement, he might have an option that would bring money into the household and still preserve his age-70 benefit.

A law passed in late 2015 made it much harder for married couples to find attractive Social Security claiming strategies. However, one such strategy was grandfathered into the law, and it is still in effect for people who were at least 62 as of early 2016. 

If your husband is one of those people (and I can’t tell from your question), in about two years he would be able to file what’s called a “restricted application” for a spousal benefit based your Social Security earnings, while deferring his own retirement filing until as late as age 70.

A law passed in late 2015 made it much harder for married couples to find attractive Social Security claiming strategies.

I apologize for how complicated this explanation is getting—that’s why I co-wrote an entire book about Social Security!

If he does qualify by age, he needs to wait until reaching what’s called his full retirement age (FRA) to file a restricted benefit. Because you filed for your own benefit before reaching your FRA, his spousal benefit would be reduced a bit. But it still should come in very handy. 

If he does qualify, and you have any questions about filing a restricted application, just let me know. Good luck to you both!

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