If you are nearing or at 65 you know there are many decisions you will need to make that will be very important in determining your financial well-being after you stop working. One big consideration that I believe many of us may get wrong is estimating our longevity – we tend to underestimate it.
Case in point, my grandfather lived to be seventy, my father died at seventy two. If I couple that data with the conventional wisdom often cited that states men live into their late 70’s, (and women into their early 80’s) I might expect to make it to my mid 70’s. However, this is mistaken thinking, actual life expectancy is quite a bit longer – the upside! - and it can lead to serious financial consequences – the downside.
The Social Security Administration’s most recent analysis of expected longevity if you’re 50 years old, is 83 years for a woman, and 80 years for a man. This average can be misleading because some will not live to retirement and some will live 30 years in retirement.
In fact, as noted in a recent Wall Street Journal article, 56 percent of all 50-year-old women are expected to live longer than their life expectancy of 83 years and 55 percent of all men are expected to outlive their expectancy of 80 years, according to the Social Security table. This is because the distribution of ages when people are expected to die is a bit skewed with more people living longer than dying early.
So plan to live longer and fine-tune your retirement strategy. This may mean saving more, or for those nearing retirement, reconsidering whether you should work for a few more years and continue growing your retirement accounts.
If you are considering working past 65 there are several very important considerations, although I am only going to touch on two for this post.
When to take Social Security
If you are not planning to live long in retirement then start taking Social Security at age 62. But, if you plan on living into your eighties, consider this, if you defer taking social security until you are 70 ½, the increase in the payout over those eight years is 76 percent – inflation protected! That is a big move up and may make a big difference if you have not been able to save enough for retirement.
What about Medicare
You’re eligible for Medicare at age 65 but what if your desire or need is to continue to work? Hopefully there is someone at work to help navigate this but in many cases you can't rely on your employer for Medicare guidance. Employers frequently provide wrong or confusing advice about when employees should enroll in Medicare.
If you work for a company with fewer than 20 employees, be sure to enroll in Part B during your initial enrollment period. Medicare automatically becomes your primary payer, and your employer's plan is unlikely to pay for any expenses that could be covered by Medicare - even if you forgot to enroll in the government program.
Typically, the insurer will notify you that it will not pay a claim because it should have been submitted to Medicare. If an insurer pays several claims then realizes you are eligible for Medicare -they seek repayment from you. As long as you're still employed, you can enroll in Part B without penalty - and you should do so immediately.
If your employer has 20 or more employees there are different rules. You do not have to enroll in Part B while you're still working. You should** enroll in Part A because it's free for most people, and Part A will be secondary to your employer plan. A spouse who is 65 or older can stay on your company plan and delay Part B until you leave.
If you’re happy with your employee coverage and don’t want to get Part B but are receiving Social Security benefits and automatically received a Medicare card, you can send it back and ask for it to be reissued just for Part A. (You can’t delay signing up for Part A if you are already on Social Security.)
It could make sense to drop your employer coverage if your benefits are inadequate and your premiums, deductibles and other out-of-pocket costs are high. You should compare the benefits and costs of your employer plan with the costs of Medicare, plus Part D and a Medigap policy.
A self-employed person who has an individual insurance policy should enroll in Medicare during the initial enrollment period. Otherwise a policy can coordinate with phantom Part B, meaning that it will pay secondary to Medicare, even if you haven't enrolled.
Once you leave your job, you can enroll in Part B without penalty during an eight-month "special enrollment period," which begins the month after you stop working. To avoid a gap in coverage, be sure to enroll in Medicare a month or two before you leave your job. If you miss this enrollment period, you will need to wait until the next general enrollment period.
**You may run into a bit of a roadblock if you have a tax-free health savings account tied to your employer's high-deductible health plan. Whether you should delay enrollment in Medicare so you can continue contributing to your HSA depends on your circumstances. Employer health care coverage pays primary before Medicare so you effectively don’t need to have Medicare in order to pay your health expenses. This means that as long as you are currently working and you wish to decline Medicare Part B, you can do so and enroll in Part B later when you lose your coverage. However, you cannot decline Medicare Part A, unless, you’re not accepting Social Security benefits. As long as you are not accepting Social Security benefits, you can choose to decline Part A also, which preserves your HSA tax benefit! As soon as you want to stop contributing to the HSA (and if you are still currently working) you can enroll in Part A and get six months of retroactive coverage.
Once you enroll in any part of Medicare, you won’t be able to contribute to your HSA, it’s the law. If you would like to continue making contributions to your HSA, you can delay both Part A and Part B until you stop working or lose coverage from your employer. You will NOT pay a penalty for delaying Medicare, as long as you enroll within 8 months of losing your coverage or stopping work (whichever happens first).
Finding out More
Medicare is a complex service and this post serves only to make you aware of the basics. For more information and help, your state likely offers a free health insurance counseling program (APPRISE in Pennsylvania) designed to help you navigate Medicare. An excellent resource for more information is the Medicare Rights Center's online Medicare Interactive service (www.medicareinteractive.org), which answers many common enrollment questions. Or you can call the State Health Insurance Assistance Program (find your state SHIP at www.shiptacenter.org).
CBlakely, CFP®, CTFA 02/2017
Sources: SocialSecurity.gov, Medicare.gov, Wall Street Journal