What Needs to Be Done When You Turn 65?: Your Essential Checklist

According to the Social Security Administration, over 1.9 million Americans turned 65 in 2023, making it a critical milestone for healthcare and retirement planning. Navigating the changes to your healthcare coverage and retirement income is essential, which is why understanding what needs to be done when you turn 65 is key to securing your financial future.

Quick Summary

An essential guide to the key decisions and deadlines upon reaching age 65, including enrolling in Medicare, understanding your health insurance options like Medicare Advantage and Medigap, reviewing Social Security claiming strategies, and adjusting your retirement finances.

Key Points

• Enroll in Medicare on time: The Initial Enrollment Period begins three months before your 65th birthday. Delaying enrollment can lead to permanent late penalties for Parts B and D.

• Decide between Original Medicare and Medicare Advantage: Original Medicare offers flexibility with providers, while Medicare Advantage often bundles extra benefits like dental and vision into a single plan but may have network restrictions.

• Strategize your Social Security claim: Your Full Retirement Age is likely 67. Claiming early at 65 means a permanently reduced monthly benefit, so evaluate your health and financial situation before deciding.

• Consider a Medigap policy: If you choose Original Medicare, a Medigap (Medicare Supplement) policy like Plan G helps pay for the coverage gaps and out-of-pocket costs not covered by Parts A and B.

• Review your retirement finances: Analyze your budget with projected healthcare costs in mind. If you have an HSA, be aware that you can no longer contribute to it once enrolled in Medicare.

• Plan for prescription drug coverage: With Original Medicare, you must enroll in a separate Part D plan. Many Medicare Advantage plans include this coverage automatically.

Understanding Your Medicare Enrollment Options

For most people, turning 65 is synonymous with enrolling in Medicare. Your Initial Enrollment Period (IEP) is a seven-month window that begins three months before your 65th birthday, includes your birth month, and ends three months after. Missing this window can result in late enrollment penalties that last for as long as you have coverage.

The Basics: Original Medicare

Original Medicare is the federal government's healthcare program and includes two parts:

• Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services. Most people don't pay a premium for Part A if they or their spouse paid Medicare taxes for at least 10 years.
• Part B (Medical Insurance): Covers medically necessary services, outpatient care, durable medical equipment, and preventive services. You will pay a monthly premium for Part B, which can vary based on your income.

Comparing Medicare Plans

While Original Medicare offers comprehensive coverage, it leaves certain gaps in coverage, such as deductibles, copayments, and coinsurance. You have two main paths to supplement Original Medicare:

Original Medicare + Medigap + Part D Plan

• You remain enrolled in the government-run Original Medicare plan.
• You purchase a separate Medigap (Medicare Supplement) policy from a private insurer to help cover out-of-pocket costs like coinsurance and deductibles. A popular option for new enrollees is Medigap Plan G, which offers extensive coverage.
• You enroll in a separate Prescription Drug Plan (Part D) from a private insurer to cover medication costs.
• This path allows you the freedom to see any doctor or hospital in the U.S. that accepts Medicare, without network restrictions.

Medicare Advantage Plan (Part C)

• You enroll in a plan offered by a private insurance company that contracts with Medicare.
• Medicare Advantage plans must provide all the same coverage as Original Medicare Part A and Part B.
• Most plans include prescription drug coverage (MAPD plans) and may offer additional benefits like dental, vision, and hearing coverage.
• Plans often operate within a specific provider network (like an HMO or PPO), and you may need a referral to see a specialist.
• Medicare Advantage plans have an out-of-pocket spending limit, a feature Original Medicare lacks.

Table: Medicare Option Comparison

Feature	Original Medicare + Medigap/Part D	Medicare Advantage (Part C)
Administration	Managed by the federal government	Offered by private insurance companies
Coverage	Parts A, B + separate Medigap & Part D	All Parts A & B, often with Part D and extra benefits in one plan
Network	Freedom to see any provider in the U.S. that accepts Medicare	Typically requires staying within a plan's network for lowest costs
Provider Choice	No referrals needed for specialists	May require referrals for specialists
Out-of-Pocket Cap	No annual cap on out-of-pocket costs without a Medigap plan	Includes an annual out-of-pocket maximum
Premiums	Part B premium + Medigap premium + Part D premium	Part B premium + (sometimes) a plan premium
Additional Benefits	Not included	Often includes dental, vision, hearing, and wellness perks

Reviewing Your Social Security Benefits

While 65 is the age for Medicare, it's not the full retirement age (FRA) for Social Security for those born in 1960 or later. For this group, the FRA is 67. Filing for Social Security benefits at 65 will result in a permanently reduced monthly payment. For many, delaying Social Security until age 70 can maximize monthly payouts. Your decision depends on several factors:

• Financial Needs: Assess your immediate financial needs. If you need the income right away, claiming at 65 may be necessary.
• Health and Longevity: Consider your health and family history of longevity. If you have a shorter life expectancy, claiming earlier can maximize your total lifetime benefits. If you anticipate a long retirement, delaying could be beneficial.
• Working Status: You can continue working while receiving Social Security, but your benefits may be temporarily reduced if you are below your full retirement age and earn over a certain limit.

