If you’re retiring before 65 — or planning to — one of the biggest financial planning challenges is health insurance. Medicare doesn’t start until 65, and the years in between require individual marketplace coverage. Here’s how to plan for it.
The Coverage Gap
Early retirees lose employer-sponsored health coverage and aren’t yet eligible for Medicare. Depending on how early you retire, you could be managing individual coverage for one to fifteen years or more. The cost of this coverage — and how to minimize it — should be part of your retirement financial plan.
The ACA Marketplace Is Your Primary Option
For most early retirees, the ACA marketplace is the best path. And here’s the key insight many people miss: early retirement often creates favorable subsidy conditions.
When you stop working, your income drops. If your retirement income (Social Security, pension, investment distributions) falls within the subsidy range (up to 400% FPL, or higher under current law), you may qualify for significant premium tax credits that make marketplace coverage surprisingly affordable.
Managing Income for Subsidy Optimization
In early retirement, you often have more control over your taxable income than you did while working. Strategic decisions about Roth conversions, investment withdrawals, and Social Security timing all affect your MAGI — and therefore your subsidy eligibility. This intersection of tax planning and health insurance planning is worth exploring with both a financial advisor and an insurance broker.
COBRA as a Short Bridge
If you retire close to 65, COBRA continuation coverage can bridge the gap. COBRA is expensive but provides continuity. For someone retiring at 63 or 64, COBRA for 18–24 months may be simpler than marketplace enrollment.
Transitioning to Medicare
At 65, Medicare Part A and Part B become available. You’ll want to enroll during your Initial Enrollment Period (the 7-month window around your 65th birthday) to avoid penalties. Your marketplace coverage ends when Medicare begins.
Planning your benefits bridge to Medicare? Garden State Benefits helps early retirees navigate the transition with a full cost analysis.