Medicare and retirement: How to prepare for enrollment
Wealth Planner, Wealth Planning and Advice at J.P. Morgan Wealth Management
- Enrolling in Medicare early – ideally three months before the month you’ll turn 65 – can help your coverage start on time and may help prevent gaps.
- Understanding Medicare eligibility and how it works with your employer plan (if you have one) is crucial for a smooth transition.
- Once you're enrolled in Medicare, you're no longer eligible to contribute to a health savings account (HSA), though you can still withdraw from an existing balance. Because premium-free Part A can apply retroactively when you enroll after age 65, some individuals may need to stop HSA contributions up to six months before applying in order to avoid excess-contribution tax penalties.
Enrolling in Medicare – the federal health insurance program in the U.S. for people age 65 or older – is a significant milestone as many people approach retirement. It marks a transition to coverage that can help manage medical costs and provide peace of mind.
This article will guide you through the steps to prepare for Medicare enrollment, including timing, eligibility and what to consider if you’re nearing Medicare age and still working. These choices can also affect your retirement budget and tax-advantaged accounts.
How to prepare for Medicare enrollment
There are several steps you can take to prepare for the transition to Medicare before you enroll. For more information, see J.P. Morgan Wealth Planning & Advice’s white paper, Navigating Health Care Before and During Retirement (PDF). Here are a few key considerations.
Understand your Medicare eligibility
Most people become eligible for Medicare at age 65. Exceptions include those with certain disabilities, end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS), who may qualify earlier.
Plan for enrollment timing
If you enroll during your birthday month or later, your coverage may begin later, which could leave you temporarily without coverage. Enrolling early – ideally in the three months before your birthday month – can help your coverage start on time and prevent gaps.
If your 65th birthday falls on the first day of the month, the Social Security Administration considers it to be in the previous month, shifting your enrollment period a month earlier than you might expect.
It’s important to note that delaying enrollment without qualifying coverage can result in penalties. For Medicare Part D, “creditable coverage” generally means employer drug coverage that’s comparable to Medicare coverage.
Coordinate with your current coverage
If you’re still working and have employer-sponsored health coverage, you’ll need to understand how those benefits interact with Medicare. You may qualify for a Special Enrollment Period when your employment or employer coverage ends.
Plan for international retirement
Medicare generally does not cover medical services outside the U.S. Explore local insurance options if you are retiring abroad or traveling internationally.
Keep the open enrollment period in mind
Medicare Open Enrollment runs from October 15 to December 7 each year. During this time, you can review and adjust your coverage to better suit your needs.
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Signing up for Medicare: what to expect
Once you’ve evaluated your options, thought about your coverage needs and are ready to enroll in Medicare, you may want to take the following steps to sign up.
1. Prepare for automatic enrollment (if applicable)
If you’re already receiving Social Security or Railroad Retirement benefits, you’ll be automatically enrolled in Medicare Parts A and B. You’ll receive an enrollment kit several months before you become eligible.
2. Enroll manually (if applicable)
If you’re not already receiving Social Security benefits, you’ll need to manually sign up for Medicare. You can enroll onlineOpens overlay, which is the fastest option, or in person at your local Social Security officeOpens overlay. Have your Social Security number, current health insurance information and a form of personal identification ready. You may also need your employment details if you’re still working.
3. Take note of any special enrollment periods
If you're still working at 65 and have employer-sponsored health coverage, you may qualify for the Special Enrollment Period once that coverage ends. For Medicare Parts A and B, the Special Enrollment Period generally lasts eight months, beginning the month after your employment or your group health coverage ends, whichever comes first. Enrolling within that window helps you avoid the Part B late-enrollment penalty.
4. Choose your Medicare coverage
Decide which parts of Medicare you’ll need: Part A (hospital insurance), Part B (medical insurance) and/or Part D (prescription drug coverage). Medicare Part C (Medicare Advantage) is an alternative to Original Medicare offered through private insurers. If you have other health coverage, such as through an employer, consider how that plan will interact with Medicare.
To help avoid penalties, enroll in Part B (and Part D, if you need prescription drug coverage) during your Initial Enrollment Period.
5. Review and confirm your Medicare enrollment
After you enroll, you should review your Medicare information to ensure all details are correct. You’ll receive a Medicare card in the mail confirming your enrollment.
65 and still working: Should you sign up for Medicare?
If you’re approaching age 65 and still working, deciding whether to sign up for Medicare can seem like an overwhelming choice – and it will be influenced by your current employment benefits and your assessment of your future healthcare needs.
The following provides a step-by-step “map” to help you navigate this decision. Please note, this information is not offered as personal tax or legal advice. Individuals should make benefits decisions in consultation with a qualified tax or legal professional.
Medicare enrollment considerations
First, check with your employer: Do you have employer group health coverage for major medical and creditable prescription drug coverage?
If no: Sign up for Medicare and stop HSA contributions
- Enroll in Medicare before you turn 65 to avoid gaps in coverage.
- Stop HSA contributions before your Medicare Part A coverage begins to avoid tax penalties. The IRS recommends making your last HSA contributions the month before Part A coverage starts.
If yes: Do you contribute to an HSA?
- If no, sign up for Part A
- Part A is premium-free for most people who paid Medicare taxes for at least 10 years.
- Whether employer coverage or Medicare pays first can depend on the size of your employer. Generally, an employer plan pays first when the employer has 20 or more employees; Medicare generally pays first when the employer has fewer than 20 employees.
- If you want to keep contributing to an HSA, you may need to delay Medicare enrollment and avoid claiming Social Security benefits.
- If yes, have you filed or will you file for Social Security benefits within six months?
- If no, you may be able to delay Medicare (confirm employer plan’s rules).
- HSA contributions while enrolled in Medicare may result in tax penalties.
- If yes, stop HSA contributions and delay Medicare Part B only if your employer coverage allows you to do so without a late-enrollment penalty.
- Once you start Social Security benefits, you will automatically be enrolled in Part A. If you apply after age 65, Part A coverage can be backdated up to six months – but no earlier than the month you turned 65.
- Tax penalties may apply if you are enrolled in Part A and contribute to an HSA. Contact Social Security if you want to decline Part B.
- If no, you may be able to delay Medicare (confirm employer plan’s rules).
Key issues to consider as you prepare to enroll in Medicare
In addition to deciding the right Medicare enrollment route to take, it may be helpful to consider the following:
Try to avoid coverage gaps
Don’t wait until the month you turn 65 to enroll. Instead, plan to enroll during the initial window, which starts three months before the month of your 65th birthday, to avoid coverage gaps.
Be aware of lifetime penalties
Failing to enroll on time – depending on your situation – can result in penalties. If you or your spouse are still working, coordinate with your employer plan to understand whether Medicare would be primary or secondary and whether you qualify for a Special Enrollment Period.
Once enrolled in Medicare, you can’t contribute to an HSA
Once Medicare coverage begins, you generally can no longer contribute to an HSA. If you delay Medicare past age 65, premium-free Part A may be retroactive for up to six months in some cases, so you may need to stop HSA contributions up to six months before applying.
The bottom line
Fully understanding your available healthcare options – and their implications – before you become eligible for Medicare is critical for ensuring your health-related needs are adequately covered in retirement.
A J.P. Morgan professional can help you integrate your healthcare considerations into a holistic wealth management plan in conjunction with guidance from your personal tax and legal professionals.
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