The Years Between Your Last Paycheck and Medicare

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Retirement Planning

Retiring at sixty-two means covering your own health insurance until sixty-five. It is the single most underestimated cost in early retirement, and it collides with everything else in the plan.

By Lifeway Financial · March 18, 2026 · Updated July 21, 2026 · 5 min read

How do you cover health insurance if you retire before 65?

Most people first become eligible for Medicare around age 65, although disability, ESRD, ALS, work history, and enrollment timing can change eligibility and coverage dates. Retiring earlier can mean covering yourself through COBRA, a spouse's plan, retiree coverage, marketplace coverage, or part-time work with benefits.

Key takeaways

• Retiring at sixty-two leaves three years of self-funded coverage, and retiring at sixty leaves five.

• COBRA is familiar coverage at an unfamiliar price, because the employer subsidy disappears.

• Marketplace premium credits depend on household income, so withdrawals and conversions can cost more in lost credits than they save in tax.

• Income recognized at sixty-three sets Medicare surcharges at sixty-five.

• Long-term care is a separate question, because Medicare generally does not cover ongoing custodial care, and the projection should include it.

Medicare eligibility begins at sixty-five for most people. Earlier eligibility exists in limited situations, generally after twenty-four months of Social Security disability benefits or with end-stage renal disease or ALS, so age sixty-five is the planning assumption for nearly everyone. Retire at sixty-two and you have three years to cover on your own. Retire at sixty and it is five. For people who have had employer coverage their entire working life, this is the expense that most often derails an otherwise sound plan.

What the options actually are

COBRA continues your employer plan, generally for up to eighteen months, at the full cost plus an administrative charge. It is familiar coverage at an unfamiliar price, because the employer subsidy you never saw disappears.

A spouse's employer plan is usually the cheapest route when it exists. Marketplace coverage is available to everyone and priced by age and location. Some employers still offer retiree coverage. Part-time work with benefits is a real strategy that people dismiss too quickly.

Where it collides with the rest of the plan

Marketplace premium credits are based on household income, which means the same withdrawal and Roth conversion decisions that look efficient on the tax table can quietly cost more in lost credits than they save in tax. These rules have changed several times in recent years and are worth confirming for the year you are actually planning.

At sixty-five the sensitivity does not end, it changes shape. Medicare premium surcharges are set from income reported two years earlier, so what you recognize at sixty-three determines what you pay at sixty-five.

The result is a stretch of years that are simultaneously the most flexible tax years you will ever have and the most expensive insurance years. Those two facts pull in opposite directions, which is exactly why they should be planned in the same conversation rather than in separate ones.

The cost nobody budgets

Long-term care is a separate question, and Medicare does not solve it. Medicare may cover a limited period of skilled care after a qualifying stay, but it does not cover ongoing custodial care, which is the expense most families are actually worried about. Whether you self-fund, insure, or plan around family support, it belongs in the projection rather than in the category of things to think about later.

The practical version

Before you set a retirement date, price the coverage for every year between that date and sixty-five, using real quotes rather than an assumption. Then run the withdrawal strategy for those same years with the coverage cost and the income thresholds included. The date often survives. Sometimes it moves by a year. Either way you find out now instead of in February of your first year retired.

Common questions

Frequently asked questions

• What are my health coverage options before Medicare?

  COBRA continuation, a spouse's employer plan, retiree coverage if your employer offers it, marketplace coverage priced by age and location, or part-time work that carries benefits.

• How long does COBRA last?

  Generally up to eighteen months, at the full cost of the plan plus an administrative charge.

• Why do the gap years complicate tax planning?

  They are simultaneously the most flexible tax years you will have and the most expensive insurance years. Premium credits and Medicare surcharges both key off income, so coverage and withdrawals must be planned in the same conversation.

Sources and further reading

Where these figures come from

Rules, thresholds, and figures change. Confirm current details with the primary source for the year you are planning.

• Other Paths to Medicare Eligibility

  Centers for Medicare and Medicaid Services

• Long-Term Care and What Medicare Covers

  Centers for Medicare and Medicaid Services

• COBRA Continuation Health Coverage: An Employee Guide

  U.S. Department of Labor

• Questions and Answers on the Premium Tax Credit

  Internal Revenue Service

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Insights are educational and are not investment, tax, or legal advice. See our Form ADV Part 2A and Form CRS for important details.

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