Early Retirement Health Care Costs: Planning the Gap to Medicare

$26,993. That was the average cost of employer-sponsored family health coverage in 2025. Workers paid about $6,850 of it, and their employers paid the rest (KFF, 2025 Employer Health Benefits Survey, Oct 2025). If you retire before 65, that split usually ends. That's the heart of early retirement health care costs. For every year between your last paycheck and Medicare, you'll probably buy coverage on your own, and your income has a big effect on what you pay.

So how much should you plan for? No single number is honest. But you can plan this in a structured way. Here's what the current figures say, why they disagree, and how to fit the gap years into a plan that holds up.

Early retirement health care costs: the short answer

A common rule of thumb is about $17,000 a year in health costs before Medicare. Treat it as a starting point and nothing more. Kiplinger uses it for a couple retiring at 62. Edward Jones uses roughly the same figure per person. Those are very different budgets for a couple. And the Kiplinger piece looks older.

What you'll actually pay depends on four things:

• How many years you need to cover. Retiring at 62 means three years. Retiring at 55 means ten.
• Who you're covering. You alone, or you plus a spouse or dependents.
• How you get coverage. COBRA, the ACA marketplace, a spouse's plan, or retiree coverage.
• Your taxable income each year. On the marketplace, this can matter more than anything else.

The numbers worth knowing (and what each one measures)

Retirement health cost figures get mixed together a lot. Here's what each one covers:

One common mix-up: Fidelity's $172,500 estimate is for a single person, and it starts at 65. It assumes Original Medicare plus Part D. It leaves out long-term care, most dental care and over-the-counter drugs. It's up from $165,000 the year before. Fidelity's first estimate, in 2002, was $80,000. Some outlets call it a couple figure, and it isn't.

Why does this matter? If you retire early, you have two separate bills. The bridge years come first, then the Medicare years. The $172,500 doesn't cover the gap at all.

Your bridge options until 65

Most planning guides list the same core options, including Vanguard, Principal and Kitces:

1. COBRA. You keep your employer's plan, doctors and network. But you generally pay the share your employer used to cover, too. The KFF figures above show how big that share can be. COBRA is time-limited and works best as a short bridge.
2. ACA marketplace plans. These are individual plans with premium tax credits tied to your income. For many early retirees, this is the main route.
3. A spouse's employer plan. If your spouse is still working, this is often the simplest option.
4. Retiree coverage from a former employer. Fewer employers offer it, but check before you rule it out.
5. Other private plans. Prices and coverage vary a lot, so read the terms closely.

MassMutual suggests comparing COBRA's premiums, deductibles and out-of-pocket maximums against your other options before you sign up. The premium alone doesn't tell you the total cost. A low premium with a high out-of-pocket maximum can cost you more in a bad health year.

The subsidy cliff: when $1 of income costs thousands

This is the part that worries early retirees most in 2026.

For 2026 coverage, if your income is even $1 above 400% of the federal poverty level, you get no premium tax credit. You may also have to repay the advance subsidies at tax time (CNBC, Jan 2026). Based on 2025 poverty guidelines, that line is about $62,600 for a single person and $84,600 for a couple (q3adv). Confirm the exact figures for your household on HealthCare.gov.

Prices are moving too. Healthyfp reports that a KFF analysis put the median proposed insurer rate increase for 2026 at about 18%.

Your withdrawals set your income

Most cliff guides miss this. In early retirement, much of your "income" is a choice. Where you take your spending money from changes your taxable income:

• Taxable brokerage account. Only the gains usually count, not the full amount you take out.
• Pre-tax accounts (traditional IRA, 401(k)). Withdrawals are generally counted as income.
• Roth accounts. Qualified withdrawals generally aren't counted.
• Roth conversions. They add to income in the year you convert.

So your withdrawal plan helps set your health premium, and your health premium changes how much you need to withdraw. The two affect each other every year until 65. A plan that treats them separately can be off by a lot. The details depend on your tax situation, so a tax professional is worth talking to here.

Plan for both policy outcomes

Subsidy rules have changed before and could change again. Rules for 2027 and later could stay as they are or shift. You can't know which. So run your plan both ways:

• Scenario A: current 2026 rules continue, with the cliff at 400% FPL.
• Scenario B: rules become more generous again.

