Retirement, Investments, & Insurance for Individuals Build your knowledge 7 early-retirement health care options to help protect your budget

7 early-retirement health care options to help protect your budget

Whether life threw you an early retirement curveball or you’re ending your working years as soon as you can, there are ways to bridge the health care insurance gap and guard your savings.

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4 min read |

Even before the pandemic, plenty of people retired early. In fact, one-third of retirees say they left the workforce sooner than planned.1

But leaving the workforce may also mean leaving behind health care coverage: Nearly half of Americans get theirs from their workplace.2 If you’re one of them and retire early, you’ll have to cover those health care needs until you turn 65 and are eligible for Medicare—without draining your retirement funds.

Graphic which states that 3 in 10 early retirees pay more than planned for health insurance.

“The average retirement age is right around 63, so most people are trying to find a short-term solution,” says Tyler De Haan, director of business development in retirement solutions for Principal®.

Luckily, there are options. The key, though, is understanding the costs and building in inflation so you can make a realistic health care budget. “People often overlook that health care coverage costs are more than just premiums,” De Haan says. “It’s copays and deductibles and your network, to name just a few.”

Graphic which states that 6% of early retirees go without health insurance.

Generally, the option that fits your budget best may be tied to how much time you have until you’re eligible for Medicare and how much coverage you need.

Graphic of a thumbtack. Tip: Use our pre-retiree health care coverage worksheet (PDF) to compare costs.

Pre-retiree healthcare options


  • What it is: An 18-month extension of current health care plan after leaving a job (learn more about COBRA).
  • Consider if: You have less than 18 months before age 65.
  • Your retirement budget impact: COBRA may cost more and may not be available at companies with less than 20 employees. “You’re also tied to your former employer’s insurance, but the difference is you’re paying the full premium plus administration costs,” De Haan says.

Short-term health insurance

  • What it is: A policy good for up to 364 days.
  • Consider if: You have less than a year before age 65 and can’t or don’t want to carry job coverage forward through COBRA.
  • Your retirement budget impact: These policies generally cover very little—not even prescription drugs—but work as a stop gap to ensure some coverage. “Be aware that with both short-term and COBRA options, they’re designed for just that: to be short term,” De Haan says. “If you’re 63 or younger, generally they are not going to be the full solution you need.”

Health insurance through your most recent employer

  • What it is: An extension of benefits provided by a company to people who are no longer employed.
  • Consider if: You need coverage longer than options like COBRA.
  • Your retirement budget impact: Your costs may be different (i.e., higher) than when you were employed.

Health insurance through your spouse’s plan

  • What it is: An enrollment in the health care plan of your spouse’s employer.
  • Consider if: You need coverage longer than options such as COBRA.
  • Your retirement budget: Compare costs based on your circumstances; for example, this option may be more expensive but provide more coverage than short-term health insurance. You may have to switch networks though, and premiums will go from single to family.

Private or market health insurance

  • What it is: Health care coverage you purchase on the Health Insurance Marketplace or through your state’s health insurance exchange.
  • Consider if: You have no limits on coverage length of time, or if you’ve lost your job (you can then enroll outside the typical enrollment period). Otherwise, the standard enrollment period of November 1–January 15 applies.
  • Your retirement budget impact: Deductibles and premiums vary based on your income and household size but are limited to no more than 8.5% of your income, a result of the American Rescue Plan of 2021.4

Health care coverage through part-time work

  • What it is: Insurance that comes with less-than-full-time employment.
  • Consider if: You can find a job with some employer benefits and want to keep working. But part-time jobs like this are rare.
  • Your retirement budget impact: Sometimes companies limit access to the health care coverage benefit to those working 30 hours.

Health care sharing program

  • What it is: A community sharing health care program, typically available from and administered by faith-based organizations that you’re a member of; these have complicated regulation in relation to health care laws. The programs are sometimes recognized under Affordable Care Act exemptions, but as of today do not meet IRS guidelines to be "tax deductible" medical expense. A tax advisor can offer more insight.
  • Consider if: You understand all the caveats, says De Haan.
  • Your retirement budget impact: There are often religious stipulations and lifestyle restrictions to coverage. The IRS still doesn't allow for deductions as part of medical expenses, although that may change. "You have to be really careful if you have a major health event. Sometimes these programs will not pay past a certain dollar amount. You have to be prepared to possibly pay higher out-of-pocket expenses," De Haan says.


Next steps

  • Are you saving enough for health care costs in retirement? Log in to to check in on your retirement account balance, increase your retirement savings, and see how close you are to your goals. First time logging in? Get started.