Stableford Capital Insights

Signing up for Medicare at Age 65 is Critical for Your Long-term Financial Plan: Avoid These Common Mistakes

Medicare is one of the most popular government-funded programs in existence in the United States. But that doesn’t mean signing up for Medicare at age 65 is something everyone automatically knows how to do. And there are some financial implications for making mistakes during this sign-up process.

Basics of Signing Up for Medicare at Age 65

Medicare is a government-funded healthcare program that citizens opt into at age 65. It consists of several parts, but Part A—Hospital Insurance— and Part B—Medical Insurance—are the major coverage that most get at 65. Part A is paid for by Medicare taxes. Part B comes with a premium.

Some people may not want Part B if they have other coverage. However, they must satisfy certain requirements, such as carrying IRS-qualifying group health plan coverage, to avoid a lifetime late enrollment penalty for signing up past the specified enrollment window.

The Part B penalty is costly. Your premiums increase up to 10% for each year you could have had Part B. Bigger delays result in bigger penalties, which can have an effect on a retiree’s finances. These penalties cannot be “caught up” on, but rather apply for the rest of your life.

The Right Way of signing up for Medicare at Age 65 with Employer Coverage

Even though 65 is considered the “retirement age,” many people continue working past the point that they turn 65 and become eligible for Medicare. This means they need to understand how their employer’s size can dictate whether or not they can put off Part B without penalties.

If you—or your spouse—has coverage through a qualifying employer with more than 20 employees, you can explore putting off Part B without a penalty.

Once you are ready to opt into Part B, you have eight months from the date your employment ends to sign up. If you wait again to enroll—such as by using COBRA—you may end up with a coverage gap, as enrollments for this subsection of users can only occur in the first five months of the year (January - May). You may also be responsible for paying a penalty again.

Unique Insurance Cases

signing up for medicare at age 65 - medicare enrollment form -web

Some insurance cases may seem unclear, even with the employer coverage under/over 20 employee rules that dictate the ability to put off Part B. For instance, some people have retiree coverage, TRICARE, Veteran’s benefits, CHAMPVA, or Marketplace coverage and wonder if they need to take Part B.

The answer is yes, they should take Part B to avoid the penalty. In some cases, like TRICARE coverage, you are required to opt into Part B. Those with Marketplace insurance will lose it when they sign up for Part A, meaning they will need to sign up for Part B to have full healthcare coverage.

Don’t Miss Your Enrollment Period

There is a limited window for signing up for Medicare at age 65. If you try to sign up for it after the window closes, penalties may be applied, costing you more. Even if you have health insurance already, look into the specific requirements for your Medicare sign-up.

For three months before you turn 65 and for the three months after, you can enroll in Medicare at any time. But waiting past those three months on the back half is a bad idea. Similarly, pushing your sign up past the eight months granted for those whose employer coverage is ending past age 65 may result in penalties.

Not Accounting for Giving Up Your HSA

signing up for medicare at age 65 - older couple signing documents - web

A downside of enrolling in Medicare is that you can no longer contribute to a health savings account. This is true even if you only opt into Medicare Part A and put off Part B due to holding employer coverage. As many use an HSA to improve their tax situation, losing this benefit has implications for your overall income.

Health savings accounts are a great way to lower your taxable income. You can stash cash in there each year that scrapes off the top of your income. If you are teetering on the edge of a tax bracket, combining an HSA with other available deductions can actually lower your taxes. Plus, you don’t get taxed on contributions or growth.

Putting off Medicare while you still have qualifying employer health insurance so as to take advantage of your HSA longer could make financial sense for your unique situation and help you avoid the mistake of not accounting for the tax implications of giving up your HSA. Talk to your Stableford financial advisor about this option.

Simplify Your Finances and Medicare

Signing up for Medicare at age 65 should be a straightforward process. With the right financial advice on your side, avoiding potentially costly mistakes during that process should be easy, as well.

If you are approaching 65 and unsure about whether or not you should take Medicare or how it may affect your other financial decisions, reach out to Stableford Capital today to discuss your options.

Are you ready to set up your finances for the transition to Medicare? Reach out today at 480.493.2300 or contact us online for a complimentary 15-minute consultation.

Nikki Sutcliffe
Nikki Sutcliffe is Stableford Capital’s Director of Advisory Services. Prior to joining Stableford, Nikki worked at Charles Schwab for five years where she was an investment advisor and most recently as a financial planner. She started her career as a portfolio manager at Girard Partners and worked there for seven years while helping to grow the firm. Nikki graduated from Penn State University with a B.S. in Finance and earned her CERTIFIED FINANCIAL PLANNER™ designation in 2013.