If you retire before 65 (when Medicare starts), you'll need to cover ~10–20 years of healthcare costs on your own. This is one of the biggest expenses in early retirement — and one of the most complex.
This guide compares the 3 main options (COBRA, ACA Marketplace, and HSA strategy) and helps you build a healthcare plan that won't derail your retirement.
The "Healthcare Gap" (Retiring Before 65)
Typical Early Retiree Timeline
| Age | Healthcare Coverage | Estimated Monthly Cost (2026) |
|---|---|---|
| 55–60 (working) | Employer-sponsored insurance | $150–$400 (employee share) |
| 60–62 (retire) | COBRA or ACA Marketplace | $600–$1,200 |
| 62–64 | ACA Marketplace (with subsidies?) | $200–$800 (after subsidies) |
| 65+ | Medicare (Part A + B + D + Medigap) | $175 (Part B) + ~$150 (Medigap) = ~$325/month |
Key insight: The "gap years" (60–65) can cost $40,000–$80,000 in total — a major line item in your retirement budget.
Option 1: COBRA Continuation Coverage
COBRA lets you keep your employer's health insurance for up to 18 months (36 months in some cases) after leaving your job.
Pros of COBRA
- No network change: You keep seeing the same doctors.
- No new deductible: Your in-network deductible continues.
- Easy transition: No need to shop for new insurance.
Cons of COBRA
- Expensive: You pay 102% of the full premium (your former employer stops subsidizing). A plan that cost you $300/month might cost $900/month under COBRA.
- Temporary: Only lasts 18 months (or 36 months for dependents).
- No subsidies: COBRA premiums don't qualify for ACA tax credits.
Best for: People who need continuity of care (ongoing treatment) and can afford ~18 months of higher premiums.
Option 2: ACA Marketplace (HealthCare.gov or State Exchange)
The Affordable Care Act (ACA) created state-based marketplaces where you can buy individual health insurance. Key advantage: income-based subsidies (premium tax credits).
How ACA Subsidies Work (2026)
If your household income is 100%–400% of the Federal Poverty Level (FPL), you qualify for premiun tax credits that cap your insurance cost at a percentage of your income:
| Income (% of FPL) | Max % of Income for Premium (2026) | Example: $60k Income (Single) → Max Premium |
|---|---|---|
| 100%–150% | 0%–2% | ~$0–$100/month |
| 150%–200% | 3%–6.5% | ~$150–$325/month |
| 200%–250% | 6.5%–8.5% | ~$325–$425/month |
| 250%–300% | 8.5%–9.5% | ~$425–$475/month |
| 300%–400% | 9.5%–8.5% (capped) | ~$475–$425/month |
| >400% | No subsidy | Full premium (~$400–$600/month) |
2026 FPL thresholds: $15,060 for a single person, $20,440 for a couple. 400% FPL = $60,240 (single), $81,760 (couple).
Pros of ACA Marketplace
- Subsidies: Can dramatically reduce your cost if your retirement income is low.
- Guaranteed issue: No denial for pre-existing conditions.
- Permanent (no time limit): Unlike COBRA, ACA coverage continues as long as you pay premiums.
Cons of ACA Marketplace
- Network changes: You may need to switch doctors.
- Income cliff: If your income is just above 400% FPL, you lose all subsidies (the "subsidy cliff").
- Out-of-pocket caps: While ACA plans have OOP caps, they're still higher than employer plans.
Best for: Early retirees with low taxable income (who qualify for subsidies). This is why many FIRE practitioners deliberately keep income low (using Roth withdrawals, which don't count as taxable income) to maximize ACA subsidies.
Option 3: The HSA Strategy (Pre-Funding Healthcare)
A Health Savings Account (HSA) is the only account that offers triple tax advantages:
- Contributions are tax-deductible (reduce current taxable income)
- Growth is tax-free
- Withdrawals are tax-free if used for qualified medical expenses
How to Use HSA for Early Retirement Healthcare
The optimal strategy:
- While working: Contribute the maximum to your HSA ($4,300 in 2026 for single; $8,550 for family). Invest the funds.
- In early retirement: Pay healthcare expenses out of pocket (don't withdraw from HSA).
- Later (after 65): Reimburse yourself from the HSA for all those out-of-pocket healthcare expenses (tax-free!). This effectively lets you "pre-fund" decades of healthcare costs.
2026 HSA limits:
- Single coverage: $4,300 + $1,000 catch-up (55+)
- Family coverage: $8,750 + $1,000 catch-up (55+)
Best for: People who can contribute to an HSA while still working and want to build a dedicated healthcare fund that grows tax-free.
Side-by-Side Comparison: COBRA vs. ACA vs. HSA
COBRA
- Duration: 18 months (max 36)
- Cost: 102% of group premium (no subsidy)
- Best for: Short gap (≤18 months), need same doctors
- Downside: Very expensive, temporary
ACA Marketplace
- Duration: Unlimited (as long as you pay)
- Cost: $0–$600/month (after subsidies)
- Best for: Low-income early retirees
- Downside: Income cliff, network changes
HSA Strategy
- Duration: Lifetime (use for any medical expenses)
- Cost: Free (you already saved the money)
- Best for: People who planned ahead (contributed while working)
- Downside: Requires decades of advance planning
Optimal Strategy Combinations
Combo 1: COBRA (18 months) + ACA (until 65)
Use COBRA for the first 18 months (continuity of care), then switch to an ACA marketplace plan. This is the most common path for people retiring at 60–62.
Combo 2: ACA + HSA Reimbursement
Buy an ACA plan (with subsidies if eligible), pay premiums and out-of-pocket costs from your HSA (tax-free). This requires having a substantial HSA balance.
Combo 3: The "FIRE" Strategy (Low Income → Max ACA Subsidies)
Many FIRE practitioners deliberately keep taxable income below 400% FPL (≤$60,240 for single in 2026) to qualify for maximum ACA subsidies. They do this by:
- Withdrawing from Roth IRAs (contributions, not earnings — tax-free and doesn't count as income)
- Using taxable brokerage accounts (capital gains can be managed)
- Not withdrawing from traditional IRAs/401(k)s (which count as taxable income)
Plan Your Early Retirement Healthcare Costs
Healthcare is often the #2 or #3 expense in early retirement (after housing). Use our Nest Egg Planner to:
- Enter your expected healthcare costs by age (pre-65 vs. post-65)
- Factor in ACA subsidies based on your retirement income
- See if your HSA balance can cover the gap
- Adjust your retirement age to see the impact on total healthcare costs
🏥 Calculate Your Retirement Healthcare Costs
Free, instant, includes ACA subsidy estimation.
Open Nest Egg Planner →Frequently Asked Questions
Can I have COBRA and ACA at the same time?
No. COBRA is a continuation of your employer's plan. If you elect COBRA, you typically can't also enroll in an ACA marketplace plan (unless you drop COBRA). Most people use COBRA first, then switch to ACA after COBRA ends.
What if I retire at 55 and have a HSA?
If you retire at 55 and have an HSA, you can use it to pay for COBRA premiums (tax-free!). You cannot use HSA to pay for ACA marketplace premiums (unless you're on unemployment). This makes COBRA more attractive if you have a large HSA balance.
Do I need to include ACA premiums in my retirement budget?
Yes — unless you'll be 65 within a few months of retiring. ACA premiums (even after subsidies) can be $3,000–$8,000/year for a couple. This is a major expense that many early retirement calculators under-estimate. Always include it in your "annual retirement expenses" number.