Retiring before 65? Know your healthcare coverage options

If you’re planning for your retirement, you might assume you’ll stop working at age 65. But in reality, 3 in 5 retirees report actually retiring younger than that—with nearly half saying they retired earlier than planned. Because Medicare coverage doesn’t typically start until age 65, this can create a healthcare coverage gap that can last anywhere from months to years, depending on when you retire. 

This gap can be one of the highest—and most overlooked—retirement expenses as early retirees navigate complex options, often facing higher premiums and out-of-pocket costs. 

With smart planning, you can avoid surprises and coverage interruptions to help your retirement plan stay on track. Follow these steps to help protect both your health and your savings.

Start by getting clear on your timeline. Medicare usually begins at age 65, but enrollment depends on your situation. You may be eligible sooner if you have a qualifying life event, certain disabilities, or illnesses. Check the list of Special Enrollment Periods to understand when you’ll qualify and how long you’ll need gap coverage.

There is no one right solution for everyone. Consider your own needs, budget, and circumstances to decide on a coverage plan for you. Here are a few common paths to consider:

Short-term healthcare coverage options

If you’ll need health insurance for 18 months or less before you’ll be eligible for Medicare, consider these options:

COBRA  
COBRA, named for the act that established it, allows you to continue your current health insurance through your employer for 18 months after leaving employment. While you’re working, your employer typically pays a large part of your healthcare coverage. Through COBRA, you’ll pay the full premium plus administration costs, though you’ll get to keep your same providers and benefits. COBRA may not be available if you work at a company with fewer than 20 employees. Talk with your HR representative to see if this is an option for you and what the costs are.  

Short-term health insurance plan 
If you’re not eligible for COBRA, want a different policy than your employer’s, or have less than one year until you're eligible for Medicare, you may want to consider a short-term health insurance plan. A short-term health insurance policy is good for up to 364 days. These are only available through insurance companies or licensed insurance agents. While they generally don’t cover as much, they work as a stopgap to ensure you have some health insurance coverage should you have an accident or need emergency care, for example. Reach out to an insurance company or licensed agent to get started.  

Long-term healthcare coverage options

If you’ll need health insurance for years before you’re eligible for Medicare, consider these options:

Spouse or partner’s plan 
If your spouse or domestic partner is employed and has health coverage, you may be able to be added to their plan. Keep in mind that even if you have a working spouse, not all employers offer this benefit, and special rules or additional charges may apply. Review your spouse’s benefit plan to find out if this is an option for you and estimate the total cost and included benefits.  

Public marketplace 
ACA marketplace plans through Healthcare.gov or state exchanges are another popular option. These plans are available to anyone who is not yet eligible for Medicare. Coverage costs can vary, but you may be eligible for income-based subsidies through premium tax credits that can help lower expenses. Explore the marketplace options and compare deductibles, provider networks, and prescription coverage carefully as options vary widely.  

Private insurance 
You can also obtain healthcare coverage through private insurance that offers plans through multiple carriers. You may find more plan options through private insurance, but subsidies and premium tax credits don’t apply, typically making this option more costly. Purchase coverage directly from providers or reach out to an insurance agent or broker to help you compare your options.  

Health insurance through your last employer 
About 17 percent of employers with 500 or more employees offer early retirees the option to continue their healthcare coverage. This might be a good option if you need health insurance for longer than what COBRA will cover. Check with your HR representative if this benefit is available, and keep in mind that your costs may be higher than when you were employed. 

Once you’ve chosen the best option for you and understand how long you’ll need coverage, estimate your monthly costs.

Healthcare is typically one of the biggest expenses people face in retirement—and it can also be one of the least predictable. Planning for a coverage gap may mean looking beyond just monthly premiums. Be sure to think about deductibles, out-of-pocket maximums, and prescription drug costs. If you have ongoing medical needs, factor those in as well. Even routine care can add up over time. 

With your cost estimate, decide how you’ll fund the gap and how it fits into your retirement income plan and withdrawal strategy. Health savings accounts (HSAs) offer tax-deductible contributions, tax-free growth, and tax-free withdrawals when used for qualified medical expenses, which can make them a powerful tool in your portfolio for funding healthcare expenses. Talk with a financial professional for guidance on your specific situation.  

By understanding your timeline, exploring your options, and preparing for costs, you’re taking strong steps to protect your health and your financial future.