Healthcare is often the most complex and expensive variable in early retirement planning. If you retire before 65, you lose employer coverage and must bridge the gap until Medicare. Even at 65, Medicare doesn't cover everything and isn't free. This guide gives you an action checklist for each stage. For deep dives on any section, the links point to our comprehensive healthcare in early retirement article.
The Medicare Gap
Medicare starts at age 65. If you retire at 55, that's a 10-year gap. At 60, it's 5 years. During this gap, you're responsible for your own health insurance — and the cost can be the single largest expense in your early retirement budget.
Your three main options during the gap:
- COBRA — Continue your employer plan temporarily (up to 18 months in most cases).
- ACA marketplace — Buy an individual or family plan through healthcare.gov or your state exchange, potentially with premium tax credits.
- Spouse's employer plan — If your spouse is still working and their employer offers coverage, this is often the simplest and cheapest option.
Deep dive: Healthcare in Early Retirement — Sections 1–2 cover the full gap analysis.
COBRA: Short-Term Bridge
COBRA (Consolidated Omnibus Budget Reconciliation Act) lets you keep your employer's group health plan for up to 18 months after leaving (36 months in some circumstances like disability). The catch: you pay the full premium — the portion your employer used to cover plus your own share, plus a 2% administrative fee.
For most people, this means the cost jumps from a few hundred dollars per month to $600–$900 for an individual or $1,500–$2,500 for a family. COBRA makes sense in a few specific situations:
- You're mid-treatment with specialists who aren't in marketplace plan networks.
- You've already met your annual deductible and out-of-pocket maximum for the year.
- You only need a few months of coverage before Medicare or a spouse's plan kicks in.
You have 60 days to elect COBRA after losing coverage. Coverage is retroactive to the day employer coverage ended. Some people wait to elect — if a major medical event happens during the 60-day window, they elect retroactively. If nothing happens, they transition to marketplace coverage instead. This is legal but comes with risk: any claims during the gap before election would need to be filed and paid retroactively.
ACA Marketplace Estimates
For most early retirees, the Affordable Care Act (ACA) marketplace is the primary coverage option during the Medicare gap. Losing employer coverage triggers a special enrollment period (SEP) — you have 60 days to enroll regardless of whether it's open enrollment season.
Marketplace premiums vary by age, location, plan metal tier (Bronze/Silver/Gold/Platinum), and tobacco use. But the real cost depends on whether you qualify for premium tax credits (PTCs), which are based on your modified adjusted gross income (MAGI).
The American Rescue Plan Act (ARPA, 2021) and Inflation Reduction Act (IRA, 2022) temporarily enhanced premium tax credits and eliminated the subsidy cliff above 400% of the federal poverty level (FPL). Those enhancements expired at the end of 2025.
Starting in 2026, the original ACA subsidy structure is back:
- Households with MAGI above 400% FPL (~$62,160 for a single person, ~$83,520 for a couple, based on 2025 FPL guidelines) receive zero premium tax credits.
- This is the "subsidy cliff" — earning $1 over the threshold can cost thousands in lost credits.
- Some states (California, Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New Mexico, New York, Vermont, Washington) offer their own supplemental subsidies that may partially offset the federal cliff.
Congress could reinstate enhanced subsidies in the future, but plan assuming the current structure. Managing your MAGI is now the most critical financial skill for early retirees on marketplace coverage.
Marcus and Lin, both 58, retired early. Their investments generate about $90,000/year in income. At that MAGI, they're well above 400% FPL and receive zero premium tax credits. Their Silver plan costs $1,850/month ($22,200/year) out of pocket.
By managing their income sources — withdrawing from Roth accounts (tax-free, not counted in MAGI), choosing specific tax lots to minimize capital gains, and timing Roth conversions — they reduce their reported MAGI to $80,000. Still above the cliff. They adjust further: deferring some capital gain harvesting and drawing more from Roth. MAGI drops to $78,000 — still above for a couple.
The lesson: the cliff is hard to navigate for couples with significant investment income. Planning must start years before retirement, ideally by building Roth assets and structuring accounts for flexible income in retirement.
Deep dive: Healthcare in Early Retirement — Sections 3–4 cover marketplace enrollment and how premium tax credits work in detail.
MAGI Management
Modified adjusted gross income (MAGI) determines your subsidy eligibility. In retirement, you have more control over MAGI than you did while working, because you choose which accounts to draw from and when to realize capital gains.
Key strategies (each covered in depth in the learn article):
- Roth withdrawals: Qualified Roth IRA and Roth 401(k) withdrawals don't count toward MAGI. Drawing living expenses from Roth accounts keeps reported income low.
- Tax-lot selection: When selling taxable investments, choose lots with the smallest capital gains (or harvest losses) to minimize the income impact.
- Roth conversion ladder: Convert Traditional IRA money to Roth in controlled amounts each year. The conversion counts as income that year, but future withdrawals are tax-free. Start conversions years before you need marketplace coverage.
- Capital gain timing: Defer large realized gains to years when you don't need ACA subsidies (e.g., the year you turn 65 and move to Medicare).
Open the Withdrawal Strategy Calculator and experiment with different account withdrawal sequences. Then check the Roth vs Traditional Calculator to see how pre-retirement Roth conversions affect your tax picture in the years you'll need marketplace coverage.
