How well do your clients understand the intricacies of Social Security and Medicare?

Many Americans are uninformed about those cornerstones of retirement planning. Without better advice, it may be hard for them to retire their own terms, experts caution.

The National Council on Aging is promoting good planning as a critical component in solving the problem. During a hearing before the Senate Special Committee on Aging, Anna Maria Chávez, the council's chief strategy officer, emphasized the importance of starting to plan early.

"Start thinking about it now, even for women and young men in college, start putting away for that longer retirement you're going to have," she said. "Also, understand the benefits that are coming to you at that point in time, because there's ways of really leveraging those benefits."

Lawmakers and witnesses at the hearing also lamented the pervasive confusion about Social Security and Medicare, underscoring the importance of expert advice.

Social Security checks (Bloomberg News)
Many retirement savers will be in over their heads if they try to manage their government benefit programs on their own. "Everyone should utilize advisors to help make Medicare and Social Security decisions," says Carolyn McClanahan, director of financial planning at Life Planning Partners in Jacksonville, Florida.

"It can be confusing to navigate these hurdles, and to choose the right package to suit individual health care needs," said Maine Sen. Susan Collins, the chair of the aging committee.

Advisors can play a key role in helping clients deal with Social Security and Medicare, according to Carolyn McClanahan, director of financial planning at the Jacksonville, Florida, advisory firm Life Planning Partners and a Financial Planning columnist. Many retirement savers will be in over their heads if they try to manage their government benefit programs on their own, she says.

"Everyone should utilize advisors to help make Medicare and Social Security decisions," McClanahan says.

She cites three principal areas where advisors can help clients with these programs. First, they can help clients figure out when to start claiming Social Security benefits and avoid the pitfall of claiming too early.

Then, they can urge their clients to meet the Medicare enrollment deadline to avoid a lifetime premium penalty. Finally, McClanahan says that advisors can help their clients determine which Medicare program will best fit their needs.

"They need to contact clients well in advance of these decisions," McClanahan says. "For example, it's important to have discussions before age 62 on these issues," she says. "There are great programs to help advisors with Social Security decisions, and advisors should be adept at using these programs. With Medicare, it is important to utilize specialists to help clients make these decisions."

In 2014, roughly 750,000 Americans were paying recurring late-enrollment penalties for Medicare Part B, according to the Congressional Research Service. Those penalties, which affected 1.4% of enrollees, amounted to premiums that were on average 29% higher than what non-penalized enrollees paid.

Pennsylvania Sen. Bob Casey has introduced a bill that seeks to mitigate some of the confusion around Medicare and to eliminate gaps in coverage. The Beneficiary Enrollment Notification and Eligibility Simplification Act — or BENES Act — would establish an inter-agency framework to notify Americans who are approaching Medicare eligibility and explain how the program works with other forms of insurance.

"There are people who made an honest mistake who didn't know they need to sign up for Medicare. It could happen to any one of us. Now they're paying higher premiums for the rest of their life," Casey said during the hearing. "That's outrageous, and unacceptable, especially considering that most retirees are already living on limited and often fixed incomes."

Additionally, the bill would eliminate coverage gaps that can occur during the initial enrollment period and in the general enrollment period.
Of course, any legislative effort to improve retirement planning will only go so far, and officials at the Social Security Administration are working on their own outreach efforts in coordination with the Centers for Medicare and Medicaid Services.

"We believe workers need to be thinking about their claiming decisions, before they arrive at the field office," Jim Borland, acting deputy of communications at the Social Security Administration says. "This is why our outreach and education efforts are crucial. The decisions workers make about starting retirement benefits are very important, as they will affect payment amounts for the rest of their lives."

That could start with an advisor helping clients call up their Social Security benefits statement online, or helping clarify that couples don't need to make a uniform decision on Medicare benefits, one of many common points of confusion among retirement savers that witnesses flagged at the hearing.

"Americans want help navigating life after 65," Chávez said. "Aging well means making informed, deliberative choices."

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