Tag: early retiree

Entering retirement can be both thrilling and intimidating at the same time. The thought of “hanging up the cape” and permanently leaving the workforce behind can be viewed as unburdening and relieving to one individual, but completely frightening to another. Regardless of the viewpoint you have on retirement, it will undoubtedly come with new challenges and troubles to overcome. Among the different problems to solve for retirement, one of the biggest challenges is that of early retirement health insurance options.

For those age 65 and older, or certain younger individuals with disabilities, Medicare has you covered. Medicare is the country’s health insurance program managed by the federal government. Once you enroll, there is very little management that you have to do throughout retirement.

But what about those who retire earlier than age 65? An early retirement is certainly achievable, but requires careful planning, especially when it comes to your healthcare. This article will enlighten you on the different healthcare options available for early retirees, with a focus on the Marketplace. If you are not familiar with what the Marketplace is, don’t worry, we will get to the details soon.

Health Insurance Options for Early Retirees

If neither you nor your spouse will be covered through an employer plan, fear not! There may be more options than you think. Below is a summary of a few options. I highly recommend speaking with your financial advisor about which route makes the most sense for you.

COBRA

A law that allows employees and their dependents to keep their group coverage from their former employer’s health plan. This coverage can last for 18 months after termination from the employer, but beware, this can be very costly.

Medicaid

Though unlikely for some retirees to qualify due to the low-income requirements (i.e., in Utah, coverage is available for those with household incomes up to 138% of the federal poverty level), this may be the cheapest option for those who do qualify. However, many doctors don’t accept Medicaid, so you may have to change your primary providers if you qualify for coverage.

Christian Healthcare Ministries

This is not traditional insurance, but rather a Christian-based method of sharing the costs with others around you. Each member pays a monthly premium, and those funds are used to help other members cover their healthcare costs.

The Marketplace

Finally, we have the Marketplace, which tends to be the route most early retirees take. For this reason, I want to expound upon how the Marketplace insurance really works.

The Marketplace – What is it?

In March of 2010, the Affordable Care Act (sometimes called Obamacare) was passed with the goal of making health insurance more affordable. The law provides individuals and families with government subsidies (otherwise known as premium tax credits). This helps lower the costs for households with an income between 100% and 400% of the federal poverty line. As a reference, in 2022, 400% of the federal poverty level for a retired couple is $73,240. The federal government operates the Health Insurance Marketplace, or “the Marketplace” for short. This is an online service that helps you enroll for health insurance. You can access the Marketplace at HealthCare.gov.

How does the Marketplace work?

First and foremost, I recommend you work with a trusted, licensed health insurance agent to help you navigate the waters of the Marketplace. Especially if you’ve only ever received health insurance through your employer. There is no additional cost to you to use an agent – they will be compensated by the insurance company directly. You can then tell the agent any specifics you are looking for with your coverage (such as certain doctors, hospitals, etc.). They can help narrow the available plans down to your liking.

That being said, let’s look at how this actually works.

You can enroll in health insurance during open enrollment, which generally runs from November 1st to December 15th. This is for coverage starting January 1st of the following year. You also have the option to enroll during a special enrollment period. This is based upon major life events, such as a change in household or residence.

You’ll be rewarded with a special enrollment period when you’re looking for health insurance options as an early retiree. Don’t feel like your retirement date needs to line up with the open enrollment period. During this special enrollment, you’ll have a 60-day window to enroll through the Marketplace.

During enrollment, you will fill out an application with basic personal information. Included with this application, you will give them your best estimate of what your income will be for the coming year. The Marketplace uses your Modified Adjusted Gross Income – MAGI – to define “income.”

When evaluating early retirement health insurance options, it’s important to understand how Marketplace subsidies work. The Health Insurance Marketplace bases eligibility on your projected income for the upcoming coverage year — not your prior year’s income. This distinction is especially important when considering health insurance options for early retirees, since retirement often significantly reduces taxable income.

For 2026 coverage, if your projected household income falls between approximately 100% and 400% of the federal poverty level (FPL), you may qualify for a federal premium tax credit to help lower the cost of your insurance premiums. If your income exceeds 400% of FPL, you generally will not qualify for a subsidy and must pay the full premium yourself.

The temporary subsidy enhancements created under pandemic-era legislation — which allowed households above 400% of the poverty level to receive assistance — expired after 2025. Unless new legislation is passed, Marketplace subsidy eligibility for 2026 and beyond follows the original Affordable Care Act structure. Because of this, managing your projected retirement income carefully can play a significant role in keeping your early retirement health insurance costs affordable.

What happens if your income isn’t exactly what I put on the application?

The answer is that you will reconcile any differences when you file your taxes.

