Millions of seniors rely on Medicare for health coverage in retirement, so it's important to understand when to sign up. Medicare eligibility kicks in at age 65, but you don't need to wait until your 65 birthday to enroll. Rather, your initial enrollment period begins three months before the month in which you turn 65, and it ends three months after the month in which you turn 65. All told, you have a seven-month window to sign up for Medicare on time and avoid late enrollment penalties.

If you're no longer working by the time your 65th birthday approaches, then signing up for Medicare is pretty much a no-brainer. But if you're still working at the time and have health coverage through your employer, it may be a different story.

Older man at a computer.


Enrolling in Medicare when you already have health benefits

Not everyone who works has coverage through an employer, but if you're still working at age 65 for a company that provides a health plan, then signing up for Medicare might seem unnecessary -- especially if your employer's plan benefits are superior to those offered by Medicare, and you don't pay a lot toward your monthly premiums. That said, you may need to sign up for Medicare, regardless of whether you already have coverage, depending on the number of employees you have in your company.

If you have health insurance through your employer and your company employs 20 or more individuals, then you don't have to enroll in Medicare upon turning 65. That's because your company's group plan will serve as your primary form of insurance, and Medicare will be your secondary.

Now, because Medicare Part A is free for most people, it pays to enroll in it as soon as you're eligible, even if you have existing coverage. The only exception is if you're still hoping to contribute to a health savings account, which you can't do if you have Medicare. But assuming that's not the case, you can enroll in Part A once your initial window opens up three months before the month of your 65th birthday, and hold off on signing up for Part B until you're ready.

The rules differ, however, for those who work for smaller companies. If you're working for a company that employs fewer than 20 people, then you'll need to sign up for Medicare Parts A and B during your initial window, because once you turn 65, Medicare will be considered your primary source of coverage.

Sign up on time to avoid penalties

Is signing up late for Medicare really such a big deal? Actually, it is. Not only will you potentially face a gap in coverage, but you'll increase your Part B costs for the rest of your life. Specifically, you'll be hit with a 10% increase in your Part B premium for every 12-month period you go without coverage upon becoming eligible. When you're retired and on a fixed income, that penalty can hurt.

If, during your initial Medicare enrollment window, you're still working for a company with 20 employees or more, and have health insurance through that company, you can hold off on Part B without worrying about facing a penalty. Rather, you'll be given a special enrollment period that lasts for eight months. That period will begin the month after you leave your job, or the month after your group health coverage is terminated -- whichever comes first.

Weighing your options

Before you decide to forego Part B coverage in favor of an existing employer plan, it pays to compare the costs and benefits of both options to see which makes the most sense. It could be that Medicare is actually less expensive than what you're currently paying for coverage through your employer. On the other hand, your company's plan might offer more comprehensive benefits, so staying on it for as long as you can might save you money in the long run.

Either way, be sure to read up on Medicare and how it works so that you have a solid point of comparison when the time comes to make your decision. The more you know about Medicare, the better equipped you'll be to maximize your benefits, regardless of when your coverage begins.