What to Know if You’re Working Past 65

By RetireMEDiQ

If you are considering working past 65, there are some important things you should be aware of. By taking these things into consideration, you can reduce stress, avoid unnecessary penalties later down the road, and have a much smoother retirement when the time comes.

While we give general recommendations and examples of common scenarios, we strongly encourage you to speak with one of our experts about your unique situation. This helps ensure that you fully understand the steps you should take to remain in control of your retirement situation and avoid surprises, even as you continue working.

Things to Consider

  1. Do you need to take Medicare even though you’re still working?
  2. Should you delay Medicare Part B?
  3. How does Medicare work with your Health Savings Account?
  4. How does Medicare work with your employer’s health insurance?
  5. Can you be penalized for not taking Medicare at age 65?

Do you need to take Medicare even though you’re still working?

As you continue your career beyond your initial Medicare eligibility (age 65), you may wonder if you should still enroll in Medicare. However, if you work for a company with more than 20 employees and have health care benefits through the company, you may not need to take Medicare.

In many cases, people who plan to keep working do enroll in Medicare Part A, because they can receive the benefit “premium free.” However, be sure to read below about how Part A can impact your Health Savings Account (HSA), if you have one.

Should you delay Part B?

While the answer to this question varies based on the individual, here are some reasons you may want to consider delaying Part B:

  1. You or your spouse is still working for a company with 20 or more employees
  2. You receive your health insurance through your employer or your spouse’s employer

The good news is that if you choose to delay Part B, you will not be required to pay the monthly premium quite yet. Likewise, taking the appropriate steps to properly defer your Part B benefits will ensure you are not penalized when you are ready to enroll in Part B.

How does Medicare work with your Health Savings Account?

If your employer has 20 or more employees and offers a High Deductible Health Plan (HDHP) that features a Health Savings Account (HSA), you may want to consider delaying your enrollment in Part A. This is because if you have Part A, you and your employer will no longer be able to contribute to your HSA.

It’s very important that you understand what is right for your situation in this scenario. Many pre-retirees who are still working and have access to an HSA find that it is a great tool for retirement health care savings, since the funds contributed to these types of accounts are tax favorable (meaning you do not pay taxes on these dollars). For individuals who have access to this account and who plan to work beyond 65, it may make sense to maximize this benefit by continuing to save as much as you can in your HSA for medical expenses once you retire.

As long as your employer has 20 or more employees and you do not elect to receive Social Security benefits, you should be able to defer taking Part A and Part B without incurring a penalty when your active group plan ends. If you do sign up to receive Social Security benefits while still working, you will be automatically enrolled in Part A and will no longer be able to make or accept HSA contributions. Social Security may backdate your Part A by up to 6 months which is important to note as you will need to pro-rate your HSA contributions the year in which you begin your Medicare Part A and/or Part B.

Not sure where to start? Our licensed Benefit Advisors are experts in these details who can walk you through the right steps for your situation.

How does Medicare work with your employer’s health insurance?

If you are self-employed or work for a company with less than 20 employees, it will make sense for you to take Medicare Part A and Part B when you turn 65. In this case, Medicare will become the primary payer and your company’s health care plan will become secondary. This means that if you receive a medical bill, Medicare will pay first and then your employer’s insurance will pay second.

Can you be penalized for not taking Medicare at age 65?

The short answer: yes, if you do not follow the appropriate steps to delay your Medicare benefits.

Understanding all the different enrollment periods and how they impact you is important, because if you do not sign up for Medicare on time, you can incur penalties that add unnecessary expense and can stay with you for life. Here are a few to be aware of.

Medicare Part A Penalty

Many people are automatically enrolled in Part A, depending on their work history. As discussed above, it may be in your best interest to delay your Part A enrollment due to an HSA through your employer. If you do not have active creditable coverage through an employer with 20 or more employees and delay taking Part A when you are first eligible during your Initial Enrollment Period, you could incur a late enrollment penalty.

The Part A penalty is 10% of the current Part A premium. You will pay the Part A premium + the penalty for twice the number of years you were eligible for Part A but were not enrolled.

Example: Betty did not sign up for Part A until she was 67 and was assessed the Part A penalty. Since the 2018 monthly premium is $422, Betty must pay a $0 premium (she gets Part A free due to her work history) + $42.20 per month for the late enrollment penalty. Because Betty went two years beyond Medicare eligibility (age 65) without Part A, she must pay this late enrollment penalty every month for two years.

Medicare Part B Penalty

Like Part A, if you do not take the correct steps to delay Part B, you will receive a penalty when you go to sign up. However, this penalty stays with you for the rest of your life in addition to your monthly Part B premium.

Expert Tip: One exception to this rule is if you enroll in Medicare through a Special Enrollment Period. In this circumstance, you might not be required to pay this penalty.

The Part B penalty causes your Part B premium to go up 10% for each full 12-month period that you went without it.

Example: Roger turned 65 in 2016 and should have taken Part B but chose to retire and enroll in COBRA instead. Eighteen months later, Roger’s COBRA ended, and he discovered he would be penalized for not taking Part B. Because the 2018 Part B premium for his income level is $187.50, Roger will have to pay a penalty of $18.75 per month for every year going forward that he has Part B.

Medicare Part D Penalty

Due to confusion about what makes drug coverage creditable, the Medicare Part D penalty is especially tricky. However, it pays to make sure you take the appropriate steps with your drug coverage and avoid this penalty.

If you go without creditable prescription coverage when you become eligible for Medicare Parts A and B, you will be penalized when you go to purchase a Part D drug plan.

Like Part A and Part B, the Part D penalty is added onto the regular premium for your drug coverage. The fee is calculated as 1% of the average monthly prescription drug premium times the number of months you were late, rounded to the nearest 10 cents. This penalty stays with you for as long as you carry Part D coverage.

Example: Steve thought his drug coverage through his employer was creditable, but found when he went to retire at 66 that it was not. Because Steve went without creditable drug coverage for 12 months, his penalty would be: 1% of the average monthly premium (35.02 for 2018) x 12 months = $4.20 per month. This penalty is then added to his drug plan’s regular monthly premium, which is $40 per month, meaning Steve will pay $44.20 per month for coverage. For the rest of his life, Steve will pay his Part D plan’s monthly premium (which can change each year) + $4.20 per month.

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