How to Retire Early and Lower Your Health Care Costs

How to Retire Early and Lower Your Health Care Costs

It’s the great American dream. Work hard, save money, and retire before reaching the age of 65. If you can afford early retirement, you’ll be able to enjoy the fruits of your labor, doing all the things you dream of doing today, if only you had the time.

Stephanie Faris

Published October 7th, 2020

Updated December 17th, 2020

Table of Contents

Key Takeaways

  • You don’t have to wait until 65 to retire, but you won’t qualify for Medicare until you reach the minimum eligibility age.
  • There are options that can help cover your healthcare costs during early retirement, including a spouse’s employer-provided plan, the government’s healthcare exchange, and private insurance
  • In addition to researching insurance options, you should also set a budget that factors in out-of-pocket healthcare costs and insurance premiums.

There’s one big problem with early retirement, though. Assuming you’ll have the retirement savings necessary to pay expenses, the next big obstacle will be lining up healthcare coverage. Fortunately, there are a few options that can help you achieve your dreams without sacrificing security.

Ways to Obtain Healthcare Coverage

As early as possible before your desired retirement, look into your early retirement health insurance options. For most people, Medicare will kick in at the age of 65, so you’ll just need something to bridge that gap. Here are some avenues to research.

Spouse’s Employer-sponsored Health Plan

If you’re married and your spouse plans to keep working, you may not need to shop for early retirement health insurance at all. You might have chosen your employer’s health insurance because it’s a better deal, but if your spouse has coverage, check into what you’ll need to do to switch. This can be a great way to get you through until you qualify for Medicare.

Affordable Care Act (ACA)

If you’re looking for health insurance for 55 and older, the Affordable Care Act (ACA) may be your next best step. Although the enrollment period is limited to a set timeframe each year, losing your healthcare coverage due to retirement qualifies you to apply for coverage outside of that enrollment period. If you have the option to continue employer-provided coverage and choose, instead, to go with the marketplace, you’ll have to wait for the annual enrollment period. That period is typically at the end of each year for coverage that starts in January.

Private Insurance Market

Although health insurance for retirees under 65 is usually more affordable through a group plan, don’t rule out private insurance. Providers want your business, and you may find pricing is competitive with what you’re being offered through the marketplace. Price several different providers and look specifically for those that cater to early retirees. Also look into any memberships or affiliations you have. Some offer group insurance as a membership benefit.


The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees to keep healthcare benefits for a set period of time after termination. If you can’t find insurance elsewhere, this can be a last-resort option for under 65 health insurance. Although you’ll keep your coverage, you’ll pay the full premium, which means you can be required to pay up to 102 percent of the plan cost.

Ways to Reduce Your Future Health Care Costs

If you’ve started planning retirement early, you can do something to offset those future costs. As you’re calculating the average cost of health insurance for retirees, look for ways you can start to prepare for early retirement. Here are a few suggestions:

Open a Health Savings Account (HSA)

Today’s workers have an option not available to previous generations: a health savings account (HSA). This can be a great way to fund healthcare for early retirees. An HSA, offered by some employers, lets you put pre-tax money into an account to pay for healthcare costs. You can spend part or all of the money in your HSA on medical expenses each year, but if you’re planning for early retirement, put the money in and leave it. The funds never expire and, in 2021, you can contribute up to $3,600 individually or up to $7,200 for family coverage.

Improve Your Health

There are many reasons to take good care of yourself, but one is that it will help offset your early retirement health insurance costs. If you’re in good health, you may be able to go with a plan with a high deductible that covers preventive care. This will keep both your premiums and out-of-pocket costs low.

Create a Retirement Budget

If you’re hoping for early retirement, insurance should be part of your overall budget planning. You probably already know what your typical annual healthcare costs are, but it’s tough to predict what they’ll be in the future, especially as you get older. Learn as much as you can about the insurance options available to you and factor those premiums in with the rest of your budget. Also, estimate what your out-of-pocket costs are likely to be and make sure you have enough money set aside to cover them.

Plan for a better future

Have you planned out your retirement health care plan?

Talk to a CFP® at Retirable today →

Final Thoughts

Retiring early may mean you aren’t eligible for Medicare, but you can still find affordable health insurance for 55 and older. Shop around and weigh all the options, then work with a Certified Financial Planner® to make sure you’ll have enough income and savings to cover your monthly expenses. By planning ahead, you’ll ensure you have what you need to live comfortably, whether you retire after 65 or much sooner.


Medicare Basics

Medicare Benefits

Medicare 2022

Applying for Medicare

Medicare Considerations

Medicare Taxes

Healthcare Considerations

Free Retirement Consultation

Still have questions about how to properly plan for retirement? Speak with a licensed fiduciary for free.


Stephanie Faris

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a writer for a credit card processing service and has written about finance for numerous marketing firms and entrepreneurs. Her work has appeared on Money Under 30, The Motley Fool, MoneyGeek, E-commerce Insiders, and GoBankingRates.

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