Retiring Before 65? Here’s How To Afford Health Insurance

So how much is it going to cost you to retire before 65? Well, whatever number you just thought of, add 20 to 30 grand a year on top of it. That's what health insurance can cost in that gap between your last day of work and your first day of Medicare. And here's what no one will tell you. This is the number one reason that people who are financially ready to retire don't. They will keep working because they just can't figure out this health insurance thing. I've seen it over and over again. Someone will run all of their numbers. They're in good shape. The portfolio looks good. And then they log on to the ACA marketplace and figure out exactly what their health insurance will cost before Medicare. And at that point, they shut the laptop, throw it in the trash and head to the bar. But here's the thing. You do have more options than you think. It might not be a lot of options, but there's more than one. And today I'm going to walk you through four options. Cobra, the ACA marketplace plans, private insurance plans like the one I'm using this year, and the part-time work strategy that some people call barista fire. I don't know who's coming up with all of these names, but I'm going to cringe every time I say it in this video. And speaking of this video, by the time that we get to the end of it, you'll have an idea of which one of these fits your situation. An idea of how much each of these costs and the MAGI management trick that could potentially save you thousands on marketplace premiums. All right, let me show you the first one. When most people leave a job, the first conversation they have with HR is a conversation about Cobra. Cobra stands for the Consolidated Omnibus Budget Reconciliation Act, which is a pretty boring name until you think of the acronym. And then it's like 80s awesome. But I guess it's important. So let's break this down. The problem with Cobra is that most people think that it's their only option. You see it on your exit paperwork, and you recognize that the coverage in the plan is the same one that you've been dealing with while you were working. So it's easy to just sign up and not shop around. The difference is, is that you're now paying the full premium. When you were employed, your company likely covered 70% to 80% of that cost. And now it's all on you, plus a 2% administrative fee on top of that. So that's right. It's 102% of the full premium amount, and it's all coming out of your pocket. On average, Cobra might run somewhere between $600 and $700 a month for an individual. And for a family, you could be looking at between $1,500 to $2,000 a month or higher. So all of this starts adding up really quickly. And of course, the clock starts ticking as soon as you leave. Federal Cobra benefits last only 18 months. So it's a temporary bridge at best. Now look, Cobra is not always a bad move. There are a few situations where it totally makes sense. If you're leaving mid-year, you've already met your deductible, and you're in the middle of some treatments. If you have a surgery or procedure scheduled in the next few months. If you need a continuity of care issue with a specific specialist or network provider. And if you're retiring late in the year, and you only need a few months of coverage before the next ACA open enrollment window. It may also make sense if you're retiring within 18 months of age 65. And it could just carry you all the way to Medicare. All right, Cobra is a great option for a lot of people. But what if you want to look at another option? Well, that's where our ACA marketplace comes in. And in 2026, the rules just changed in a big way. So who knows what these ACA marketplace plans are going to look like for you. You're going to have a ton more choices than just what you had with Cobra. It could potentially save you money, but you might get on there and think that Cobra was a great deal to begin with. Through these ACA plans, anyone is allowed to purchase health insurance, regardless of a pre-existing condition. And depending on your income, you may qualify for premium tax credits that significantly reduce your monthly cost. But here's what's changed for 2026. And it's a big deal. The enhanced subsidies that were put in place during COVID. Well, they expired at the end of 2025. So that means that the so-called subsidy cliff is back. If your household income goes above 400% of the federal poverty level, you lose those subsidies entirely. Not gradually, entirely. So for a married couple in 2026, that cliff sits at roughly $84,600 of Modified Adjusted Gross Income, or MAGI. If you earn $84,500, good for you. You get the subsidy. But if you earn $84,700, well, sorry, you're paying full price. And so now here's where it gets strategic. And honestly, this is some of the most impactful planning that you could do early in retirement if you can pull it off. Your MAGI is your Adjusted Gross Income plus non-taxable social security benefits, tax-exempt interest, and foreign income. For early retirees, the biggest MAGI drivers are usually retirement account withdrawals, capital gains, and investment income. And so here's what you can do to try to manage your MAGI and stay under the cliff. You could potentially live off of those accounts that aren't going to generate a ton of taxable income. Now, these could be your taxable investment accounts, cash accounts, or even your Roth IRA. Although I'm not sure that that's a good idea. You might want to go ahead and save those Roth accounts for later on down the road. Again, cash accounts could be a good option too. Money in your savings account isn't going to generate a ton of MAGI when you spend it. Then again, I am a big believer in having a cash buffer, so you might not want to dig too deep into that. It's also a good idea to start thinking about your capital gains if you have a bunch of unrealized gains in your accounts. You could potentially bunch those into a year when you don't have to worry about the marketplace or spread them out carefully just to make sure that you don't go over that subsidy limit. You might go through this exercise and realize that the ACA marketplace isn't for you. What I'm seeing right now