Healthcare in Early Retirement: Bridging the Gap to Medicare
The #1 Fear That Stops People From Retiring Early
Max, you can’t retire early in America because of health insurance!
This is one of the more common phrases I hear from people who have the money to retire but are terrified to leave their employer benefits. To be fair, it's a legitimate fear. Healthcare in early retirement is expensive, complicated, and can derail your FI plans if you don't handle it correctly.
But here's what most people don't realize: thousands of people (including me) successfully navigate early retirement healthcare every year. It's not easy, but it's absolutely doable with the right strategy and planning.
Today we're going to tackle the specific challenges of healthcare between early retirement and Medicare eligibility at 65. This isn't about choosing health insurance plans. We covered that earlier. It's about the unique strategies and considerations for people who want to retire before Medicare benefits kick in.
Your Early Retirement Healthcare Options
Option 1: COBRA
What it is: Continuing your employer's exact plan for up to 18 months (sometimes 36 months in special circumstances).
The real cost: You pay 100% (sometimes ~102%) of what your employer was paying. Most employers heavily subsidize healthcare plans, so while you may have paid $300/month, the employer was paying the other $1,200/month. This means you’ll be paying $1,500/month (or slightly more if you pay an administrative fee.)
When it makes sense:
You have ongoing medical needs requiring your current doctors
You're retiring at 63.5 and just need to bridge to Medicare
Your employer plan is unusually good and worth the premium
When it doesn't:
You're healthy and retiring in your 50s (or earlier)
You qualify for ACA subsidies
Your employer plan was mediocre to begin with
Pro tip: You have 60 days to elect COBRA, so you can explore other options first and use COBRA as a backup.
Summary: this isn’t a long-term option, but it’s a great short-term option. You don’t have to commit to the full 18 months. I list it mostly because some people have trouble leaving their job because the healthcare switch seems overwhelming, not realizing they can keep their current plan short-term.
Option 2: ACA Marketplace
What it is: Individual insurance through Healthcare.gov or your state marketplace.
Major advantage: Premium tax credits are based on your Modified Adjusted Gross Income (MAGI), not your net worth. I used an ACA plan for a year after retiring because my income was zero. That also meant my ACA plan cost zero! (technically, I had to generate income to be eligible for subsidies and not Medicaid, but a Roth conversion qualifies.)
This means a couple with $2M invested (capable of generating $80k annually) can live off Roth withdrawals and taxable account principal to “force” their MAGI down to $17,401 to qualify for 100% subsidies and save ~$12,000 annually.
Priority order for early retirement:
Roth IRA principal (not counted as income)
Taxable account principal (not counted as income)
Taxable account gains (counted as income)
Traditional retirement accounts (fully counted as income)
The subsidies exist up to 400% of the Federal Poverty Limit. That’s $128,600 for a family of four in 2025. (Yes, technically the enhanced premiums from the Inflation Reduction Act expanded the threshold, but these are scheduled to disappear for 2026.)
Quality reality check: ACA plans are offered by state. Some states have terrible options with narrow networks and high deductibles. This is adequate care, not premium care.
Summary: Prior to the ACA, unhealthy individuals often had no access to health insurance outside of an employer. While it isn’t always cheap (or good) coverage, you can always fall back to the ACA because they will take anyone.
Option 3: Healthcare Sharing Plans
Note: I have no experience with these. I’m throwing them out here so you can research them and see if they might be a fit for you.
What they are: Organizations where members share medical costs. These are usually faith-based and are not technically insurance. (Example: Liberty Healthshare, Altrua)
The appeal: Much lower monthly costs ($300-800/month for families).
The risks:
No guarantee your expenses will be covered (this isn’t insurance)
Coverage is limited (sometimes pre-existing conditions are excluded)
Limited provider networks (or no network at all)
Who considers them: Healthy people comfortable with higher risk to save $500+/month.
Option 4: International Healthcare
The strategy: Retire to countries with affordable, high-quality healthcare.