Deep dive: Healthcare in Early Retirement — Section 5 covers MAGI management tactics in full.
HSA Bridge Strategy
A health savings account (HSA) is the only account with a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. Used strategically, it becomes a powerful healthcare funding source in retirement.
The bridge strategy works like this:
- While working: Enroll in a high-deductible health plan (HDHP) and maximize HSA contributions each year.
- Pay current medical expenses out of pocket instead of tapping the HSA. Keep receipts — you can reimburse yourself tax-free at any point in the future, even decades later.
- Invest the HSA balance in low-cost index funds for long-term growth.
- In retirement: Withdraw tax-free for medical expenses — insurance premiums, prescriptions, dental, vision, Medicare premiums (Parts B, C, and D), and long-term care insurance premiums (up to age-based limits).
Qualified HSA withdrawals for medical expenses are not included in MAGI. This means using your HSA for healthcare costs in early retirement doesn't push you toward the ACA subsidy cliff. This makes the HSA doubly valuable: it pays for healthcare AND helps you stay below the income threshold for premium tax credits.
Open the HSA Calculator and enter your current balance, annual contribution, and expected investment return. See what the account could grow to by your target retirement age — and how many years of healthcare expenses it could cover.
Deep dive: Learn: HSA Triple Tax Advantage · Healthcare in Early Retirement — Section 6
Medicare at 65
Medicare eligibility begins at age 65, but it's not automatic and it's not free. Here's what you need to know:
- Part A (hospital insurance): Premium-free if you or your spouse paid Medicare taxes for 10+ years. Covers inpatient hospital stays, skilled nursing, hospice.
- Part B (medical insurance): Covers doctor visits, outpatient care, preventive services. Standard premium changes annually (was $185/month in 2025). You must actively enroll.
- Part D (prescription drugs): Purchased separately through a private insurer. Premiums vary by plan and formulary.
- Medigap (supplemental): Private insurance that covers the gaps in Parts A and B — copays, coinsurance, deductibles. Buy during your initial enrollment period for guaranteed issue (no medical underwriting).
- Medicare Advantage (Part C): An alternative to Original Medicare. Private plans that bundle A, B, and usually D, often with additional benefits (dental, vision). Trade-off: narrower provider networks.
The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge on Parts B and D premiums for higher-income retirees. It's based on your MAGI from two years prior. A large Roth conversion or capital gain at age 63 can increase your Medicare premiums at 65. Plan conversions and income events with this two-year lookback in mind.
Reality: Your initial enrollment period (IEP) is 7 months — starting 3 months before the month you turn 65 and ending 3 months after. If you miss this window and don't have qualifying employer coverage, you'll face a permanent late-enrollment penalty: Part B premiums increase by 10% for every 12-month period you could have been enrolled but weren't. This penalty never goes away.
Deep dive: Healthcare in Early Retirement — Section 9 covers Medicare enrollment, plan selection, and IRMAA in detail.
Budget for Healthcare Costs
Healthcare costs in retirement vary widely based on age, health status, location, and coverage choices. Here are rough planning ranges:
| Stage | Coverage | Estimated Annual Cost (per person) |
|---|---|---|
| Pre-65, with ACA subsidy | Silver marketplace plan | $3,000–$8,000 |
| Pre-65, no subsidy (above cliff) | Silver marketplace plan | $10,000–$25,000 |
| Pre-65, COBRA | Employer plan continuation | $7,000–$11,000 |
| 65+, Original Medicare + Medigap | Parts A/B/D + supplement | $5,000–$10,000 |
| 65+, Medicare Advantage | Part C (bundled) | $2,000–$6,000 |
These are premiums and out-of-pocket costs combined. Dental and vision are not covered by Original Medicare and must be budgeted separately. Long-term care is also excluded — that's a separate planning decision.
Open the FIRE Calculator and make sure your annual expense estimate includes a realistic healthcare line item based on the ranges above. Many early retirement plans underestimate this cost, especially for the no-subsidy years above the cliff.
Then open the Budget Calculator to see how healthcare premiums fit into your monthly retirement spending plan.
- 5+ years before retirement: Start Roth conversions to build tax-free withdrawal capacity. Maximize HSA contributions and invest the balance. Model your projected MAGI in early retirement.
- 1 year before: Research ACA marketplace plans in your area. Estimate premiums with and without subsidies at your expected MAGI. Check if your state offers supplemental subsidies.
- 6 months before: Decide between COBRA and marketplace. If marketplace, plan your income sources to stay below 400% FPL if possible.
- At retirement: Losing employer coverage triggers a 60-day special enrollment period. Enroll in marketplace or elect COBRA. Do not go uninsured.
- At age 64½: Research Medicare plan options. Compare Original Medicare + Medigap vs. Medicare Advantage. Mark your initial enrollment period on the calendar.
- At age 65: Enroll in Medicare Parts A and B during your IEP. Select a Part D drug plan. If choosing Original Medicare, buy Medigap during the guaranteed-issue window.
- Ongoing: Review MAGI annually for ACA subsidy eligibility (pre-65) and IRMAA impact (post-65). Adjust Roth conversions and withdrawal sources accordingly.