Once you turn 65, you’re eligible for Medicare coverage. You have a 7-month Initial Enrollment Period to sign up for Original Medicare (Part A + B)—3 months before and after you turn 65. In most cases, signing up outside this window will result in penalties and coverage gaps, though there are always exceptions to the rule, like if you have coverage through a previous employer.
Navigating Medicare can be a challenge as there are several parts, each with its own rules and regulations. Let’s break it down.
- Original Medicare—Part A and Part B. Part A is hospital insurance, and most people don’t have to pay an annual premium. Part B is medical insurance and has a standard monthly premium of $170.10 for 2022. That amount may increase if you earn above specific thresholds, otherwise known as Medicare IRMAA (income-related monthly adjustment amount). Learn more about 2022 premiums and deductibles here.
- Prescription drug coverage—Part D. Part D helps you pay for your prescription medication. It’s a good idea to sign up for this plan during the initial enrollment period to avoid penalties down the line. If you sign up later, you’ll have to pay a permanent penalty on your premiums, and that penalty increases every year you wait.
- Medicare Advantage Plans—Part C. Advantage plans are offered by private insurance companies contracted by Medicare. With these plans, you can sign up for Original Medicare and Part D all at once. These plans also offer additional benefits like dental and vision coverage, health and wellness stipends, and more. If you like your existing carrier, check out their options for Medicare Advantage. Many times, the carrier can help make your transition to Medicare easier.
- Medigap Supplement Plans. A supplement plan is an insurance product that helps cover holes in your Medicare coverage, including deductibles and copays. Medigap Supplement plans allow you to see any health practitioner who accepts Medicare. It is often a better choice for people with serious health problems. It’s something you add on to Original Medicare and Part D and is an alternative to Medicare Advantage. You cannot have both.
Medicare is a complex system with many moving parts. It’s critical to make a plan early, so you’re confident you have the coverage you need.
What If You’re Retiring Before 65?
If you plan to retire before you’re eligible to enroll in Medicare, you have a different set of coverage options.
- COBRA. This law allows you to retain your current group health coverage for 18 months after leaving a company. Keep in mind that it could be rather expensive without your company picking up part of the premium tab.
- Have your spouse add you to their insurance. If your spouse is still working, you can be added as a dependent on their insurance.
- Shop for plans on the marketplace. If you have a few years before enrolling in Medicare, you may need to look for coverage in the healthcare marketplace.
2. Evaluate Your Insurance Needs
Your insurance landscape will likely shift as you move into your golden years. Now’s an excellent time to take stock of your coverage and evaluate what changes you may need to make.
Start by analyzing your current policies:
- Is your term life insurance running out? Do you still want/need life insurance in retirement? If your children are financially independent and you have a plan to financially cover your spouse (spousal social security, pension, etc.), you may consider not renewing your term policy.
- If you have permanent life insurance, how can you maximize your benefits like retirement income, cash value, additional long-term care riders?
- If you have private disability insurance, do you still need it? Disability insurance protects your income if you can’t work, so if you don’t need the revenue from your job, dropping this policy could save you money each month.
- Can you look to reduce your personal liability/umbrella coverage? Personal liability protection is important, especially for people with high net worth, but you may be at a point in your life where reducing your coverage makes sense.
It’s also critical to consider new policies you may want to add, namely long-term care insurance. Long-term care insurance helps you pay for costs associated with long-term care like home health services, nursing home care, adult care facilities, etc.
Your best bet of finding a policy that works for your budget is in your late 50s early 60s, so now’s the perfect time to have this conversion with your financial team.
3. Update Your Beneficiaries
Your official beneficiary designations are one of the most powerful tools in your estate plan—even more so than your will.
A beneficiary is a person or entity that receives an asset from you after you pass. Having up-to-date beneficiaries makes the wealth transition process so much smoother for your heirs.
You likely had to name official beneficiaries on documents like a life insurance policy, 401(k), pension, etc. It’s also possible to add beneficiaries to other accounts like your brokerage account, real estate property, bank accounts, and more.
Why are beneficiaries so critical to the wealth transfer process?
They can supersede what’s written in your will.
Say you named your sister the official beneficiary on your life insurance policy but listed your brother in your will. In this case, the funds would go to your sister since she was the official beneficiary.
Not having these names up to date can lead to confusion, frustration, and potentially a lengthy probate process. Be sure to update your beneficiaries after a significant life transition like retirement, divorce or remarriage, children or grandchildren, changing jobs, etc.
4. Prioritize Your Investments and Balance Your Spending
Last but certainly not least, preparing for retirement in your 60s should center on striking the right balance between investing for your future and spending money where it counts.
Let’s start with investing:
- Keep maxing out your employer-sponsored retirement plan, including catch-up contributions—you may not have as many years left to take advantage of all these savings opportunities!
- Increase your monthly contributions to your brokerage account.
- Shore up your emergency fund heading into retirement.
Plan for more considerable upcoming expenses:
- Do you plan to pay for your child’s undergraduate or graduate education? How many years of tuition checks do you have to go? Be sure to build those payments into your budget.
- Are you a generous donor to charitable causes? While you are still working, you can open a Donor Advised Fund and make a series of annual contributions, which you can then use in retirement to give generously even though you aren’t earning income anymore.
- Do you plan to travel or engage in expensive hobbies once you are retired? You can bank some savings to support those interests without hitting your retirement income.
- Would you like to save for a future wedding, down payment on a house, business venture, etc., for your child? Consider contributing a set amount to a separate brokerage account that you can use to help them when the time comes.
- Do you plan to help your parents with some of their larger medical expenses? Be sure to talk with your parents about their estate plan and determine where you can plugin and offer support, financial or otherwise.
Get Excited—Retirement Is Right Around The Corner!
There are so many fantastic retirement planning opportunities for people in their 60s. With retirement almost in reach, it’s critical to create a concrete plan to support your future goals.
Our team would love to help you find confidence and excitement in your retirement plan. Schedule a call with an Abacus financial advisor today.