Were you ever working with someone looking to add a little extra cushion to their monthly budget? They found a benefits program that might help, only to learn about a major pitfall that could prevent them from receiving the benefit? A counselor in Connecticut recently ran into this exact problem when talking with our friend George.

George is 65 and still working, but struggling to make ends meet on his current income. After talking with the counselor at his local aging office, they discovered that George was potentially eligible for a benefit that could help him pay his Medicare Part B premium—the Medicare Savings Programs (MSPs). But when he applied, his state Medicaid agency (which administers the program) denied the benefit. The reason? George is not taking his Social Security retirement benefits yet, and thus is not pursuing all sources of income available to him before requesting help from the state.

What is the downside to taking Social Security early?

Anyone who has enough work credits paid into Social Security can begin drawing retirement benefits as early as age 62. However, taking Social Security early reduces the amount of money a person receives for the rest of their life. In contrast, waiting until later than the full retirement age increases the benefit amount.

The Consumer Financial Protection Bureau (CFPB) offers an online Planning for Retirement tool, which helps consumers calculate how much money they’ll lose or gain depending on the age they first take Social Security retirement benefits. Here’s what it shows for someone like George:

Source: Estimates made using CFPB Planning for Retirement tool

Let’s assume George’s highest-ever annual income was $55,000, though he earns less than half that amount now (in Connecticut, a person can qualify for an MSP with annual income up to $37,056). If George takes Social Security today at age 65, he will receive a monthly benefit of $1,677, or $68 less per month than what his benefit would be if he waited until his full retirement age of 66.

That difference of $68 each month may not seem like a lot now. But if George lives 20 more years, that’s a loss of more than $16,000 in total lifetime benefits.

Could people be forced to take early Social Security?

Medicare Savings Programs are administered by state Medicaid agencies, which have some flexibility in setting MSP eligibility requirements. Some states, like Connecticut, eliminate the asset/resource test and/or raise the income threshold to higher than the federal levels. Federal law (42 CFR 435.608) mandates that:

As a condition of elibility, the [Medicaid] agency must require applicants and beneficiaries to take all necessary steps to obtain any annuities, pensions, retirement, and disability benefits to which they are entitled, unless they can show good cause for not doing so.

However, what demonstrates “good cause” is open to interpretation by the state. Forcing a person to take early retirement and thereby endangering their long-term economic security may/may not be considered good cause. Some states may not be clear on the rules. Others, like New York, have issued special guidance stating that Medicaid applicants who are still working and have not reached full retirement age cannot be forced to take early Social Security.

How do you protect your retirement benefits?

If you're working with someone like George or you ARE George, it’s important to do two things:

1. Clarify your state’s Medicaid rules. Find out whether the state has issued any guidance about whether applicants who are pre-retirement can be forced to draw down their Social Security benefits early, and advocate for clarification of the “good cause” clause.
2. Examine each person’s case individually. Weigh the financial gains and losses together so that the person you're working with can make the decision that is best for them over time.

In George’s case, this means reviewing two possible scenarios with him:

• George might decide the value of getting an MSP to pay his Part B premium is worth losing an extra $68/month in Social Security.
• He may also decide to reconsider applying for the MSPs after he reaches his full retirement age and starts collecting Social Security. George would be responsible for paying his Part B premiums in full until that time, but this expense might be worth the eventual lifetime gain of a higher benefit.

It's also important to remember that people with Medicare who do not draw Social Security benefits are not protected by the "hold harmless" provision. This means they are subject to increases in Part B premiums.

If you're working with someone like George, look holistically at his income sources, debt, and whether he qualifies for other money-saving benefits. This can help you both come to an informed decision that works best for his situation. 

Jen Teague, NCOA Director for Health Coverage and Benefits, says benefits counselors should be thoughtful and strategic when helping people with low-income make decisions about Social Security. “While early retirement may seem like quick financial relief, the long-term impact on income could be significant,” she explains.

Benefits counselors should carefully review each person's financial situation and other factors to help them determine the most advantageous timing."

Visit BenefitsCheckUp.org to help people you're working with learn more about the Medicare Savings Programs and other benefits they may qualify for based on their ZIP code.