Healthcare Planning Before Medicare: Bridging the Gap to Age 65
Retiring before age 65 can be an exciting milestone. But between the last day of work and the first day of Medicare coverage, there may be an important, and potentially expensive, gap to plan for.
For people who have received health insurance through their employer for most of their careers, the cost of obtaining coverage independently can come as a surprise.
That’s why healthcare planning should be part of the retirement conversation well before you hand in your notice.
Why Age 65 Matters
For most retirees, age 65 is when Medicare eligibility begins. If you retire several years earlier, you’ll need another source of health insurance until Medicare coverage starts.
Several options may be available depending on your circumstances:
- Coverage through a working spouse’s employer
- COBRA continuation coverage
- An Affordable Care Act (ACA) Marketplace plan
- Private health insurance
- Retiree health benefits from a former employer, when available
Each option has different costs, coverage provisions, provider networks, and eligibility requirements. Comparing them before setting a retirement date can help prevent an unwelcome surprise.
Healthcare Costs Are More Than the Monthly Premium
When estimating healthcare expenses, it’s easy to focus on the monthly insurance premium. But that’s only part of the picture.
Your retirement budget should also consider deductibles, copays, coinsurance, prescription drug expenses, and the plan’s annual out-of-pocket maximum.
Provider networks matter, too. Before choosing a plan, consider whether your physicians, specialists, hospitals, and prescriptions are covered.
A plan with a lower monthly premium could ultimately cost more if it comes with higher out-of-pocket expenses or doesn’t provide the coverage you need.
Your Retirement Income Strategy Could Affect Healthcare Costs
One of the more complicated aspects of pre-Medicare planning is the connection between income and health insurance.
If you purchase coverage through the ACA Marketplace, your household income can influence your eligibility for premium tax credits and the amount of assistance you receive.
That makes retirement income planning especially important.
For example, decisions involving IRA withdrawals, Roth conversions, investment gains, or other sources of taxable income could have an impact beyond your tax bill. They may also influence the cost of your health insurance.
This is one reason we encourage retirees to look at these decisions together rather than individually.
A Roth conversion might make sense from a long-term tax perspective, for example, but its timing and size should be considered alongside other financial factors—including healthcare.
Build Healthcare Into Your Retirement Budget
If you’re considering retiring before Medicare eligibility, estimate your healthcare costs under several scenarios.
What happens if premiums increase? What if you have a year with significant medical expenses? How would those costs affect the amount you need to withdraw from your portfolio?
Planning for these possibilities doesn’t mean assuming the worst. It means giving your retirement plan enough flexibility to handle real life—which, unfortunately, rarely follows a spreadsheet perfectly.
Start Planning for Medicare Before 65
The pre-Medicare years are only one part of the healthcare conversation.
As you approach age 65, you’ll also need to understand Medicare enrollment timing and evaluate the coverage options available to you.
Waiting until your 65th birthday to begin researching Medicare can create unnecessary stress and, in some situations, enrollment mistakes may result in penalties or gaps in coverage.
Including Medicare on your retirement planning timeline can make the transition much smoother.
Healthcare Is Part of the Retirement Plan
Healthcare planning before Medicare isn’t simply about finding an insurance policy. It’s about understanding how healthcare costs interact with your retirement income, taxes, investments, and overall financial plan.
At Paragon Wealth Management, we believe these decisions are best made as part of the bigger picture.
If you’re considering retiring before age 65, we can help you evaluate how healthcare expenses fit into your retirement plan and determine whether your financial strategy is prepared for the years between your final paycheck and Medicare.
Ready to talk about your retirement timeline? Contact the Paragon Wealth Management team to start the conversation.
About Phil Rosenau
As a graduate of Germantown Academy, Phil Rosenau earned his bachelor’s degree in economics at Drew University, while also earning a minor in business management. His passion for creating and maintaining business relationships drove him to join the Prudential Advisors team, where he met Charlie and Ricardo before starting Paragon Wealth together.
Phil is a lifelong resident of Bucks County and the son of a local entrepreneur. He understands the unique needs of small business owners, takes pride in providing his clients with the knowledge to understand their unique financial situation, and helping them navigate their financial future with confidence. He enjoys spending time with his wife, Caroline, and two children, he is the current president of the MDM networking group, and he is active with the local CrossFit community. Phil is also proud to be part of the Drew University Lacrosse Legacy where he played all four years. You can find Phil here on LinkedIn, or here on Facebook.
This material is provided for informational and educational purposes only and should not be considered individualized financial, tax, legal, or insurance advice. Health insurance and Medicare rules, costs, and eligibility requirements may change. Consult the appropriate professionals regarding your individual circumstances.
Advisors associated with Paragon Wealth Management may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Great Valley Advisor Group, or (2) solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Investment advice offered through Great Valley Advisor Group, a registered investment advisor. Great Valley Advisor Group and Paragon Wealth Management are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.