You’ve saved for decades, paid off the house and reached your number. At 57 you’re ready to stop working. Then you price health insurance without an employer. For a couple in their late 50s, an unsubsidized plan can cost well over a thousand dollars a month in many areas, and sometimes $2,000 or more, depending on where you live and the plan level.
This is the early retirement health coverage gap: the years between losing employer coverage and becoming eligible for Medicare at 65. With a plan, you can bridge it without draining your savings.
Key takeaways
- Marketplace plans must accept you regardless of health, and premium help is based on income, not savings.
- How you draw down savings can change your taxable income, and therefore your premium tax credit.
- COBRA usually lasts 18 months after leaving a job, so it rarely covers the whole gap unless you retire close to 65.
- An HSA can pay many medical costs tax-free, including COBRA premiums, without raising your taxable income.
1. The main bridge: a Marketplace plan
For most early retirees, the Affordable Care Act Marketplace (HealthCare.gov or your state’s exchange) is the core option. Plans must accept you, and your health history cannot raise your premium. Age, location, tobacco use and the plan you pick do affect the price.
Premium tax credits are based on your modified adjusted gross income (MAGI), not your net worth:
- No asset test. Your home and account balances do not count against you. Income your assets produce, such as interest, dividends and realized capital gains, does.
- Where your money comes from matters. Spending cash savings, or qualified Roth IRA withdrawals, generally does not add to MAGI the way traditional IRA or 401(k) withdrawals do. A tax professional can confirm how each source is treated for you.
- Rules change. Subsidy rules and income limits have changed several times in recent years. Check the current rules on HealthCare.gov before you plan around them. Our guide to subsidies for early retirees living off assets goes deeper.
Tip: preview Marketplace plans for your ZIP code before you set a retirement date. Seeing real prices with and without help makes every other decision easier.
2. Comparing your options
| Option | How long it lasts | Cost profile | Best suited for |
|---|---|---|---|
| Marketplace plan | Until you move to Medicare | Can be low to moderate with premium tax credits | Retirees who can manage their taxable income |
| COBRA | Usually 18 months after leaving a job | Expensive: up to 102% of the full premium | People retiring close to 65 or in the middle of treatment |
| Retiree health benefits | Depends on the employer’s plan | Varies; sometimes partly paid by the employer | Public-sector, union and some long-tenured workers |
| Spouse’s job-based plan | While the spouse keeps working | Usually a payroll deduction | Couples where one spouse is still working |
3. Why COBRA rarely works as the whole bridge
COBRA keeps your exact plan, network and drug list, which is appealing. But for early retirees it has two problems:
- It usually ends after 18 months. If you retire at 58, COBRA runs out around 59 and a half, leaving more than five years before Medicare.
- You pay the whole premium. Your employer’s share disappears, so monthly costs can be high and come straight out of your savings.
The exception: if you retire at about 63 and a half, 18 months of COBRA can carry you right up to Medicare at 65 without switching plans in between.
4. Using your HSA in early retirement
- Tax-free medical spending. HSA withdrawals used for qualified medical expenses, such as deductibles, coinsurance and prescriptions, are tax-free.
- No effect on MAGI. Qualified HSA withdrawals do not add to your taxable income, so they do not reduce your premium tax credit.
- COBRA premiums. Most health insurance premiums are not qualified HSA expenses, but COBRA premiums are. If you use COBRA for a while, you can pay for it from your HSA.
Watch out: you can only keep contributing to an HSA while you are covered by an HSA-eligible high-deductible plan. Spending existing HSA money has no such requirement.
5. Your plan for the year before you retire
- Map your income sources. With a financial or tax professional, estimate next year’s pension, withdrawals, capital gains and any part-time work so your income does not unexpectedly cut your premium help.
- Use your current plan while you have it. If you need preventive care, a planned procedure or dental work, consider scheduling it before your employer coverage ends.
- Line up the Special Enrollment Period. Losing job-based coverage gives you 60 days to enroll in a Marketplace plan, and you can often apply up to 60 days before it ends. Apply early so there is no gap.
6. A worked example (hypothetical)
These numbers are hypothetical and only show how the comparison works. Your premiums depend on age, ZIP code, household size, income and that year’s rules.
Dana, 61, and Chris, 60, plan to retire in June:
- COBRA: $1,900 a month. Over 18 months, $34,200 in premiums, and it would end before either reaches 65.
- Marketplace, no subsidy: $1,600 a month for a Silver plan with a different network.
- Marketplace, with a subsidy: if their projected income qualifies, perhaps $500 a month. Over 18 months, $9,000, or $25,200 less than COBRA in this example.
They would still need to check their doctors and drugs, how much of this year’s deductible they have met, and what happens to the subsidy if income ends up higher than estimated.
7. Checklist: six to twelve months before you retire
Checklist
- Ask your employer for the date coverage ends, the COBRA price and whether any retiree benefit exists.
- Preview Marketplace plans for your ZIP code, with and without premium help.
- Estimate next year’s household income from every source.
- Check that your doctors, hospitals and prescriptions are covered by the plans you’re considering.
- Confirm your HSA balance.
- Mark your 60-day enrollment window and your Medicare enrollment period on a calendar.
- If your spouse still works, ask about joining that plan and its deadline.
8. Common mistakes to avoid
- Underestimating income. If your actual income is higher than projected, you may have to repay some of the premium tax credit at tax time. A large Roth conversion or sale of investments can cause this.
- Letting a gap open up. Even a short uninsured period exposes you to the full cost of an accident or illness.
- Choosing on premium alone. Compare deductibles, out-of-pocket maximums and networks too.
- Buying something that isn’t major medical coverage. Short-term plans, fixed indemnity plans and health sharing arrangements don’t have to cover pre-existing conditions or essential benefits.
- Missing Medicare enrollment. Sign up on time at 65. See what happens to an ACA plan when you move to Medicare.
- Overlooking Medicaid. In some states, very low taxable income can make you eligible for Medicaid instead of Marketplace help.
Frequently asked questions
Can I get Medicare before 65 if I retire early?
Generally no. Medicare before 65 is mainly for people who have received Social Security disability benefits for a required period or have certain medical conditions.
Is COBRA or a Marketplace plan better?
It depends on cost, how long you need coverage and whether keeping your current network matters. Our article on COBRA and its alternatives compares them.
Can I switch from COBRA to a Marketplace plan later?
During open enrollment, or when COBRA runs out. Dropping COBRA on your own mid-year usually does not open a Special Enrollment Period.
Do my savings count against Marketplace help?
No asset test applies, but the income your savings produce, such as interest, dividends and realized gains, does count.
What if my income changes during the year?
Report it to the Marketplace promptly so your premium help can be adjusted. That reduces the chance of a surprise at tax time.
The bottom line
Retiring before 65 doesn’t have to mean going without coverage or draining your savings. A Marketplace plan, careful income planning, your HSA and a well-timed COBRA or spouse’s plan can carry you safely to Medicare.
This article is general information, not legal, tax or insurance advice. Rules vary by plan and state; confirm details with HealthCare.gov, your plan, a tax professional or a licensed broker before you act.