Popular destinations: Portugal, Costa Rica, Spain
Example: High-quality healthcare in Portugal costs $100-300/month for comprehensive coverage.
Moving overseas isn’t an option for everyone. There are visa requirements and tax implications. There are potential language barriers and distance from friends and family. Still, it’s worth a mention because there are countries with excellent healthcare systems at a significantly lower cost than the US.
Option 5: Spouse's Employer Plan
How it works: One spouse retires while the other keeps working primarily for health benefits.
Financial math: If the working spouse enjoys their job and the health benefits are excellent, this can be optimal.
Option 6: Part-Time Employer Plan
How it works: Find a company that offers benefits to part-time employees. (e.g. Costco, Starbucks, Chipotle, Staples, Trader Joes)
Option 7: Go Without
While risky, this isn’t as crazy as it sounds and I’ll write a post about why in the future.
Healthcare Costs in Your FI Planning
Don't Underestimate the Numbers
Common mistake: Only budgeting $800/month for early retirement healthcare.
Reality check: $1,500-2,500/month for a couple in their 50s is more realistic without subsidies.
FI number impact: $20,000/year in healthcare costs = $500,000 additional FI target using the 25x rule.
Build in Escalation
The trend: Healthcare costs increase faster than general inflation.
Planning assumption: Budget for 6-9% annual increases in healthcare costs at a minimum. (Yes, this is a lot, but this has been the trend.)
Age factor: Premiums increase significantly as you approach 65, sometimes doubling between ages 50 and 64.
The Medicare Milestone
What happens at 65: Healthcare costs drop dramatically.
Typical Medicare costs:
Part B premium: $185/month (2025)
Part D premium: ~$50/month (2025)
Total: $235/month vs. $1,500+ for individual coverage
Many people also buy supplemental insurance, but this is still much cheaper than traditional individual coverage.
Planning implication: Your FI number can be lower if you're retiring at 62 vs. 52 because Medicare relief is coming soon.
My Personal Early Retirement Healthcare Journey
2022: Used COBRA to maintain continuity with ongoing specialists. Cost: $1,250/month for 2-person coverage.
2023: Switched to ACA marketplace plan with income management for subsidies. Cost: $0/month after subsidies.
2024/2025: Moved to non-ACA plan through Texas Farm Bureau. Cost: $350/month.
Making the Decision: Is Early Retirement Worth the Healthcare Hassle?
The honest answer: It depends on your health, finances, and risk tolerance.
Consider early retirement if:
You have substantial assets beyond your FI target for healthcare buffers
You're generally healthy with no chronic conditions requiring specialist care
You're comfortable navigating complex insurance decisions annually
The non-financial benefits of early retirement are worth the extra costs
Stick with traditional retirement if:
You have serious health conditions requiring extensive specialist care
Your employer benefits are exceptional
The stress of healthcare uncertainty would diminish your retirement enjoyment
You haven't built adequate buffers into your FI number
The Bottom Line
Healthcare is the most legitimate concern about early retirement in the United States. It's expensive, complicated, and adds genuine uncertainty to your financial planning.
But it's not insurmountable. Thousands of people successfully navigate early retirement healthcare every year by:
Building adequate buffers into their FI numbers
Understanding their local healthcare landscape
Managing income strategically for subsidies
Having backup plans for different scenarios
Accepting that healthcare will be a bigger line item than when they were employed
The key insight: Don't let healthcare fears prevent you from pursuing early retirement, but do factor healthcare realities into your planning from day one.
Healthcare costs might add $100,000-300,000 to your FI target and require more active management than other expenses. For many people, the freedom of early retirement is still worth these costs and complications.
Your homework: Research actual healthcare costs and options in your area for your age group. Get real quotes, not estimates, and factor those numbers into your FI planning.
Here's to retiring early without sacrificing your health or wealth,
Max
Remember: Healthcare laws and costs change frequently, and individual circumstances vary dramatically. This information is current as of 2025, but always verify current options and costs for your specific situation.