Last Updated: December 19, 2024
You may choose to retire between 60 and 64, but your healthcare costs sure don’t! In fact, you can expect to spend more on healthcare in retirement than any other time in your life. A 65-year-old couple retiring this year can expect to spend $330,000 in healthcare and medical expenses throughout retirement. For single retirees, the 2025 estimate is $165,000.1
Since Medicare doesn’t kick in for another one to five years, you’ll definitely need coverage. We’ll discuss each below in order to help you make the best decision for you. And if you’re hoping to dive even deeper into healthcare options before Medicare in retirement, visit our Early Retirement Healthcare classes.
Get Covered by Your Spouse’s Insurance
If your spouse will be working longer than you, the easiest and most cost-efficient way to get insurance in early retirement is to be added to their company insurance plan.
Employer-Sponsored Health Insurance
If your company does offer insurance as a benefit for retirees, it’s a good idea to take advantage of it, even if it’s a high-deductible policy. Then, you can set up a Health Savings Account to cover future expenses if the insurance is HSA approved. There are three tax advantages of having an HSA: contributions are tax-deductible, interest earned is tax-free, and withdrawals are tax-free on qualified medical purchases. You can continue to contribute to your HSA until you go on Medicare in a few years, or receive Social Security, whichever occurs first.
Only a small minority of employers still offer health benefits to their retirees - only around 24%2 - and they’re often large companies. But if you happen to qualify for one of these plans, it’s likely to be one of the more cost-effective plans to choose from before Medicare. An added bonus? It’s probably insurance you’re already holding so you may not be forced to switch providers.
COBRA
COBRA allows you to stay with your employer’s plan for 18 months in the case of a termination or reduction in hours. You’re getting closer to Medicare as you approach the latter half of this age bracket, but you’re not quite there yet. That means COBRA may not cover the entire gap between ending work and becoming eligible for Medicare, but it will allow you to continue your current health coverage for at least a bit longer. If you’re lucky and plan to be 65 within 18 months, COBRA can bridge you over to you qualify for Medicare. Although this type of continued coverage can be pricey - you’ll be paying both your own and your company’s portions now - but it can still be a better option than obtaining an entirely new policy. Estimates indicate the average monthly COBRA premium for an individual (regardless of age) is $745 and for a family, the premium is around $2,131.3
Short-Term Health Insurance
Another way to obtain health insurance for just a few years is to opt for a short-term health plan. You should only consider a plan like this if you are in good health, have no chronic medical conditions, rarely see a doctor and take few to no prescriptions. That’s because coverage is minimal, and expenses above basic medical needs can add up quickly. In addition, you can be denied coverage for pre-existing medical conditions, since short-term health plans aren’t covered under the Affordable Care Act (which no longer disqualifies people from coverage based on chronic health conditions).
While prices vary widely for short-term medical plans, most adults in their 50s and early 60s can expect to pay between $260 and $657 per month. While that’s a reasonable payment for health coverage, do keep in mind that these types of plans often come with very high deductibles; $5,000 to $10,000 or more. If you’ve got a well-funded HSA, you could use some of the money you’ve saved to assuage the cost of the deductible.4
Short-term plans provide coverage up to one year, and can be renewed or canceled at any time.
Affordable Care Act (Obamacare)
The Affordable Care Act provides options for health care, but be prepared—the rates are not always so affordable. ACA premiums can vary from person to person but age is a top contributing factor. If you plan to retire in your 60s, the average monthly premium you can expect to pay for a Silvur plan with individual coverage is $1,284, without subsidies.5
Upon applying for ACA coverage, you’ll need to provide your annual income amount to determine whether you’ll qualify for premium credits. Premium credits can drastically reduce the amount you spend on healthcare in a month, but if you underestimate your income, you could get slapped with a hefty tax bill at the end of the year. That’s what happened to Rhonda H.
Rhonda’s Retirement Story
Rhonda H. promised her husband she’d retire with him when she reached 65 or 66. However, after working 16 ½ years at her current company, she was forced to retire at 61 when a new management team took over. That left the couple without four to five years of income they had planned on having.
Since both she and her husband were insured under her company’s plan, health insurance was a big concern. COBRA premiums were out of sight, as were those from private insurance companies.
“Then an insurance agent quoted me a price of $495 a month for ACA insurance for both of us,” says Rhonda. It seemed too good to be true, and it was. A year later, when filing her tax return, Rhonda was informed that she owed $9900 in penalties and back premiums for the ACA policy.
After checking with a tax attorney, Rhonda learned that the unscrupulous agent had entered lower income levels so he could quote a lower cost premium and make a sale.
As Rhonda’s story shows, it’s always better to overestimate than underestimate your income when filing for ACA insurance, and ensure you don’t claim credits you’re not eligible for. Advance premium credits, which lower premium rates, are based on income and taxable household size. Penalties apply if you underestimate your income and pay a lower rate.
ACA healthcare plans can be obtained during the annual enrollment process or when you have a qualifying life event (like a death or divorce).
If you’re up in the air about how to manage healthcare in the early years of your retirement, visit our Healthcare in Early Retirement course to learn more about the options available to you, and which could be the best choice given your situation.
SOURCES:
- “Fidelity Releases 2024 Retiree Health Care Cost Estimate as Americans Seek Clarity Around Medicare Selection” Fidelity Investments, 8 Aug 2024,https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2024-retiree-health-care-cost-estimate-as-americans-seek-clarity-arou/s/7322cc17-0b90-46c4-ba49-38d6e91c3961 Accessed 1 December 2024.
- “2024 Employer Health Benefits Survey.”kff.org, 9 October 2024, https://www.kff.org/health-costs/report/2024-employer-health-benefits-survey/. Accessed 1 December 2024.
- Ibid.
- “Plan Year 2025 Qualified Health Plan Choice and Premiums in HealthCare.gov Marketplaces.” CMS.gov, 25 October 2023, https://www.cms.gov/files/document/2025-qhp-premiums-choice-report.pdf. Accessed 1 December 2024.
- “2025 QHP landscape data.” healthcare.gov, https://www.healthcare.gov/health-plan-information-2024/. Accessed 1 December 2024.
