Since its 1965 inception, Medicare has been an essential component of a successful retirement. Yet, as we’ve noted, navigating its complexities can be frustrating.
Here are a few common mistakes to avoid:
- Opting for COBRA after retiring at age 65 or older. COBRA—the Continuing Budget Reconciliation Act—gives you the option to pay to keep your existing health care plan for up to 18 months after you retire. It’s tempting—to a point. But once you celebrate your 65th birthday, you must enroll in Medicare, or other qualifying coverage like Medicare Advantage, to avoid future penalties. COBRA plans, which don’t qualify, trigger up to a 10% increase in your Medicare premiums for every 12-month period you fail to enroll. As a rule of thumb, we usually ask our 65+ clients to enroll in Medicare about a month before they retire to sidestep this issue.
- Contributing to an HSA after enrolling in Medicare. If you have a health savings account (HSA) option through your employer, be sure you take advantage—it’s one of the best and most tax-efficient ways to save for future health care costs. After you enroll in Medicare, however, contributing to your HSA is a no-go. That’s considered an “excess” contribution by the IRS and comes with a 6% penalty. You can, of course, continue to draw from your remaining HSA savings to cover prescriptions, vision costs and co-pays even when you’re on Medicare.
- Not filing a Form SSA-44. Your annual Medicare premium is based on your adjusted gross income (AGI) from two years ago. (If you enroll in 2022, your premium is based on your 2020 AGI plus any interest received from municipal bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates..) So if you were a big earner pre-retirement, you might end up paying a high premium based on an income amount that no longer applies. Fortunately, filing Form SSA-44 resets the income clock to your post-retirement date. The SSA-44 can also be filed to request an adjustment based on loss of income from life events such as divorce or the loss of a pension.
- Visiting out-of-network providers on Medicare Advantage. Choosing the right Medicare policy is one of your most important decisions as each policy has pros and cons. Medicare Advantage, for instance, can offer significant savings on your monthly premiums. Those savings evaporate, though, when you visit out-of-network providers. If traveling around the country (or the world) is part of your retirement journey, you may want to consider selecting a traditional Medicare policy along with additional Medigap coverage.
- Missing Medicare open enrollment. Medicare’s Annual Election Period (also known as open enrollment) runs from October 15 to December 7, and is the time to make changes to your existing prescription coverage or Medicare advantage plan. Missing that window may leave you stuck with surprises like increased premiums, drug list changes or out-of-pocket cost increases. Set a calendar reminder now for next year to ensure that you’re on top of any updates to your coverage: New plans and potential savings enter the marketplace every year!
For more information on Medicare, check out our reference guide or podcast episode, Medicare Made Simple.
As always, if you have any questions related to your specific situation, please don’t hesitate to call or email your wealth management team. We’re here for you.