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Planning for early retirement can be exciting. You might have dreams of traveling the world, spending more time with family or simply enjoying the leisurely pace of life without work. However, navigating the complexities of health care during this time can be daunting.

Unlike those who retire at 65 or later, early retirees don’t qualify for Medicare, the government health care program for older Americans.

So, what health care options do early retirees have? In this article, we’ll explore nine health insurance options that can help bridge the gap to Medicare.

When does early retirement start?

Early retirement generally refers to retiring before the age of 65, which is when Medicare benefits begin. People choose to retire early for numerous reasons, including personal health, job satisfaction, financial stability or a desire for more leisure time.

However, leaving the workforce early means planning for years, if not decades, of income without a regular paycheck. One of the most critical factors to consider is how to manage health care costs during this period. If you’re enrolled in an employer-sponsored health care plan, you’ll lose that coverage once you retire.

Unlike Social Security, which allows retirees to start receiving benefits as early as age 6

Generally, early retirement is defined as retiring before the age of 65, which is when you qualify for Medicare benefits.

While the prospect of early retirement can be exciting, it comes with its own set of challenges. One of the most significant is ensuring you have sufficient health coverage to bridge the gap between your retirement date and the start of Medicare eligibility. This requires careful planning to cover health care expenses without a regular paycheck.

9 health care options for early retirees

If you’re planning to retire early, consider these nine health care options to ensure you’re covered until you become eligible for Medicare:


The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a program that provides temporary continuation of health coverage for individuals who lose their employer-sponsored health insurance. If you retire early, COBRA allows you to retain your existing coverage for up to 18 months. However, you’ll be responsible for paying the full premium, including the portion your employer previously covered, plus a potential 2% for administrative costs. Though COBRA can be expensive, it’s worth considering if you wish to keep your current coverage until you become eligible for Medicare.

The Health Insurance Marketplace

The Health Insurance Marketplace is a service that allows you to shop for and enroll in affordable health insurance. The Marketplace offers a variety of plans, and you may qualify for premium tax credits and savings based on your household size and income. These subsidies can make Marketplace plans a cost-effective solution for health coverage until you reach Medicare eligibility. It’s advisable to compare the costs and benefits of Marketplace plans during the annual Open Enrollment period or a Special Enrollment Period if you experience a qualifying event, such as the expiration of COBRA coverage.

Insurance from a part-time job

Another option for early retirees is to obtain health insurance through a part-time job, also known as the ‘Barista FIRE’ strategy within the Financial Independence, Retire Early (FIRE) community. This involves working minimal hours (around 20 hours a week) to qualify for health insurance benefits offered by certain employers. Companies like Starbucks are known for offering health insurance to part-time employees, making it a viable option for early retirees to maintain coverage until they reach Medicare eligibility.

Money from your health savings account (HSA)

If you’ve contributed to a Health Savings Account (HSA) while working, you can use the funds to pay for qualified medical expenses tax-free in early retirement. This includes expenses such as deductibles, copays, and coinsurance. After age 65, you can use HSA funds to pay certain Medicare expenses, including premiums for Part A, Part B, Part D, and Medicare Advantage plans. Remember, after enrolling in Medicare, you can’t continue to contribute to your HSA, but you can still use the funds already in the account.

Short-term health insurance plans

Short-term health insurance plans can offer a temporary solution for early retirees who need coverage before becoming eligible for Medicare. These plans generally cost less than traditional health insurance policies but provide less comprehensive coverage. They typically have lower limits on the total amount they will pay for covered services and may not cover pre-existing conditions. It’s vital to carefully consider your healthcare needs, budget, and the duration you need coverage when exploring short-term health insurance options.

Private health insurance

Early retirees can also consider private health insurance options. These plans offer a range of coverage options but may come at a higher cost as they do not qualify for premium tax credits. It’s important to compare these options and consider factors like deductibles, copayments, and coverage benefits when deciding on the best plan for your early retirement.

Insurance through a spouse

If your spouse is still working and has access to employer-sponsored health insurance, you can consider staying on their plan. This is often the simplest solution for maintaining insurance coverage during early retirement. However, it’s important to compare this option with other available alternatives, such as purchasing insurance from the Health Insurance Marketplace or private insurers, qualifying for Medicaid, or using COBRA temporarily.

AARP health benefits for members

The American Association of Retired Persons (AARP) offers a variety of health benefits for its members. While AARP provides resources and information to help members navigate their health insurance options, specific health insurance benefits are generally targeted towards those who are 65 and older and eligible for Medicare. However, early retirees younger than 65 who don’t have access to retiree health coverage may have guaranteed access to insurance in the individual market, thanks to the Affordable Care Act (ACA). They may also be eligible for subsidies to help with the cost of coverage they buy through the health insurance marketplace, and retirees with low incomes may qualify for expanded Medicaid coverage, depending on the state in which they live.


Medicaid is another option for early retirees. If your income drops to a fairly low level after retirement, you could qualify for Medicaid. In most states, Medicaid is available to adults under age 65 if their income does not exceed 138% of the poverty level. However, eligibility rules can vary from state to state, so it’s important to investigate the regulations and offerings specific to your state to understand your eligibility.

How much should you budget for health care costs in retirement?

When budgeting for health care costs in early retirement, you’ll need to consider several factors. Start by organizing your budget and health care requirements, considering chronic conditions and medications. Consider the out-of-pocket costs, such as monthly premiums, deductibles, copayments, and coinsurance. Don’t forget to factor in the maximum out-of-pocket payment you can cover. It’s also important to consider the various health insurance options available to early retirees, such as private health insurance plans, the Health Insurance Marketplace, or your spouse’s insurance. You may also find coverage through part-time work or extend your coverage with COBRA. If you have limited income, check if you’re eligible for Medicaid. Remember to enroll in a health plan during the Special Enrollment Period triggered by your retirement. Consider the high cost of health insurance, which can be one of your biggest expenses, and look into government marketplace plans as a potential option. Additionally, understand how the Premium Tax Credit can reduce your insurance premiums, and incorporate it into your financial planning.

Bottom line

Early retirement requires careful planning, especially when it comes to health care. While Medicare provides comprehensive health coverage for those 65 and older, early retirees need to bridge the gap with other coverage options until they reach Medicare eligibility. Whether you opt for private insurance, coverage through a spouse or part-time job, or assistance programs like Medicaid, it’s essential to consider your health needs, budget, and available resources. With careful planning and consideration, you can ensure that you have the health coverage you need to enjoy your early retirement.