Medicare eligibility begins at age 65 for most people. But if you retire before then, you need to bridge the gap. Depending on your income and assets, that coverage can be expensive. Without a clear plan, healthcare costs during this transition period can erode your retirement savings faster than you anticipated.
For retirees, healthcare options typically include:
COBRA continuation coverage lets you continue your employer’s group health insurance for up to 18 months, but you’ll pay the full premium plus administrative fees.
ACA marketplace plans provide another option, though subsidy eligibility depends on your income. You could have substantial retirement savings but still qualify for subsidies if your annual income is modest.
Spouse’s employer coverage is often the most cost-effective solution if your spouse is still working and offers family health benefits.
Private health insurance purchased directly from insurers is typically the most expensive option with fewer protections than ACA plans.
No matter what gap coverage you choose, verify your doctors are in-network for any plan you’re considering. And if you plan to travel extensively or split time between locations, understand how your plan coverage works outside your primary service area.
Tax Planning Strategies to Manage Costs
Strategic tax planning during the 62-to-65 window affects both your current healthcare costs and future Medicare premiums through IRMAA surcharges. Your modified adjusted gross income determines ACA subsidy eligibility now and Medicare costs later.
Control your income timing. Delaying Social Security or spacing out IRA withdrawals can keep your income within ranges that make healthcare coverage more affordable.
Strategic Roth conversions. Converting traditional IRA dollars to Roth reduces future required minimum distributions and shifts money into tax-free accounts before IRMAA calculations begin affecting Medicare costs. However, if you’re relying on ACA subsidies, conversions can backfire by pushing income above subsidy thresholds.
Consider whether working longer makes sense. For some, the most cost-effective strategy is delaying full retirement to maintain employer-sponsored coverage. Even part-time work with benefits can bridge the gap more affordably than individual coverage.
Start Planning Now
Ideally, you should model your healthcare costs and income scenarios at least two to three years before your planned retirement date to avoid surprises. These aren’t simple calculations. They require detailed tax projections and an understanding of how different strategies interact across multiple years.
At Secured Retirement, we specialize in tax-efficient retirement planning that accounts for healthcare costs, income timing, and long-term optimization. If you’re approaching retirement and need help modeling your options, we’re here to help.
Give us a call at 952-460-3290. Let’s make sure your healthcare strategy protects both your health and your wealth.
Advisory services offered through Secured Retirement Advisors, LLC. Secured Retirement Advisors is registered as an investment advisor with the Securities and Exchange Commission and only transacts business in states where it is properly notice filed, or is excluded or exempted from registration and/or notice filing requirements.
