One of the most common — and most expensive — surprises in early retirement is health insurance. You've planned your savings, mapped out your Social Security strategy, and envisioned what life after work looks like. But if you're retiring before age 65, you're also stepping away from employer-sponsored coverage before Medicare eligibility begins.
That gap can last months or years. And the wrong coverage decision can cost you thousands.
Here's what you need to know to navigate it well.
Why the Gap Exists
Medicare eligibility begins at age 65 for most Americans. If you're retiring at 62 or 63 — or even 64 — you have a real window where you need to source your own health coverage. For many people, this is the first time they've had to shop for insurance outside of an employer plan, and the options can feel overwhelming.
The good news: there are several solid paths forward. The right one depends on your health, your budget, and how long you need coverage.
Option 1: COBRA Continuation Coverage
If you leave a job with group health benefits, you're generally entitled to continue that coverage for up to 18 months under COBRA. The plan stays exactly the same — same network, same benefits — which is a real advantage if you have ongoing care or established providers.
The downside is cost. Under COBRA, you pay the full premium that your employer was covering on your behalf, plus a small administrative fee. For many people, this is a shock. What looked like a modest payroll deduction can become $700 or $1,000 per month when you're footing the entire bill.
COBRA is often the right call for the short term — particularly if you're in active treatment or close to 65 — but it's rarely the cheapest long-term solution.
Option 2: ACA Marketplace Plans
The Affordable Care Act marketplace is specifically designed for people in situations like this. Plans are available regardless of your health history, and if your income in retirement is modest, you may qualify for significant subsidies that lower your monthly premium.
This is where early retirement income planning intersects with health insurance in a meaningful way. Because marketplace subsidies are based on your modified adjusted gross income, managing your withdrawals thoughtfully can meaningfully change your premium costs.
Open enrollment runs each fall, but losing job-based coverage qualifies you for a Special Enrollment Period — so you're not locked out if you retire mid-year.
Option 3: A Spouse's Employer Plan
If your spouse is still working and has access to employer-sponsored coverage, joining their plan is often the most cost-effective option. Losing your own coverage is a qualifying life event that allows you to enroll outside of open enrollment.
It's worth comparing the added cost to the plan's premiums, deductibles, and network before assuming it's the best option — but for many couples, this is the simplest and least expensive bridge.
Option 4: Short-Term Health Plans
Short-term plans offer lower monthly premiums but come with significant trade-offs: limited coverage, exclusions for pre-existing conditions, and benefit caps. They can make sense as a stopgap in very specific situations — like if you're three or four months from Medicare eligibility — but they're generally not appropriate as a primary coverage strategy for a multi-year gap.
What to Watch Out For
A few things worth knowing before you make a decision:
Don't miss your Medicare enrollment window. When you do turn 65, you have a limited window to enroll in Medicare without facing late enrollment penalties. If you have creditable coverage through an employer (your own or a spouse's), you can delay. If not, enroll on time.
Factor premiums into your retirement income projection. Health insurance is often one of the largest expenses in early retirement. Building it into your plan before you leave work — not after — prevents unpleasant surprises.
Your needs may change. A plan that works at 62 may not be the right fit at 64. Review your coverage annually during open enrollment.
Getting the Right Coverage
There's no one-size-fits-all answer here. The right coverage depends on your specific health needs, how long the gap is, what income you're drawing in retirement, and what's available in your area.
What does matter is that you go into this transition with a plan — not scrambling to figure it out the week before your last day of work.
Want help thinking through your options? Connect with Destini at Kelleher Insurance for a straightforward conversation about what coverage makes sense for your situation.