Preparing for retirement starts when you get your very first paycheck, with your contributions to Social Security and your 401(k) plan. Now, as you set your sights on your last day of work, it’s important to ensure you have the income and health care coverage you’ll need in retirement.
You Don’t Need to Enroll in Medicare at Age 65
If you’re covered by a Lam medical plan, you can enroll in Medicare without a penalty for up to eight months after you retire, as described on this page.
What to Know About Medicare
Medicare can be difficult to understand. There are two things you should consider as a Lam employee:
- When to enroll in Medicare
- How Medicare enrollment impacts your HSA
When to Enroll in Medicare
You’re first eligible to enroll in Medicare during your Initial Enrollment Period (IEP), which begins three months before the month of your 65th birthday and ends three months after the month of your 65th birthday.
If you participate in a Lam medical plan, you can enroll in Medicare without a penalty after you retire. You do not need to enroll at age 65.
Medicare Part A
If you apply for age-based Social Security benefits before or at age 65, you will be enrolled automatically at age 65 in Medicare Part A, which is premium-free hospital insurance that covers inpatient stays and care in a skilled nursing facility. You can avoid automatic enrollment in Medicare Part A by not applying for Social Security benefits to begin at or prior to age 65.
You can start Social Security benefits any time after age 62—just remember, that means your Medicare Part A coverage will begin automatically when you turn 65.
Medicare Part B
Medicare Part B is medical insurance that covers doctor’s visits, lab work, vaccinations, and other outpatient treatments. During your IEP, you’ll need to enroll in or decline Part B. If you are covered by a Lam medical plan, you can decline Part B coverage.
Unlike Medicare Part A, you’ll pay a premium for Medicare Part B. The amount you pay is based on a look back at your income from two years before you apply. Your cost for Part B is higher than the standard premium amount ($148.50 per month in 2021) if you made more than $88,000 (or $176,000 for joint tax filers).
Penalty-Free Special Enrollment Period
If you are covered by a Lam medical plan, you can enroll in Medicare without a penalty for up to eight months after you retire, as described on this page.
The same applies for your spouse who is covered by your Lam medical plan. Your spouse has up to eight months after your Lam employer coverage ends to enroll in Medicare Parts A and B without a penalty. Even if your spouse is already enrolled in Medicare Part A, he or she does not need to enroll in and pay for Part B while covered by your Lam medical plan—there’s no benefit to having Part B coverage while your employer coverage is in effect.
There are two rules to know about this eight-month special enrollment period:
- If you retire within your IEP, you will not be eligible for this eight-month special enrollment period when you retire.
- COBRA coverage does not count as Lam employer coverage, so the eight months begin when you leave Lam, not when your COBRA coverage ends.
Confused by Medicare Marketing?
As your birthday approaches, you’ll get a lot of mail urging you to enroll in Medicare when you turn 65. But, as described on this page, if you’re covered by a Lam medical plan, you won’t pay a penalty if you enroll in Medicare within eight months after you leave Lam.
Medicare and Your HSA
Enrollment in Medicare will affect your eligibility to contribute to a Health Savings Account (HSA). When your Medicare coverage takes effect, you will not be eligible to contribute to an HSA or receive HSA contributions from Lam. To avoid excess HSA contributions, you should be aware of these rules:
- The amount of your allowable income tax deduction for HSA contributions will be prorated for the year you enroll in Medicare. For example, if your Medicare coverage starts in June, your HSA limit for the year will be 5/12 of the full-year amount, for the time (January through May) when you were not covered by Medicare.
- When you apply for Social Security benefits, you will be enrolled automatically in Medicare Part A, and that coverage will be retroactive for up to six months before your Social Security payments start (but not before age 65). To avoid a tax penalty, you might consider stopping contributions to your HSA six months before you apply for Medicare. You must notify the Lam Benefits Help Desk to stop Lam’s company contributions.
Note: Depending on how much you contribute to your HSA, you may not need to stop your contributions or Lam’s contributions early. The IRS does not track when, during the year, the contributions are made—only that they do not exceed your allowable amount for that year.
For example, if you have family medical coverage at Lam and you enroll in Medicare in December 2021, your Medicare coverage would be retroactive to June 2021. Your HSA limit for 2021 would be $3,416 (i.e., 5/12 of the full-year limit of $8,200). Even if you allow Lam’s HSA contributions to continue all year, that would only total $2,600, and you could still contribute up to $816 any time during 2021.
