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How Does Social Security & Medicare Affect Your Financial Plan?

How Does Social Security & Medicare Affect Your Financial Plan?

September 21, 2021

Financial planning is a personalized service geared toward meeting your needs of today and building a firm foundation for your future. Two important pieces to your plan are Social Security and Medicare.

Social Security refers to the federal government-issued monthly stipend you’ve earned from paying income tax during your working years and Medicare replaces health insurance during retirement. While these benefits are great, they’re a piece of your plan, not your whole plan.

Your income, health status, and goals play into how far you can stretch these benefits to cover your needs and desires. Let’s review both to learn how they affect your financial plan.

Social Security

You have a choice as to when you start collecting Social Security. While you’re first eligible at age 62, there are benefits to pushing off your first payment. The federal government rewards retirees for each month they defer receiving their benefit by increasing their monthly payout. 

66 years and 10 months is the current full retirement age. At this age, you would receive your full monthly payout as calculated by the Social Security Administration; their formula utilizes your indexed income data to land at your monthly benefit. Collecting early can reduce your monthly payment by 25%. (1)

This is where planning comes in. Without a financial plan, how can you determine when to start collecting Social Security? Your plan should include savings strategies, investing opportunities, a timeline, and a withdrawal strategy. 

It’s through a withdrawal strategy that you determine exactly when and how to utilize your saved funds in combination with Social Security to meet your monthly retirement financial needs. Because Social Security is based on your taxable wages, everyone’s monthly benefit is different. This is why you simply can’t mirror someone else’s plan—all are unique.


Medicare is designed to replace health insurance for retired Americans. The healthcare benefits are available to all age 65 and older. Medicare Part A is your hospital coverage and Medicare Part B is your traditional health insurance, covering doctors’ visits, outpatient needs, medical devices, and testing.

The programs are affordable but not free. You will need to plan for the monthly plan expenses. Beyond Medicare Part A and B, you may choose to add Part D for prescription drug needs. Your health status and need for prescriptions play into whether or not you choose this added benefit. (2)

You’ve also likely heard of Medicare Part C or Medicare Advantage Plans. Choosing an Advantage Plan means your benefits will be through a health insurance company. People often choose this route if they are interested in added benefits like vision and dental. One drawback is your access to care may be limited to certain providers.

As you can see, if you think that Medicare simply covers all of your healthcare needs, you’ll end up disappointed. Traditional Medicare, Part A, and Part B will indeed cover many needs, but it’s important to plan for added healthcare costs. 

As you begin planning, long-term care needs are also a critical piece of your financial plan. In many scenarios, Medicare will cover your first 20 days of long-term care needs, a coinsurance will be applied to days 21-100, and you will be on the hook for any additional days. The average nursing home stay hovers between 2 and 2.5 years—another factor to consider in your financial plan. (3)

Your Financial Plan

At the end of the day, there’s no one-size-fits-all financial plan. While tried-and-true principles apply to many, and Social Security and Medicare are benefits to plan around, understanding the costs of each is key to your retirement success.

It’s a wise idea for pre-retirees to meet with a qualified financial advisor to create a customized plan designed to build a solid foundation for their future. When you’re ready to crunch the numbers and formalize a plan, call 626-529-2362 or email to get started.

About Dave

Dave Eversfield is a wealth manager at Arrowhead Wealth Advisors, an independent wealth management firm dedicated to using a holistic, client-centered approach to help pre-retirees manage risk and grow and secure their savings. With over 20 years of experience, Dave partners with his clients to provide personalized financial strategies that meet their most pressing financial needs today and build a firm foundation for their futures. He is known for going the extra mile, giving personal attention and a high level of care to every client he works with, and building long-term relationships based on trust. His best days are when he can celebrate with a client who has achieved a significant goal, such as paying for their child’s college education or reaching financial independence and having the freedom to travel, spend time with family, or whatever it is they dream of in retirement.

Dave has a bachelor’s degree in business administration from California State University, Los Angeles, and is a Certified Wealth Strategist® (CWS®). When he’s not working, he loves to be outside, either hiking, camping, playing golf (disc and regular), or riding his dirt bike. He is a strong believer in giving back to his community and volunteers his time to feed the homeless in his area. To learn more about Dave, connect with him on LinkedIn.