Financial planning tools and services to put you on the path to the future you want
Your guide to financial planning and retirement
Connect with peers and experts
Get to know the people behind the company and the mission behind the work
Offer financial wellness to the people at the heart of your business
July 1, 2020
No one is born understanding how Medicare works. And just because friends or family have navigated the system well doesn’t mean you won’t hit a snag.
A solid retirement plan includes a good working knowledge of what to expect from Medicare. Because the more you know now, the less likely you’ll be to encounter these six common mistakes.
Although Medicare requires that you meet a certain number of years in the workforce, some people mistakenly believe that they didn’t work enough and that they won’t qualify for Medicare. All that you need are 40 credits through payroll taxes. That amounts to about 10 years of work. If you meet that requirement, you won’t pay any premiums for Part A, which covers hospital stays. You may also qualify for Part A based on your spouse’s earned work credits.
Further, you don’t have to meet any work requirements to qualify for Part D, which covers prescriptions, or Part B, which covers doctor visits, outpatient care, and medical equipment, says AARP’s Ms. Medicare columnist, Patricia Berry. As long as you’ve reached age 65, are an American citizen or legal resident, and have lived in the state for the past five years, you qualify.
Although most people qualify, you still have to enroll at the right time. For example, if you wait too long to enroll in Part B, you could face a surcharge, which is added to all premiums from then on. AARP explains that waiting to enroll can extend your waiting period before coverage begins. Kiplinger personal finance editor, Kimberly Lankford, explains, “You have a seven-month window to sign up – from three months before your 65th birthday month to three months afterward.” Don’t miss your window.
Choosing the right time to enroll also means understanding the difference between the way Social Security benefits work and how Medicare works. You can delay applying for Social Security benefits until your full retirement age, which is around 66. Your Medicare enrollment happens a full year earlier at 65, and waiting isn’t a good plan.
Medicare only covers the basics. Many retirees are very surprised to learn that there are huge out of pocket medical expenses in retirement. In fact, experts estimate that the average retired couple will spend somewhere between $250,000 and $450,000 on medical expenses.
You might not take prescription medications now, but you never know what the future holds. Why should you enroll? “Because you don’t have a crystal ball and can’t be sure that you won’t get some unforeseen illness or injury that takes expensive drugs to treat,” says Barry. Some people opt not to enroll in Part D, and end up regretting that decision later. Enrolling as soon as you can helps you avoid unnecessary fees and the possibility of no coverage when you need it.
Like most insurance, you can’t put off signing up until you’re in a desperate situation where coverage is critical. If you still think Part D is overkill, at least choose a low-premium plan so that you aren’t on your own in case of an emergency. AARP also cautions against choosing a Part D plan based only on what it costs or because someone you know has the same plan.
Medigap insurance covers out-of-pocket expenses that Medicare doesn’t cover. The expenses can be copays and also your deductibles. Medigap is private insurance but helps protect you from paying more at the time of service. If you sign up for a Medigap policy, you’ll need it within 6 months of enrolling in Medicare Part B.
Missing the Medigap window leaves you responsible for out-of-pocket expenses, but it does something more. If you choose a plan at the right time, you can’t be turned down. But if you miss the window, you could face higher premiums or be turned down.
Mistakes in Medicare enrollment aren’t just inconvenient. They can also be expensive. You could pay more for certain things, such as Medigap insurance, or you could face penalties that stay with you permanently.
With Medicare, you need to sign up for the right supplemental policies in the beginning, but then you really should reevaluate your policy at least once a year. Your health needs will evolve and the insurance plans change often. As such, a policy that was good for you one year might be expensive and not offer the coverage you need the next year.
NewRetirement takes the guesswork out of retirement planning. From retirement calculators to finding a good advisor, we help every step of the way. You can even check out our Supplemental Medicare Comparison tool for free and get started on the right path toward making good choices for your life.
Do it yourself retirement planning: easy, comprehensive, reliable
Take financial wellness into your own hands and do it yourself retirement planning: easy,
Share this post:
Our weekly newsletter full of inspiration, podcasts, trends and news.
© 2023 NewRetirement, Inc. All rights reserved.
Disclaimer: The content, calculators, and tools on NewRetirement.com are for informational and educational purposes
only and are not investment advice. They apply financial concepts in a general manner and include
hypotheticals based on information you provide. For retirement planning, you should consider other
assets, income, and investments such as equity in a home or savings accounts in addition to your
retirement savings in an IRA or qualified plan such as a 401(k). Among other things, NewRetirement
provides you with a way to estimate your future retirement income needs and assess the impact of
different scenarios on retirement income. NewRetirement Planner and PlannerPlus are tools that
individuals can use on their own behalf to help think through their future plans, but should not be
acted upon as a complete financial plan. We strongly recommend that you seek the advice of a financial
services professional who has a fiduciary relationship with you before making any type of investment or
significant financial decision. NewRetirement strives to keep its information and tools accurate and up
to date. The information presented is based on objective analysis, but it may not be the same that you
find on a particular financial institution, service provider or specific product's site. All content,
tools, financial products, calculations, estimates, forecasts, comparison shopping products and services
are presented without warranty.