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Turning 65 isn’t for the Uninformed!

July 21, 2015 Advisory

As we navigate our lives we face a steady stream of choices that will most certainly impact our long-term financial health. Should I buy that awesome new car or save the dough on a used one? Should I rent or buy a home? If I buy, is it better to take out a 15 or 30 year mortgage? Traditional or Roth? Believe me, it never stops.

For the 10,000 baby boomers now turning 65 each day, there are many new questions to be answered. When to start taking Social Security benefits, where to retire, which kid to cut off, are all questions demanding an answer.  However, as one of those turning 65 soon, I join those faced with trying to understand all of the information being sent to me daily from insurance companies promoting their various Medicare plans.

At first blush, it seemed tempting to put all the cards and letters in the round file, but I saved them. Once the file was almost 2 inches thick, I decided to read through them and “cull the herd”. Having not yet received any direct communication from Medicare concerning my upcoming birthday (I’m sure they know the date, every insurance company does!), I learned many things from my time. The most important was to take this seriously! Not considering your options and taking action in the safe harbor open enrollment period (beginning three months before your 65th birthday and ending three months after you turn 65) could be costly in the long run.

The misconception held by some –given that Social Security’s full retirement is no longer 65- is that you can wait to take action on Medicare until you reach your full retirement age. Generally, if you haven’t already done so, you should begin the process by going to www.socialsecurity.gov at least six months before you turn 65 and open an account. There is a wealth of information there and most of the links contained below have come from within that site.

Medicare has four parts:

  1. Hospital insurance (part A) helps pay for inpatient care in a hospital or skilled nursing facility (following a hospital stay), some home health care and hospice care.
  2. Medical insurance (Part B) helps pay for services from doctors and other health care providers, outpatient care, home health care, durable medical equipment, and some preventive services.
  3. Medicare Advantage (Part C) plans are available in many areas. People with Medicare Parts A and B can choose to receive all of their health care services through a single provider under Part C.
  4. Prescription drug coverage (Part D) helps pay for the costs of prescription drugs.

For most people, you have been paying into the Medicare program through your standard payroll deductions and, if you are eligible for Social Security benefits, there is no cost for Medicare Part A. Whether or not you have decided to start receiving Social Security benefits, you need to enroll for Part A before making decisions for the other parts of Medicare. You can do this inside the Social Security website using the online application. For details on other specific coverages and cost assistance programs visit www.medicare.gov.

Once enrolled for Part A, the questions begin. Enrolling in Part B is optional; however, it requires you start paying your Part B premium. As Part B does not cover all of the costs for the covered benefits, you need to consider whether you want to also purchase a Supplemental Plan or enroll in Part C and combine all of your coverage in one insurance policy. To preserve the best rates from the insurance companies for Part B Supplemental plans or Part C plans, you need to enroll during the same open enrollment period as Part A unless you qualify for the special enrollment period.

Deciding to enroll in Part B Supplemental plans or Part C plans requires you to determine what plans are available to you in your area. As these plans are offered by private insurance companies, not all insurers offer plans in any area. Rates for these plans vary by insurance companies and then by state, zip codes within states, gender and tobacco use. Medicare has currently set out eleven types of Part B Supplemental (Medigap) plans. Two popular plans are: Plan A, the Basic plan as it has the least additional coverage and is usually the lowest cost and Plan F, which has more benefit coverage and is generally more expensive. The other plans offer a blend of coverages that deserve consideration as you may lower your monthly premium by choosing a plan that has a particular blend of benefits and deductibles. As not all insurance companies offer all plans, once you have decided which plan suits your needs, you must determine which insurance companies offer those plans in your area and what their premiums are.

The final decision is whether or not you want Part D prescription drug insurance. This coverage is also offered by private insurance companies and prices vary by the same type of factors as Medigap policies but also based on what drugs you want covered. If you chose a Part C Medicare Advantage plan it may include prescription drug coverage.

The premiums for Part B and D policies also vary based on your Modified Adjusted Gross Income (MAGI) as reported on your tax returns. For most individuals with a MAGI of $85,000 or less (married couples, $170,000 or less) the Part B monthly premium is currently $104.90 and Part D plans are just the plan’s monthly premium. For those with a MAGI greater than that, premiums go up in stages to $335.70 per month for Part B and an additional $70.80 per month over the plan’s premium for Part D.

Sounds easy, right? Didn’t think so! As there is no one best decision, my advice is to start early, and take action. It is now approximately 30 days before I turn 65 and although the offers and marketing materials from private insurers arrive almost daily, I have yet to receive any official notification from the government on the decisions I face.

With proper planning, you can start concentrating on the more important questions, like “What’s our tee time?”


 

photo-richard-crossRichard Cross is using his 40 years of experience as an officer of public companies and as an owner of several privately owned companies to assist young and middle market companies assess their financial results and refine their marketing and growth strategies.  A seasoned, success driven executive, Richard adds depth to a young, middle market or company in transition.  Having not only guided large Accounts Payable, Payroll, Treasury and Tax departments, he has assimilated all of those functions with executive management through the ownership of private companies. e-mail: rcross@fahrenheitadvisors.com

 

 

 

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