Retire before 65 and you pay for health insurance yourself until Medicare starts. The two main routes are COBRA, which keeps your employer’s plan for up to 18 months at up to 102% of the full premium, about $9,500 a year for one person and $27,500 for a family at 2025 averages, and a Marketplace plan, whose price depends on the income you report. For 2027 coverage, a premium tax credit is available up to $63,840 of income for a single person and $86,560 for a couple, and nothing above it. In the years before 65, planning that income is the biggest lever you have.
The decision
You’re choosing how to cover the gap between leaving work and Medicare, and, just as much, how to take income from your savings during those years. The second choice sets the price of the first.
The options
COBRA. You keep the same plan, doctors and deductible progress, for up to 18 months after leaving a job, longer in some cases such as disability. The plan can charge up to 102% of the full premium, the part your employer used to pay as well as yours. You have 60 days to elect it, and coverage is retroactive, so some people wait to see if they need it.
A Marketplace plan. Plans on HealthCare.gov or your state’s marketplace can’t turn you down for health conditions. The premium tax credit limits what you pay for a benchmark plan to a share of your income. Losing job-based coverage opens a 60-day window to enroll, and you can apply up to 60 days before your coverage ends.
A spouse’s plan or retiree coverage. If a spouse is still working, their employer’s plan is often cheapest. Some employers offer retiree coverage; check whether it can be changed or ended.
Medicare at 65. Your initial enrollment period is the seven months around your 65th birthday month. Medicare covers one person, so a younger spouse still needs their own plan until they reach 65.
The income rules that set the price
- The 400% line is back. For 2026 and later, the credit is available only for household income between 100% and 400% of the federal poverty level. The larger credits that removed the upper limit ended after 2025. Marketplace credits for 2027 use the 2026 poverty figures: $15,960 for one person and $21,640 for two.
- What counts as income. Traditional IRA and 401(k) withdrawals, Roth conversions, capital gains, tax-exempt interest and all Social Security benefits count. Qualified Roth distributions, gifts and money you spend from savings don’t.
- Guess wrong and you repay it all. The credit is paid in advance from your estimate of the year’s income. From 2026, if your actual income comes in higher, there’s no longer a cap on what you repay at tax time.
- Too little income is a problem too. Below 138% of the poverty level, you may be steered to Medicaid in states that expanded it. Below 100%, there’s generally no credit.
Planning the income
Early retirees often have more control over their taxable income than at any other time. A couple living on $90,000 a year might spend $50,000 from cash and a taxable account with small gains, and take $40,000 from an IRA. Only the IRA withdrawal, the gains and any dividends or interest count, which keeps reported income well under the $86,560 line. Taking the full $90,000 from the IRA would put them over it and cost the whole credit.
That same income room is what Roth conversions use, so the two have to be planned together. Some years it makes sense to keep income low and collect the credit; in others, a large conversion is worth losing it. An advisor should show you both in dollars.
If you have a health savings account, you can use it tax-free to pay COBRA premiums, and from 65, Medicare premiums other than Medigap.
Common mistakes
- Underestimating the year’s income, then repaying the credit in April, with no cap from 2026.
- A Roth conversion or a large sale that pushes income just over the 400% line.
- Dropping COBRA mid-year to switch to a cheaper plan and finding there’s no enrollment window until open enrollment.
- Forgetting the younger spouse when one of you reaches Medicare.
- Missing the deadlines. On HealthCare.gov, open enrollment for 2027 runs from November 1, 2026 to January 15, 2027, and you must pick a plan by December 15 for coverage from January 1. State marketplaces can set different dates.
Questions to ask an advisor
| Ask | A good answer includes |
|---|---|
| What income should we report each year until 65? | A target figure, and how close it sits to the 400% line |
| Which accounts do we draw from to hit it? | A year-by-year draw from named accounts |
| Should we convert to Roth in these years or wait? | The credit lost against the tax saved later |
| What happens when one of us reaches Medicare first? | A plan for the spouse still under 65 |
| How are you paid, in dollars a year? | One figure; no commissions on insurance |
When an advisor is worth it, and what it costs
Early retirement is where a planner’s tax work pays off most visibly: one well-placed withdrawal plan can be worth thousands a year in premium credits. It helps most if you’re retiring five or more years before 65, have savings split across pre-tax, Roth and taxable accounts, or are weighing Roth conversions.
The first plan fits a one-time engagement, a median $2,000 (middle half $845 to $3,600), or a few hours at a median $300. Because the income target has to be reset every year, many early retirees choose ongoing planning, a median $4,500 a year, until Medicare. A flat-fee planner’s price doesn’t change with your balance; see flat-fee advisors.
How to find one
Look for advisors who list retirement planning and tax planning together, since this is income and tax work more than insurance work. The retirement planning specialists and advisors for pre-retirees lists are a good start, as is everyone in the public graph who serves pre-retirees. For the rest of the plan, see what to look for in a retirement advisor and when to claim Social Security.