Overview

Retiring before age 65 removes — or at least changes — the default health coverage most workers rely on. Early retirement considerations around healthcare and insurance are about three things: continuity of coverage, total cost (premiums plus out-of-pocket), and timing (especially Medicare enrollment). Ignoring any of these can produce expensive coverage gaps, enrollment penalties, or surprise long‑term care costs.

In my 15 years advising retirees, the single biggest planning failure I see is underestimating pre‑65 health costs and the interaction between retirement account withdrawals and future Medicare premiums. Planning 6–18 months before your target retirement date reduces surprises.

Key coverage options before Medicare (under 65)

  • COBRA: If your employer plan qualifies, COBRA can extend your exact employer coverage for typically up to 18 months (some qualifying events and extensions can lengthen this to 36 months; disability can extend coverage to 29 months). COBRA premiums equal the full plan cost plus up to a 2% administration fee — often far higher than the employee contribution. (U.S. Dept. of Labor)
  • ACA Marketplace plans: You can buy plans through HealthCare.gov or your state exchange. Depending on household income you may qualify for premium tax credits (advance premium tax credit, APTC) that substantially reduce cost. Marketplace plans vary by network, cost sharing, and metal tier. (Healthcare.gov)
  • Private or short-term plans: Private, non‑market plans and short‑term limited‑duration policies may be less expensive but often exclude pre‑existing conditions and provide limited benefits. Treat these as temporary gap coverage only.
  • Medicaid: If your income and assets meet state criteria, Medicaid can provide coverage pre‑65. Expansion status and eligibility rules differ by state. (Medicaid/CMS)

See practical bridging strategies in FinHelp’s guide: Bridging to Medicare: Health Coverage Strategies Pre-65.

How Medicare timing affects early retirees

Medicare eligibility generally begins at age 65. The Initial Enrollment Period (IEP) is seven months long: three months before your 65th birthday month, the month of your birthday, and three months after. Missing enrollment in Parts A or B can trigger late‑enrollment penalties and coverage gaps. Part B late enrollment penalties are typically 10% for each 12‑month period you were eligible but uninsured. For Part D (prescription drug) there’s also a late‑enrollment penalty. (CMS)

If you retire early and delay Part B because you have employer coverage, you can usually enroll later without penalty during a Special Enrollment Period — but only if you have qualifying employer coverage and enroll within the allowed window. Check eligibility carefully and document employer coverage and enrollment dates.

FinHelp articles that can help compare supplemental options: How to Compare Medicare Supplement Plans and Medicare Enrollment Checklist: Avoiding Penalties and Coverage Gaps.

Health Savings Accounts (HSAs) — powerful if used correctly

HSAs are one of the best tax‑efficient tools for health costs if you’re eligible (must be enrolled in a qualifying high‑deductible health plan). Contributions are pre‑tax (or tax‑deductible), grow tax‑free, and withdrawals for qualified medical expenses are tax‑free. After age 65 you can withdraw for any purpose without the 20% penalty; non‑medical withdrawals are taxed as ordinary income.

For early retirees, two HSA strategies matter:

  1. Maximize contributions while still working and invest the funds for future medical expenses.
  2. Use HSA funds tax‑free for qualified expenses before Medicare; after enrolling in Medicare you can no longer contribute to an HSA but can continue using the balance for qualified expenses.

Refer to IRS guidance for current HSA eligibility rules and contribution limits.

Long‑term care (LTC) risk and options

Long‑term care is the single largest uninsured retirement expense for many couples. LTC insurance can protect assets from years of care costs, but policies are expensive and underwriting gets harder as you age or develop health issues.

Options to consider:

  • Traditional LTC insurance: Buy earlier (often in your 50s or early 60s) to reduce premium and increase acceptance odds.
  • Hybrid LTC products: Life insurance or annuities with LTC riders can provide benefits if you need care or a death benefit if you don’t.
  • Self‑insuring / dedicated buckets: Some retirees prefer keeping a liquid reserve and relying on Medicaid planning late in life.

Evaluate pricing vs. your risk tolerance and family health history. Many of my clients benefit from a hybrid approach: cover the first few years of care with insurance and self‑insure catastrophic years.

Tax interactions and Medicare IRMAA

How you withdraw retirement funds before and after 65 affects taxes today and Medicare premiums later. High taxable income in the “IRMAA look‑back” year can trigger Income-Related Monthly Adjustment Amounts, increasing Part B and Part D premiums. Typically, Medicare uses your tax return from two years prior to determine IRMAA adjustments, so plan taxable distributions accordingly. Consult a tax advisor before implementing large Roth conversions or taxable withdrawals that could bump Medicare premiums.

FinHelp coverage on this interaction: Using Retirement Plan Conversions to Manage Future Medicare Premiums.

Cost modeling: a practical approach

  1. Create a 10‑to‑20‑year health cost projection: include premiums, deductibles, expected out‑of‑pocket, and a line for long‑term care probability and cost.
  2. Use multiple scenarios: conservative, median, and high‑cost medical years.
  3. Include IRMAA and the effect of taxable withdrawals on Medicare premiums.
  4. Stress‑test your portfolio for a high‑medical‑cost year early in retirement.

I recommend building models with and without employer coverage continuing (COBRA), with marketplace subsidies, and with a private plan to see the financial impact of each choice.

Practical checklist (timeline)

12–18 months before retirement

  • Run cost models that include healthcare premiums and out‑of‑pocket estimates.
  • Confirm HSA eligibility and maximize catch‑up contributions if applicable.
  • Discuss long‑term care strategies and timing.

6–12 months before retirement

  • Compare COBRA vs. marketplace plans; check subsidy eligibility on HealthCare.gov.
  • Talk to your HR or benefits administrator about COBRA deadlines and documentation.
  • Consult a tax advisor about taxable distributions, Roth conversions, and IRMAA exposure.

0–6 months before retirement

  • Choose and enroll in bridge coverage if you won’t have employer coverage through age 65.
  • Gather paperwork to prove creditable coverage that preserves Medicare enrollment rights.

At 65

  • Enroll during your Initial Enrollment Period or confirm your Special Enrollment Period to avoid penalties.

Common mistakes to avoid

  • Assuming employer coverage will continue indefinitely.
  • Ignoring COBRA’s full‑premium cost and duration limits.
  • Forgetting that Roth conversions and large taxable income spikes can increase Medicare premiums (IRMAA).
  • Choosing short‑term plans as a long‑term solution — they often leave coverage gaps.

Real‑world example

A couple I advised planned to retire at 58. They assumed COBRA for two years and then Medicare. When they priced COBRA, it was >$2,000/month for family coverage. After modeling alternatives and applying marketplace subsidies, they selected a silver‑tier marketplace plan, preserved their HSA investments, and delayed costly Roth conversions until after their Medicare IRMAA window — saving roughly $2,400 in annual premiums and avoiding an IRMAA hit two years later.

Where to get authoritative help

Final advice

Early retirement is financially and personally rewarding, but healthcare and insurance are among the most consequential variables. Start early, model realistic costs, use HSAs strategically, and coordinate timing around Medicare enrollment to avoid penalties. When in doubt, work with a licensed insurance broker plus a financial planner or tax advisor who understands Medicare IRMAA and retirement cash‑flow planning. In my practice, clients who treat healthcare planning as a central part of retirement planning avoid the worst surprises.

Professional disclaimer: This article is educational only and does not constitute personalized financial, tax, or insurance advice. Laws and program rules change; consult your tax advisor, insurance broker, or the cited official resources before making decisions.

Sources

Internal FinHelp resources