Too Young for Medicare, Ready to Retire – Now What?

Retiring early sounds like a dream – until you realize you’re still years away from Medicare.

Consider the average retirement age in the United States is 62, according to a 2024 MassMutual survey. That raises the million-dollar question: How the heck do I cover health insurance in the meantime?

It’s one of the biggest planning challenges for people who retire before age 65. And it’s a good reason to pause and run the numbers before you give your two weeks’ notice.

Whether you’re a few years away or just got the retirement itch, here’s what to know and what to plan for when it comes to pre-Medicare healthcare.

Key Takeaways:

• You’ve got options. From COBRA to ACA plans to spousal coverage, there’s likely a solution that fits your situation and your budget.
• Costs can be higher than expected. Planning ahead (and maybe even tweaking your income) can help you qualify for lower premiums.
• The right financial strategy can bridge the gap. Coordinating how you take withdrawals from accounts can help cover costs and avoid unnecessary taxes.

1. COBRA Coverage: Convenient, but Costly

If you’re retiring from a job that offered health insurance, COBRA lets you stay on your employer’s plan for up to 18 months. That’s a decent runway if you’re just shy of 65. The downside? It’s generally expensive. You’ll pay the full premium – including what your employer used to cover – plus an administrative fee.

That said, if you’ve already met your deductible or you want to keep your current doctors, COBRA might be worth the price tag, at least temporarily.

2. Marketplace Plans (ACA): Often a Good Bet

Health plans through the Affordable Care Act marketplace (a.k.a. Healthcare.gov) are a go-to option for many early retirees. You can’t be denied coverage for preexisting conditions, and depending on your income, you may qualify for premium subsidies that significantly lower the cost.

Here’s where planning comes in: Subsidies are based on your taxable income, so how you withdraw from your retirement accounts can make a big difference. If you’re mostly pulling from Roth accounts or taxable investments, you may be able to keep your income low enough to qualify for savings. Considering the complexity involved, it’s a good idea to navigate this option with the guidance of a financial adviser.

3. Spousal Coverage: A ‘Significant Other’ Lifeline

If your spouse is still working and has employer-sponsored health insurance, it’s worth checking if you can hop on their plan. This can be one of the most affordable (and simplest) options for couples where one person retires before the other.

Make sure to explore enrollment deadlines and plan features before you leave your job to avoid any gaps in coverage.

4. Short-Term or Bridge Health Insurance

Short-term health plans can help cover you for a limited time, often with lower premiums. But be careful. They typically come with higher deductibles, fewer benefits and won’t cover preexisting conditions. You might think of them more as a last resort or temporary solution rather than a long-term strategy.

5. Health Savings Accounts (HSAs): Your Secret Weapon

If you’ve been contributing to an HSA, your future self will thank you. You can use those funds tax-free for qualified medical expenses, including premiums for COBRA and certain ACA plans.

It’s a great way to soften the blow of healthcare costs in early retirement, but only if you’ve been saving up.

Learn more about how HSAs can work as a tax-efficient retirement asset here.

Bottom Line

Healthcare is often one of the biggest expenses in retirement, and one of the most overlooked in early retirement planning. The good news is, with the right plan, you can bridge the gap to Medicare without blowing up your budget.

It all comes down to knowing your options, managing your income and choosing a strategy that fits your life and your timeline.

Thinking about retiring before 65?

Let’s make sure your healthcare – and everything else! – is accounted for. Schedule a free retirement planning meeting with an Advance Capital Management adviser today – and let’s talk through your options. Because peace of mind is part of the plan, too.