If your plan only works under Scenario B, you're betting on something you don't control. Check the current rules for the year you're actually buying coverage.

Don't forget the handoff at 65

The bridge years and the Medicare years get treated as separate problems. They're connected.

Medicare premiums can include income-based surcharges, so high income can raise what you pay. If you make large withdrawals or Roth conversions in the years around 65, that income could carry over into higher Medicare costs. Picture someone who keeps income low through 64 to keep marketplace subsidies, then takes large IRA withdrawals once Medicare starts. They may have avoided one cost and run straight into another.

The Monte Climb retirement planning engine charges Medicare premiums and income-based surcharges year by year, not as one flat guess. Fidelity's numbers show why: health care is a real line item in a retirement budget, not a rounding error.

Why a single average misses the point

Every number above is an average or a rule of thumb. Your retirement won't be average. It will be one specific path.

On that path you might hit your out-of-pocket maximum in a bad year, or two years in a row. Premiums might rise faster than inflation. The subsidy rules might change halfway through your bridge years. A market drop in year two might push you to withdraw more, which raises your income and your premium together.

A Monte Carlo simulation handles this better than a single projection. In plain terms, it runs your plan through many possible futures with different market returns and different sequences. Then it counts how many of those futures still have money at the end. You get a probability, not a promise.

It also asks the right question. Morningstar's 2025 research puts the safe starting withdrawal rate at 3.9%, judged by whether money is still there in 90% of simulated outcomes over 30 years, not by average returns (Morningstar, The State of Retirement Income 2025, Dec 2025). If you retire early, your plan has to last longer than 30 years and carry a health care bill the whole way. That makes longevity matter too. About one in three 65-year-olds may live to at least 90 (Social Security Administration, 2026). That's why plans in our Monte Carlo retirement calculator run to 95 by default, and you can push them further.

A practical checklist for the gap years

• Count your bridge years and the people you'll need to cover.
• Get real quotes for COBRA and marketplace plans. Compare premiums, deductibles and out-of-pocket maximums.
• Map your income sources for each year from retirement to 65, and see where you land against the 400% FPL line.
• Budget for a bad year. UHC suggests an emergency fund that covers a year of living expenses plus the prior year's health costs.
• Run two policy scenarios, one with the subsidy rules as they are now and one where they change.
• Plan past 65. Add Medicare costs and possible income-based surcharges, and don't plan for a retirement that ends at 85.

Run your own numbers

Health care before Medicare isn't a reason to give up on retiring early. It's a cost you can measure. The useful question isn't "what's the average?" It's "how likely is my money to last, health costs included?"

Start with three numbers: your age, what you've saved and what you spend each month. We'll run them through 1,000 simulated futures and show you how many stay funded. It runs in your browser, and nothing is saved until you say so. Then ask William, our AI planner, follow-ups like "Can I retire at 62?" He shows his work.

Planning software, not advice.

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Frequently asked questions

How much does health insurance cost if you retire before 65?

It depends on your age, household size, how you get coverage and your taxable income. A common rule of thumb is about $17,000 a year, but Kiplinger uses that for a couple retiring at 62 and Edward Jones uses it per person. Get real quotes for your own situation instead of relying on one figure.

Does Fidelity's $172,500 estimate include early retirement?

No. Fidelity's 2025 estimate is for one 65-year-old retiring in 2025. It assumes Original Medicare plus Part D and excludes long-term care, most dental care and over-the-counter drugs. Costs before 65 are a separate bill on top of it.

What is the ACA subsidy cliff for 2026?

For 2026 coverage, income even $1 above 400% of the federal poverty level means no premium tax credit, and you may have to repay advance subsidies at tax time. Based on 2025 guidelines, that line is about $62,600 for a single person and $84,600 for a couple. Confirm on HealthCare.gov.

Is COBRA or an ACA marketplace plan better for early retirees?

It depends on your income, health needs and how long you need coverage. COBRA keeps your current plan and doctors, but you generally pay your employer's former share as well. Marketplace plans may come with income-based subsidies. Compare premiums, deductibles and out-of-pocket maximums before you decide.

Can my retirement withdrawals change my health insurance costs?

Yes. Withdrawals from pre-tax accounts and Roth conversions generally count as income, which can affect marketplace subsidies before 65 and income-based Medicare surcharges after. Where you take your money from each year matters, and the details depend on your tax situation.