Key sign ups and decisions around your 65th birthday help ensure your Medicare coverage and protect your retirement budget against extra costs.
There’s a lot of financial planning that goes into your transition to retirement. You may continue to work and earn even a partial paycheck past the traditional retirement age of 65. You may end work years earlier, and transition to a post-work budget, too.
One essential piece of retirement financial planning that will impact you for every year past age 65 is Medicare enrollment. It has a specific start time—your 65th birthday—and financial penalties and costs if you don’t thoroughly follow the rules about sign up and coverage.
If you work at a large company, you may get some help with these money-related questions, says Kevin Hansen, knowledge hub director for Principal®. At smaller companies, you may have to do some research, but it’s worth it. “Especially if you’re going to forego coverage, you really want to make sure you have your t’s crossed and your i’s dotted,” he says.
The following considerations can help guide you through what you need to do to successfully enroll in Medicare, avoid financial penalties, and protect your retirement budget.
- Federal health insurance.
- For people 65+ and some younger people with disabilities.
- Administered by the Social Security Administration. Parts A and B are sometimes referred to as Original Medicare.
- Enroll during a seven-month window: three months before your 65th birthday, the month of your birthday, and three months after your 65th birthday, for coverage that begins the first day of your 65th birthday month.
To contact Medicare, call 800-633-4227 or visit medicare.gov.
Medicare enrollment deadlines and penalties that impact your retirement budget
Each piece of the Medicare enrollment puzzle can help ensure that you enroll when you need to so that you can budget for any premiums or other costs and avoid penalties, too.
|Medicare part1||Enrollment deadline||Budget for it in retirement||Penalties you can avoid|
|Part A||During Social Security sign up.||For most, Part A is premium free.||If you’ve worked 40 quarters (called credits, equaling 3 months of a year) in your lifetime, you’ll never pay a late sign-up penalty for premium-free Part A. If you’ve worked less than 39 credits and sign up late, you’ll pay an extra 10% on top of your premium for twice the number of years you delayed sign up.|
|Part B||During Social Security sign up. If you have creditable coverage, you can postpone the Part B premium payment as long as you sign up eight months after that coverage ends.||Your premium for Part B will depend on your income. There's also a deductible.||Your premium may increase 10% for each 12-month period you were eligible for the lifetime of your coverage.|
|Part D||When you enroll in Original Medicare; must be enrolled in Parts A and B to enroll in Part D.||Your Part D premium is based on your location.||You'll pay 1% of the national base beneficiary premium for each month of delay unless you can prove creditable coverage elsewhere.|
Medicare Part C is also referred to as Medicare Advantage; these are private insurance plans that simply bundle together Parts A, B, and in some cases D. You do not have to purchase Medicare Advantage to have Medicare.
4 Medicare sign-up money mistakes
There’s a lot to juggle when it comes to signing up for Medicare—but with a little planning you can do it and avoid extra impacts to your finances. These examples demonstrate why dates matter (and how you can protect your budget).
|If you …||The cost|
|Sign up for Medicare after the 7-month window.||Whether or not you have to pay a late penalty on Part A depends on if you qualified for premium-free Part A. Late sign up for Parts B and D equals a lifetime penalty cost.2|
|Retire at age 64, sign up for 18 months of COBRA, and then sign up for Medicare when you turn 65½.||You’ll face penalties for missing the Medicare sign up window. If you have remaining COBRA coverage, it will serve as secondary, not primary, insurance once you turn 65.|
|Continue health savings account (HSA) contributions after signing up for Medicare.||While you can use HSA funds to pay for qualified expenses after signing up for Medicare, you must stop contributing to HSA accounts six months before your Medicare effective date or face tax penalties.|
|Have prescription drug coverage at your job, so you don’t sign up for Part D.||If you don’t notify Medicare about your current coverage, you’ll face penalties that equal 1% of what’s called the national base beneficiary premium, which may increase each year.|
Still confused about when you sign up and how to avoid extra costs? Answer a few questions below.
Tip: If you’re older than 65 and still working, you can (but do not have to) remain on your employer-provided health care coverage. “Do a cost-benefit analysis,” Hansen says. “Compare premiums, deductibles, co-pays, and the network. In some cases, it may make sense to enroll exclusively in Medicare.”