is that COBRA is cheaper for a lot of the clients that I'm working with that are retiring right now. But these two aren't the only game in town. There's another option that a lot of people overlook, and it's the one that I chose to use this year. Starting my business, I used these ACA plans for a while, and they worked. But man, have they gotten expensive. So this year, I switched over to a private plan through UnitedHealthcare's Golden Rule insurance company. And so far, it seems to work. I might have to get back to you on that one, but so far, so good. So why would anybody leave one of these ACA marketplace plans? So these private insurance plans, especially short-term and tri-term plans from carriers like Golden Rule, can offer significantly lower premiums. We're talking 40% to 50% less in some cases. They also give you access to larger provider networks. And in Golden Rule's case, that's UnitedHealthcare's Choice Plus PPO network, which is pretty big. And unlike most of the ACA plans in Georgia, my doctor's on it. You're awesome, Dr. P. The interesting thing about these is that you can get plans that last from a few months to nearly three years. But there are trade-offs that you need to understand. First is medical underwriting. Unlike these ACA plans, these private plans can and do ask you health questions and could potentially deny you coverage based on pre-existing conditions. And trust me, the list of things that they ask you is very, very long. The second is limited coverage. Many of these plans do not cover preventative care, maternity, or mental health services the way that the ACA plans are required to do. The third are pre-existing condition exclusions. If you've had a recent treatment or diagnoses, those conditions typically won't be covered. So who is this good for? If you're relatively healthy, you don't have any major ongoing medical needs, and your income is too high for those ACA subsidies, a private plan like this Golden Rule plan that I'm on can save you thousands of dollars a year. I wouldn't say that it's catastrophic coverage, but it's kind of somewhere in between. Now, one more thing here. If you are considering this route, talk to an independent health insurance broker, not one that works for specific carriers. An independent broker can show you plans from multiple companies and help you find the one that's the right fit. And that is important because a lot of this stuff varies from state to state. Okay, now we've covered COBRA, the ACA marketplace, and private insurance. But there's one more strategy that's gained some sort of traction, especially in the FIRE community. And it involves picking up a part-time job, just not for the paycheck. The term that they're calling this is barista FIRE. So yeah, the name comes from the idea that you could just work part-time at Starbucks just to get the health insurance benefits. And so while Starbucks may be the most popular example here, they're not the only company offering benefits to part-time employees. And so the concept is simple here. You saved enough to retire, but rather than paying $1,500 a month for health insurance, you work a 20 to 25 hour a week job at a company that does provide benefits to part-time workers. And so now this solves two problems at once. You get affordable health insurance coverage, and you keep some sort of social structure and purpose in your week. And a lot of retirees kind of underestimate that second part. Going from 40 to 50 hours a week and having deadlines to nothing, well, that could be a little disorienting for a lot of people. So picking up a part-time job at Starbucks, Costco, UPS, REI, or Lowe's could be one of those two birds, one stone types of situations. So companies are always changing how this works. So verify that it is an option for you before you pull the ripcord. But let's say you work 20 hours a week at a job that's paying 18 bucks an hour. And so that ends up being around $18,000, $19,000 a year in additional income. Now, if that employer covers just half of a health care plan that would cost you $15,000 a year or more otherwise, well, you're coming out ahead. And so here's an interesting angle on this. That part-time income could help you cross shop against an ACA marketplace plan. A modest part-time income could keep you in that MAGI sweet spot for those ACA subsidies. But baristafire may not be for everyone. If you've been a senior executive making $300,000 a year, you might not love the idea of throwing on a smock and slinging espresso to a bunch of stressed out people every day. But it's an idea? I don't know. I guess it is a health insurance strategy before Medicare. Look, I appreciate all of this fire stuff, but none of us are guaranteed tomorrow. So I like to kind of blend the idea of saving for tomorrow and enjoying today. But the point to all of this is there may not be a best strategy for health insurance before Medicare, but you do have options. And the right option just depends on your health, your income, your age, and how many years that you need to bridge between retirement and Medicare. So let's pull all of this together. If you're thinking about retiring before 65, health care doesn't have to be the thing that stops you. You've got COBRA for 18 months. You've got those ACA marketplace plans with the potential for those subsidies. You get private insurance if you're healthy and don't have a pre-existing condition. And you've got barista fire for those of you who want coverage and a reason to leave the house in the morning. But it's important that you start planning all of this out at least 12 months before your target retirement date. Talk to a fee-only financial planner. Talk to an independent insurance broker. And most importantly, run these numbers for yourself. Look, if you found this video helpful, you may want to check out this one. It's a video on retiring at 55 versus 60 versus 65. I'll break down the full financial picture of each age and what changes at every milestone. If the little clicky thing doesn't show up, I'll put a link in the description below. Hey, look, I want your retirement and your life to be an amazing one. Thank you so much for watching this video, and I'll see you in the next one.