How to Deal with Health Insurance When Retiring Early

Early retirement is a delicate balance between excitement and challenge. You’re ready to begin a new phase in your life, dreaming of the possibilities. You’re also concerned that if you retire early, you’ll face obstacles you’re not prepared for. 

The most expensive obstacle? You guessed it: healthcare. 

Health insurance is a significant expense. Paying too much for coverage could jeopardize your financial well-being for the years between your early retirement and Medicare eligibility. 

Even if you can afford to take on such an expense, that money will better serve you in other areas of your budget. So, how do you choose the best health insurance option after retiring early? Understanding your options is the best first step. 

In this article, we’ll take a look at five of the most common coverage options to consider when you retire early. 

Where to Find Coverage After Early Retirement

Understanding your coverage options allows you to move forward with early retirement without the fear of being without health insurance. 

Here are five common options to consider: 

1. Private Insurance Marketplace Plans

Though private insurance marketplaces could be the most expensive option, it’s worth your time to investigate. If you’re in good health, there is a possibility that your premiums are low enough to entertain the idea. On the other hand, if you have specific medical needs, private plans may provide better coverage. Many variables come with choosing private insurance plans, so it’s best to do thorough research and see what’s available. Consider also that you may be eligible for a subsidy to help pay for your insurance premiums under the Affordable Care Act (ACA). We’ll talk more about that option in point #4.

Online marketplaces make it easy to shop for and compare healthcare plans across several providers. Take a look at websites like, or search for health insurance marketplaces that are specific to your state.

2. COBRA Insurance Extensions

If you worked for a private-sector employer with 20+ employees, the Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to extend your employer’s group health insurance for 18 months after retirement. This extension also applies if you worked for state or local government. However, because you will now be paying for the plan entirely out of pocket, your premium will increase dramatically.

Employers can require you to pay 102% of the premium—the extra 2% being an administration fee. It is possible to cover a portion of these costs with funds from a Health Savings Account (HSA).

Contact your employer to discuss the details of continuing your group coverage. However, overall, COBRA will not be your most cost-effective option after retirement.

3. Employee-Sponsored Retiree Health Coverage Plans

Talk to your employer about options for early retirement health coverage. Most employers do not offer retiree health coverage plans, though there are still some companies, schools, and government entities that do.

If offered, you can continue on your group plan as if you were still an active employee. This way your coverage can stay within an affordable range until you turn 65. Discuss with your employer the implications that may apply to your spouse or dependents when considering this option.

4. Federal Exchange Options

Following the implementation of the Affordable Care Act (ACA), early retirees can qualify for a subsidy to help pay for health insurance premiums. The income-based subsidy makes healthcare marketplace plans more affordable, allowing retirees to choose more comprehensive plans if necessary.

Depending on your post-retirement income, you could also qualify for a premium tax credit. Note that your income excludes penalty-free withdrawals from your Roth IRA if you’re more than 59.5 years old and your first contribution was 5+ years prior.

If applicable, you’ll consider these factors in your income:

Losing your employer’s health coverage is a qualifying event to begin coverage outside of the annual open enrollment. If you’re unsure if you would qualify for a subsidy under the ACA, you can estimate your eligibility with the Health Insurance Marketplace Calculator. If you’re unsure if you’re eligible for the premium tax credit, the IRS provides a list of eligibility requirements

5. Spouse’s Employer Benefits

It is possible to join your spouse’s employer insurance plan if he or she continues working after your retirement. Losing your employer’s health coverage is a qualifying event, so your spouse should be able to add you to the existing plan. Begin discussing this option with your spouse as soon as possible so that you can request the necessary information before it’s time to make your decision.

Whichever path you choose, it’s best to begin planning when you know early retirement is a possibility. You don’t want to be left with a gap in coverage and without a plan for your future healthcare needs. You also want to give yourself time to identify the most sustainable, effective, and budget-friendly option. 

Consult a Professional

It’s always prudent to contact a financial advisor when making plans for early retirement. An advisor acts as your ally, creating a financial plan that’s designed to meet your goals and help the process run smoothly. 

Southwestern Investment Group’s team of advisors work to understand your goals before we ever design a strategy. We empower you to take control over your retirement and work alongside you every step of the way.

Contact us to learn how we can make the most of your post-retirement years.   

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