Assessing Your Retirement Finances

Turning 65 is a perfect time to take a holistic look at your retirement financial picture. Many people underestimate their healthcare costs, which can be a significant expense in retirement. Now is the time to account for Medicare premiums, deductibles, and any out-of-pocket costs associated with your chosen healthcare path.

Health Savings Accounts (HSAs) and Medicare

For those who were contributing to an HSA, it's crucial to know that you can no longer contribute once enrolled in Medicare. In fact, if you sign up for Medicare Part A retroactively, it can impact your ability to contribute to an HSA for up to six months prior. Speak with a financial advisor to understand how enrolling in Medicare affects your HSA strategy and to explore options for withdrawing funds tax-free for medical expenses.

Tax-Efficient Withdrawal Strategies

As you begin to transition to retirement, it's wise to review your withdrawal strategy. Factors like required minimum distributions (RMDs) from retirement accounts begin later, but your income sources at 65 (like part-time work or investment income) will impact your tax bracket and your Medicare Part B premium, which is means-tested. A financial planner can help you plan tax-efficiently by strategically withdrawing from various accounts.

Conclusion

Turning 65 marks a significant life transition that requires careful planning, particularly around healthcare and retirement finances. Enrolling in Medicare is a top priority, with a critical seven-month Initial Enrollment Period to secure coverage and avoid penalties. You must decide whether Original Medicare with supplements or a Medicare Advantage plan best fits your needs, considering the trade-offs between provider networks and out-of-pocket costs. Simultaneously, evaluate your Social Security claiming strategy, weighing the benefits of an early, reduced payout versus a higher monthly benefit by waiting. By proactively addressing these key areas, you can ensure a smoother, more financially secure transition into your later years.

• Important Note: Navigating these decisions can be complex. For free, unbiased advice, consider contacting your State Health Insurance Assistance Program (SHIP).

Keypoints

• Enroll in Medicare during your Initial Enrollment Period (IEP): The IEP is a seven-month window around your 65th birthday. Enroll promptly to avoid late enrollment penalties for Part B and D.
• Compare Medicare plan options: Choose between Original Medicare (Parts A & B) with a separate Medigap policy and Part D plan, or an all-in-one Medicare Advantage (Part C) plan.
• Review your Social Security claiming strategy: Your full retirement age is likely 67. Claiming Social Security at 65 results in a permanent reduction in benefits. Weigh your health, longevity, and financial needs before deciding when to claim.
• Adjust your financial plan for retirement: Reassess your retirement savings, including how your HSA is impacted by Medicare enrollment. Consider speaking with a financial planner about tax-efficient withdrawal strategies.
• Consider a Medigap policy if choosing Original Medicare: For those sticking with Original Medicare, a Medigap plan, like Plan G for new enrollees, can help cover out-of-pocket costs.
• Understand provider network differences: Original Medicare allows you to see any provider accepting Medicare nationwide. Medicare Advantage plans often have network restrictions, with higher costs for out-of-network care.

Frequently Asked Questions

What is the Initial Enrollment Period (IEP) for Medicare?

The Initial Enrollment Period (IEP) is a seven-month window for new Medicare enrollees. It begins three months before the month you turn 65, includes your birthday month, and ends three months after. This is the best time to enroll to avoid late enrollment penalties.

Should I enroll in Medicare if I'm still working at 65?

It depends on your employer's health plan. If you or your spouse work for an employer with 20 or more employees and you have group health coverage, you may be able to delay enrolling in Medicare Part B without a penalty. If you work for a smaller company, you should enroll in Parts A and B during your IEP to avoid penalties.

What are the key differences between Medicare Advantage and Original Medicare?

Original Medicare is a federal program that allows you to see any provider that accepts Medicare nationwide. Medicare Advantage is offered by private insurers and often includes extra benefits like dental and vision, but typically has network restrictions.

What is Medigap and why would I need it?

Medigap, or Medicare Supplement Insurance, is a private insurance policy that helps cover the 'gaps' in Original Medicare coverage, such as deductibles, copayments, and coinsurance. You would need a Medigap policy if you choose Original Medicare and want to minimize your out-of-pocket expenses.

Does my Social Security benefit get reduced if I claim at 65?

For those born in 1960 or later, the full retirement age is 67. Claiming Social Security at 65 results in a permanent reduction in your monthly benefit. Delaying your claim to age 70 can significantly increase your monthly payment.

How does Medicare enrollment affect my Health Savings Account (HSA)?

Once you enroll in any part of Medicare, you can no longer contribute new money to an HSA. You can, however, use your HSA funds for qualified medical expenses tax-free at any time.

Do I need to sign up for a separate prescription drug plan?

Yes, if you choose Original Medicare, you must enroll in a separate Medicare Part D plan for prescription drug coverage. If you opt for a Medicare Advantage plan, it will likely include Part D coverage.