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Turning 65? How to avoid a pricy Medicare misstep

As Medicare celebrates its 50th anniversary, consumers may find there's still plenty about the government program that's tough to cheer about, if they're not careful about their choices.

"I don't think Medicare is very user friendly, although they have tried to be," said economist Alice Rivlin, a senior fellow at the Brookings Institution.

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One of the first potential missteps is waiting until your 65th birthday is imminent to think about Medicare, said Carolyn McClanahan, a certified financial planner in Jacksonville, Florida. Many people don't understand what the various parts of Medicare cover, she said—and perhaps more important, what they don't. Some of the noticeable gaps include long-term care, most dental care, vision exams if you need prescription glasses, and hearing aids.

"They don't understand there's unlimited out-of-pocket potential," said McClanahan. A healthy couple retiring this year is likely to spend $266,589 over their lifetimes on Medicare Parts B and D, and supplemental insurance, according to the 2015 Retirement Health Care Cost Data Report. Including uncovered costs such as dental, vision and co-pays, the tally rises to $394,954.

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Those gaps can merit more advance planning. The need for long-term care insurance, for example, is something best assessed in your 50s, said Lazetta Rainey-Braxton, a certified financial planner in Baltimore. But that tends to fly under the radar. "People just think it's a medical issue, with long-term care," she said.

Healthcare senior medicare
Ariel Skelley | Getty Images

Forethought can also help you decide among gap coverage options, including Medicare supplements and Medicare Advantage plans, McClanahan said. A bad pick on the latter, she said, is "like being in an HMO you don't want to be in." (One trick to narrow the field: Ask your current doctors which Medicare Advantage plans they work with and like.)

But don't take too long to consider your options. A second big early Medicare misstep is missing enrollment deadlines, said Rainey-Braxton. "Miss that window, and you're essentially locked into paying a higher rate (because of penalties)," she said. That's a lifetime of penalty rates for Part B, and higher Part A premiums for twice as long as you went without coverage. You might also be without coverage until the next enrollment period.

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When to take action depends on your employment situation. If you and your spouse are already retired, you have a seven-month window that starts three months before the month of your 65th birthday, and up to three months after.

Still working? That depends on the size of your employer and the kind of health plan you're on, McClanahan said. You may need to sign up, and have your employer's plan become secondary coverage. Or you may be able to keep your employer's plan, with an eight-month window for Medicare enrollment opening once you retire.