If your income was less than what you projected, you’ll get a credit as you qualified for more of a subsidy throughout the year. If your income was more than what you projected, you will have to pay some of that subsidy back. Generally, this isn’t that big of an issue unless you projected your income to be less than 400% of the poverty level, but it was actually more. In this case, you are required to pay back the entire subsidy. Even if your income was only $1 more than the threshold.

For this reason, I suggest consulting with your financial advisor to pinpoint what your income will be through your early years of retirement.  I also suggest you speak with your advisor about potential planning strategies available to control your Modified Adjusted Gross Income, as there are certain strategies that can help you qualify for a subsidy while enjoying the income you desire throughout retirement. For an example of how this might work, Mark Whitaker wrote an article in 2020 describing a case study that explored these strategies.

As far as the plans that are available, the Marketplace ranks them in four different categories. These categories are Bronze, Silver, Gold, and Platinum. The Bronze plans typically tend to have the lowest premiums, but they are also the most catastrophic plans. This means they have high deductibles and out-of-pocket maximums. Gold and Platinum plans typically tend to be better plans as far as coverage, but have higher premium costs. Again, working with an agent can help you navigate which plan is best for you.

Frequently Asked Questions About Early Retirement Health Insurance Options

Choosing the right early retirement health insurance option can significantly impact your long-term retirement plan. Below are answers to common questions about health insurance options for early retirees and how to manage coverage before Medicare eligibility.

1. What are the best early retirement health insurance options before Medicare?

If you retire before age 65, you’ll need coverage until Medicare eligibility. The most common early retirement health insurance options include:

• COBRA continuation coverage from your former employer

• ACA Marketplace (Affordable Care Act) plans

• Coverage through a spouse’s employer plan

• Part-time employment with health benefits

• Private individual insurance plans

For many early retirees, the ACA Marketplace is the most flexible and potentially affordable option, especially if income qualifies for premium tax credits.

2. How do health insurance options for early retirees work with the ACA Marketplace?

Marketplace plans determine subsidy eligibility based on your projected income for the upcoming year, not your prior year’s earnings.

For 2026 coverage, households with income between approximately 100% and 400% of the federal poverty level (FPL) may qualify for premium tax credits. If income exceeds 400% of FPL, subsidies generally are not available under current law.

Because retirement often reduces taxable income, careful income planning can significantly lower health insurance premiums.

3. Can early retirees qualify for government subsidies?

Yes — many early retirees qualify for premium tax credits through the ACA Marketplace.

Subsidy eligibility depends on:

• Projected Modified Adjusted Gross Income (MAGI)

• Household size

• Federal poverty level thresholds

Strategically managing withdrawals from retirement accounts (such as IRAs, Roth IRAs, and brokerage accounts) may help maintain income within subsidy-eligible ranges.

4. Is COBRA a good health insurance option for early retirees?

COBRA allows you to continue your employer-sponsored coverage for up to 18 months (sometimes longer in certain circumstances).

However:

• You pay the full premium (including the employer portion)

• It is usually more expensive than Marketplace options

• It is temporary and not a long-term pre-Medicare solution

COBRA can serve as a short-term bridge to Medicare or to the next Marketplace enrollment period.

5. How much does health insurance cost in early retirement?

Costs vary widely depending on:

• Age

• Location

• Plan type (Bronze, Silver, Gold)

• Income (which affects subsidy eligibility)

Without subsidies, premiums for early retirees can be substantial. With subsidies, however, coverage may be significantly reduced — especially for households near the lower end of the income range.

This is why income planning is one of the most important factors when evaluating early retirement health insurance options.

6. What happens when I turn 65?

Once you turn 65, you become eligible for Medicare.

Many early retirees structure their health insurance decisions as a bridge to Medicare, choosing options that provide stable coverage until Medicare enrollment begins. Planning ahead helps avoid coverage gaps and late enrollment penalties.

7. What is the biggest mistake early retirees make with health insurance?

One of the most common mistakes is failing to coordinate retirement income planning with Marketplace subsidy rules.

Large IRA withdrawals, Roth conversions, or capital gains in a single year can push income above the subsidy threshold — dramatically increasing premium costs.

Proactive tax planning can help maintain eligibility and reduce overall healthcare costs during early retirement.

What Health Insurance is Available for Early Retirees?

There is more to the Marketplace and the other health insurance options for the early retiree mentioned than can be discussed in this article. Hopefully, this provides you with a framework of the options you have as an early retiree. Early retirement is achievable for those who are prepared and understand how their healthcare needs can be met.

Learn more about how we can help you prepare for retirement with our Perennial Income Model™, or schedule a free consultation.