- Your spouse’s Medicare enrollment does not affect your HSA eligibility. If you have medical coverage for yourself and your spouse at Lam, you can continue to contribute the full family amount to your HSA as long as you are not enrolled in Medicare, even if your spouse is already enrolled in Medicare.
After you retire, you’ll be glad you saved money in an HSA before you enrolled in Medicare. You can use your HSA to pay for Medicare premiums and any eligible out-of-pocket medical expenses.
Where to Learn More About Medicare
The Social Security Administration has information about Medicare Part A and Part B on their website and can answer questions at 800-772-1213.
Fidelity offers answers to 6 Key Medicare Questions.
When to Apply for Social Security
You may be eligible for Social Security benefits at age 62, but there are good reasons to wait until your full retirement age of 66 or 67—or later—before receiving Social Security.
If you start receiving Social Security at age 62, your monthly benefit will be reduced by up to 30% compared to your benefit at your full retirement age. And, for every year you delay your claim past your full retirement age, you get an 8% increase in your benefit, up to age 70. So you could receive a 24% to 32% higher monthly benefit if you wait until age 70.
In addition to considering your financial outlook, you should be aware that claiming Social Security benefits will automatically enroll you in Medicare Part A. If you begin to receive Social Security benefits before age 65, your Medicare coverage will be effective when you turn 65. If you start Social Security benefits when you’re already over 65, your Medicare coverage will be effective retroactively for six months before your Social Security benefits start.
As described above, you probably won’t want to be enrolled in Medicare until after you leave Lam, especially if you’re contributing to a Health Savings Account (HSA).
Use this checklist to know when to begin making important decisions and taking deliberate actions to ensure that you’re retirement-ready.
2–5 Years From Retirement
- Speak with a financial advisor. Create a retirement budget and a plan to set up an income stream to make your savings last.
- Check for former employer retirement accounts and decide if and where to roll the balances. If an old employer is out of business, you can search for remaining plan assets with the Pension Benefit Guaranty Corporation and the Employee Benefits Security Administration.
- Pay off 401(k) loans. If you have a 401(k) loan, contact Fidelity to discuss options for repaying your loan before or after you leave Lam.
- Use group legal plan attorneys for help with estate planning services, selling or buying a home, tax services, and other major financial transactions. Enroll in the ARAG UltimateAdvisor plan during Open Enrollment.
1 Year From Retirement
- Check in with your financial advisor to make sure you’re still on track to retire as planned. Review your health care coverage and other insurance options.
- Plan when to start Social Security. Remember, the amount of your monthly Social Security benefit increases the longer you wait after your full retirement age, up to age 70.
- Practice living on your retirement income while you’re still working. You’ll get a feel for the lifestyle you’ll have on your retirement budget, and you can keep the rest of your pay in the bank.
- Start the retirement process with Lam. As appropriate, discuss your plans with your manager, and work together on a transition plan for your responsibilities.
When You Retire
- Review your final paycheck. Generally, it will include:
- Pay through your last day worked
- A payout for any remaining PTO balance
- A refund of any unused contributions to the Employee Stock Purchase Plan
- If you’ll be moving, ensure Lam has your post-retirement address, so you can receive your W-2 and other important correspondence. And be sure to update your address with Fidelity and other Lam partners, like Anthem and Kaiser, too.
- Check your 401(k) balance. If you did not receive the full company match of half of the first 6% of your pay and bonus—usually because you did not contribute through every pay period of the year—you should receive a true-up contribution to your 401(k) in the first quarter of the next calendar year if you are at least age 55.
- Look into moving your HSA balance. Once you’re no longer a Lam employee, ConnectYourCare will begin charging you service fees for your HSA. You may be able to roll over your HSA balance to an HSA from another provider with lower fees.
- Consider COBRA medical coverage, if desired. Lam’s COBRA administrator, BASIC pacific, will send you information about COBRA costs and enrollment.
- Enroll in Medicare Part B. If you retire more than three months after you turn 65, you have up to eight months after your Lam employer coverage ends to enroll without a penalty. Note that COBRA coverage does not count as employer coverage for the purpose of extending this penalty-free enrollment period.
Want More Help?
Fidelity has a detailed retirement checklist with links to helpful articles and resources.