Turning 65 this year? Don’t overlook these 3 steps

Jan. 07--If you will be turning 65 this year and plan to keep working, you have essential money decisions to make that can't be ignored.

The arrival of your 65th birthday requires that you take specific steps so you don't get in trouble with the government on Medicare rules and face fines later. And the years around your birthday command attention to money details that could make the difference between having plenty of money for retirement and running out of funds early. So don't drift by this major time in your life without attention to the three issues people at age 65, or near retirement, must address.

Sign up for Medicare. When you are 65, you will be eligible to start taking Medicare to cover some of your doctor, hospital and other medical costs. Full Medicare coverage is not free so you typically don't want to start taking it if you are still working full time, aren't on Social Security and will have solid, affordable medical coverage at work until you decide to retire. But you can sign up for Medicare at 65 and get a small part of Medicare -- the free benefits that cover some hospital care -- even if you don't need the full Medicare package while working. (See www.ssa.gov/pubs/EN-05-10530.pdf.) Signing up doesn't have to mean you give up your health insurance at work. And the hospital coverage you get free through Medicare Part A can supplement the health insurance you have through your workplace insurance, said Philip Moeller, who walks people through the confusing Medicare requirements in his book, "Get What's Yours for Medicare."

If you are going to keep working after 65, you simply say on the Medicare form you fill out that you won't be claiming the form of insurance yet that covers doctors because you have solid coverage through work. (See faq.ssa.gov/link/portal/34011/34019/Article/3773/How-do-I-sign-up-for-Medicare.) In other words, you aren't taking Medicare Part B at that time. Part B is the Medicare insurance that you will use later in retirement to pay for doctors, outpatient treatment and supplies like knee braces or walkers.

After doing the basic sign-up at age 65, you will get a Medicare card in the mail and you will start being eligible for one of the three parts of Medicare: Part A.

Later, when you actually retire, or when you don't have solid medical insurance through work, you will need to sign up for full Medicare coverage. Then, you will be able to rely on all three parts of Medicare -- Part A for hospitals, Part B for doctors, equipment like leg braces and walkers and outpatient medical services, and Part D for some prescriptions. For Part B, you will pay premiums each month -- typically $104.90, although what you pay depends on your income. Your drug Part D cost depends on the plan you choose from numerous insurance companies, and you need to scrutinize them carefully to make sure they cover your particular prescriptions. Monthly premiums for popular drug plans range from about $18 to more than $66 and swing dramatically depending on where you live, Moeller said.

If you plan to rely on your employer insurance while working, beware: Employers can't kick you out of their health insurance at 65 or as you age, but that rule applies only to businesses with 20 or more employees, Moeller notes. So if you work for a small company with only a few employees, at age 65 you could end up needing to sign up for Medicare and also start using -- and paying for -- all three types of Medicare: Parts A, B and D. Your employer is supposed to tell you if your insurance through work is considered to be sufficient enough that you don't have to apply for full Medicare. If not, you will have to apply for full Medicare including Parts A and B.

If you don't have acceptable coverage at work, and fail to sign up for Medicare when 65, the government can penalize you throughout your retirement. When you start using Medicare Part B for doctors, the penalties could boost your monthly payments by 10 percent for each full 12-month period. (See www.medicare.gov/your-medicare-costs/part-b-costs/penalty/part-b-late-enrollment-penalty.html.) If you miss the deadline for signing up for drug coverage through Part D, another penalty on drug coverage can last through retirement. (See www.medicare.gov/part-d/costs/penalty/part-d-late-enrollment-penalty.html.) There are specific times during the year when you must enroll. Make sure you pay attention to enrollment periods because there is no leeway.

If possible, wait on Social Security. Although you can start getting Medicare at age 65, and must pay attention to paperwork then, Social Security is different. You don't have to apply for Social Security at a certain age, and the longer you wait, the better. Most people who are around 65 now won't be able to retire and get full Social Security retirement benefits until they are at least 66. If they are healthy and can work until 70, they will boost their Social Security benefits significantly. For each year a person waits to retire after 66, the person can increase his or her Social Security payments 8 percent a year. And there are also cost-of-living increases in Social Security benefits annually. Those payments are guaranteed. You aren't going to find a guarantee like that in any investment. That makes waiting to retire a smart move if possible.

Budgeting and investing. When you start depending on Medicare, you will not be able to count on it for all your medical needs. Full Medicare covers only about half of your medical expenses. So as you plan for retirement, you will need to shop for supplemental insurance that picks up where Medicare leaves off. There are two types: Medigap insurance and Medicare Advantage plans. They differ in what they charge, what they cover, and whether they apply to your community, or cover your medicines, your doctors and the places where you might travel. Costs vary broadly with some of the expensive Medigap plans costing well over $600 a month per person. (See Medicare's PlanFinder www.medicare.gov/find-a-plan/questions/home.aspx.)

Also, realize that your income impacts what you will be charged for Medicare and the taxes you pay on Social Security. So financial planners suggest that people examine their savings a few years before retiring to ensure that during retirement they have a blend of IRA and Roth IRA plans. Roth IRAs don't get taxed in retirement and IRAs are taxed. So by plucking a little money from each of the two plans for expenses each year, retirees can keep their taxes down and hold on to more of their Social Security and Medicare benefits than they would if they didn't consider tax implications.

gmarksjarvis@chicagotribune.com

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