Does Uncle Sam think you were born yesterday?
In America, approximately 10,000 people turn 65 every day. That was the traditional retirement age for years. And it applied to both Social Security and Medicare.
Today the age for full Social Security benefits is 66, but it’s being phased up to age 67. Right now, if you were born in 1955, it’s 66 and two months for full benefits. Born in 1956 and it’s 66 and four months. However, you can still receive reduced benefits as early as 62.
But the Medicare age remains steadfast at 65, more than a year sooner than the Social Security age for full benefits.
Medicare Part A provides inpatient and hospital services. Medicare Part B provides outpatient and medical coverage and Part D covers prescription drugs.
There are some insurance companies that offer select Medicare Advantage Programs that consolidate all the nuances of Medicare. Television, radio and social media are flooded with ads promoting their programs. Who hasn’t seen Joe Namath in action?
But sadly, there’s no formal communication from Uncle Sam to remind you that you’re almost 65 and it’s time for you to enroll in Medicare. Because if you forget to enroll in Parts B and D there’s a problem. And that problem is simply that there are financial penalties for late enrollment.
If you’re already collecting Social Security at 65 you’re automatically enrolled in Medicare, but not Parts B and D.
That’s why I’m concerned, as the social Security goalposts keep moving further away from age 65. Enrolling in Parts B and D is not automatic. It’s a proactive process and I consider the aforementioned penalties to be unfair, unreasonable and maybe a bit underhanded.
The late enrollment penalty for Part B, for example, is 10 percent of the standard Part B premium for every 12 months of delay. Using grade school math, with the part B premium at just under $140 dollars a month, a 12-month delay in enrolling amounts to a $14 penalty.
That may not sound like much, but the penalty is every year for the rest of your life. And, if you enroll two years late, that’s $28 per year. In perpetuity.
And of course, there’s the principle involved. You did not receive any formal notification of what steps you needed to take and the consequences for failure to take them.
Said another way, if a private company charged a late fee without any formal notification, our elected officials would be all over the corporate officers. There would likely be government hearings grilling them in public about their business practices.
For years I’ve noted that U.S. Government Savings Bonds are the only investment I’m aware of that doesn’t send out an annual statement. That’s essentially the same as the government failing to notify you that it’s time to enroll penalty free in Medicare Parts B and D, and the financial consequences for noncompliance.
In recent years, legislation has been proposed that requires employers to have automatic enrollment in their retirement programs. Perhaps it’s time for Uncle Sam to lead by example.
Without debating the pros and cons of Medicare, I believe the government is obligated to tell you when you must apply for Parts B and D, and about the penalties for being late. You have every right to know.
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Ken is a registered representative of LPL Financial. Securities and financial planning offered through LPL, a Registered Investment Advisor, member FINRA/SIPC. Ken is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.
