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Planning to Retire on Your 65th Birthday? Yeah, We Didn't Think So

What you need to know about Medicare if you’re planning to work beyond 65.

The popular perception is that your 65th birthday marks the milestone in your life when you hang up your spurs, kick back and reap the fruits of your labor as you enjoy sunsets from your porch.

But for millions of Americans, that perception is becoming a thing of the past.

Every day 10,000 baby boomers turn 65, and these Americans who reach Medicare eligibility are choosing to work past that traditional retirement age. Some are looking to grow their nest egg, while others are just trying to make ends meet. And many remain employed because they continue to derive much satisfaction from their work.

The percentage of Americans 65 and older who said they were employed full-time or part-time has continued to increase in recent years, from 12.8 percent (4 million people) in 2000 to 18.8 percent (9 million people) in 2016, according to a Pew Research Center analysis of employment data from the U.S. Bureau of Labor Statistics.

Ironically, choosing to work beyond 65 for financial reasons can actually cost you in the form of late enrollment penalties for Medicare. So it’s important to approach the decision to delay enrolling in Medicare with your eyes wide open.

Here are some important points to keep in mind if you’re planning to continue working past your 65th birthday.

Why you should consider enrolling in Medicare at 65

As with many things in life, timing matters when it comes to signing up for Medicare. If you’re about to turn 65, you have a seven-month window called an Initial Enrollment Period (IEP). That includes the month of your 65th birthday, the three months before and the three months after.

For example, if your 65th birthday is on June 20, then your IEP starts on March 1 and ends on Sept. 30.

If you don’t have a health insurance plan through your employer, the IEP is the best time to figure out what kind of Medicare coverage would work best for you and sign up.

Even if you do have coverage through your employer, it’s a good idea to check with your employer’s human resources department or benefits administrator to see if Original Medicare (Parts A and B) might work hand in hand with your employer coverage. (Check out this quick review of what’s covered under the various parts of Medicare.) Many opt to sign up for Medicare Part A since most people can get it without paying a monthly premium.

How Social Security benefits can affect your Medicare enrollment

If you already receive Social Security benefits when you turn 65, you’ll be automatically enrolled in Original Medicare (Parts A and B), and your Medicare card will arrive in the mail about three months before the month of your 65th birthday.

Your Part B premium will be automatically deducted from your Social Security payments. If you don’t want Medicare Part B, you have to notify Medicare to opt out.

Many people wait to claim Social Security until their 66th birthday or later to increase their monthly payments. So, if you fall into this group but still want your Medicare coverage to begin when you turn 65, it’s up to you to enroll because it won’t happen automatically.

Watch out for penalties for delaying Medicare enrollment

If you’re planning to work beyond the age of 65, you can wait until you retire to enroll in Medicare. And for many people, that’s the right choice, as their employer coverage is more robust than they’d receive through Medicare. But you’ll first want to give consideration to your prescription drug coverage, and when you’re ready to retire, be aware of the enrollment windows to avoid late enrollment penalties.

If your employer’s plan doesn’t offer prescription drug coverage, or if the coverage it offers isn’t considered as good as what you could get through Medicare, you should strongly consider enrolling in a Medicare Part D prescription drug plan. That’s because Medicare imposes a late enrollment penalty that will increase your monthly premium if you later decide to sign up for a Part D plan, and that penalty is permanent. You must be enrolled in Part A and/or Part B of Medicare before you can enroll in a Part D plan.

When you retire and lose your employer coverage, you’ll be eligible for what’s called a Special Enrollment Period (SEP) that lasts eight months. You can enroll in Original Medicare (Parts A and B) for up to eight months after the month you retire or your employer health plan coverage ends, whichever comes first. But if you delay enrollment beyond eight months, you could pay more for your Part B premium — and in most cases, those higher premiums stick with you for as long as you have Part B.

For each year you delay enrollment in Part B, you will have to pay an extra 10 percent of the Part B premium. For example, people who delay enrollment for five years could end up with a 50 percent higher premium for their Part B coverage.

Want Medicare Advantage or Medicare Part D when you retire? Your enrollment window is shorter.

When most people sign up for Medicare, they also choose to enroll in a private Medicare plan — either a Part D prescription drug plan or a Medicare Advantage plan, also called Medicare Part C.

Medicare Advantage plans provide additional benefits beyond those of Original Medicare (Parts A and B), such as dental, hearing and vision coverage. Many Medicare Advantage plans also bundle in prescription drug coverage.

But the window to sign up for these types of plans after you retire or lose your employer-sponsored coverage is shorter — only two months. And keep in mind that it can take some time for plans to process your application. To avoid a lapse in your coverage after your employer-sponsored coverage ends and before your Medicare Advantage or Part D coverage begins, you should make your decisions at least a few months before your employer coverage is scheduled to end.

The various enrollment windows and timelines can be confusing. If you miss your chance to enroll, you can rest assured that you’ll have other opportunities. Medicare offers a General Enrollment Period for Original Medicare (Parts A and B) from Jan. 1 through March 31. If you enroll during the General Enrollment Period and decide that you want a Medicare Advantage or Part D plan, you can sign up from April through June that year, or you could choose a plan during the Open Enrollment Period, which is Oct. 15 through Dec. 7 every year.

But remember: Those late-enrollment penalties for Part B and Part D are permanent and can have a meaningful impact on your finances throughout your retirement. So it’s important to think through these decisions carefully.

The bottom line

Just because you delay your retirement beyond the age of 65, it doesn’t necessarily mean you should also delay your Medicare enrollment.

This decision is not black and white. It’s heavily dependent on your circumstances and can have lasting consequences. So armed with some baseline knowledge from the above tips, talk to your HR or benefits coordinator at work who can give you personalized advice based on your unique circumstances.

You can also visit Medicare.gov or call 1-800-MEDICARE (TTY: 1-877-486-2048, 24 hours a day, seven days a week). Or call your local Social Security Administration office at 1-800-772-1213 (between 7 a.m. and 7 p.m. Monday through Friday) or visit the Social Security website at www.ssa.gov.

You can find additional resources on MedicareMadeClear.com, or “Like” Medicare Made Clear on Facebook to receive updates, tips and reminders about Medicare.

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Plans are insured through UnitedHealthcare Insurance Company or one of its affiliated companies. For Medicare Advantage and Prescription Drug Plans: A Medicare Advantage organization with a Medicare contract and a Medicare-approved Part D sponsor. Enrollment in these plans depends on the plan’s contract renewal with Medicare.