Retiring at 62: How to Cover the Three Years Before Medicare

The 36-month gap

Medicare generally starts the first day of the month you turn 65. If you leave work at 62, that leaves roughly 36 months to cover yourself, and your spouse too if they are on your plan. Most retirees fill the gap with one or a mix of three tools: COBRA, a Marketplace plan or a private plan. Employer retiree coverage, where it still exists, is a fourth.

Two facts shape everything else:

• Age drives price. Marketplace rules let insurers charge older adults up to three times what they charge a 21-year-old, so 62 to 64 is the priciest stretch of individual coverage.
• Your income is now partly a choice. How you draw on savings, when you claim Social Security and when you sell investments can move you across the subsidy line.

COBRA covers part of the gap at most

Federal COBRA normally lasts 18 months, half of the 36 you need. It keeps the same plan and doctors, but you pay the full premium plus up to 2 percent. COBRA makes sense when you are in the middle of treatment or have already met a big deductible for the year. Even then, you need a plan for months 19 through 36, so treat COBRA as a bridge, not the answer. The COBRA alternatives guide compares the options.

The Marketplace: your retirement income sets the price

A Marketplace plan must accept you during open enrollment or a special enrollment period, and leaving your job opens a 60-day special enrollment window. Whether it is affordable depends on your household's modified adjusted gross income for the year. In general:

• Counts: pension income, traditional IRA and 401(k) withdrawals, taxable interest and dividends, capital gains, part-time or consulting income, and Social Security benefits, including any part that is not taxed.
• Generally does not count: money you spend from savings you already paid tax on, and qualified Roth withdrawals.

For 2027, the credit stops at 400 percent of the federal poverty level: $63,840 for one person and $86,560 for a couple. Under the line, the credit can be large at 62 because the full price is high. Over the line, you pay that full price. General information, not tax advice — confirm with your CPA based on your specific entity structure.

Two traps in the first year

• The retirement year itself. The year you leave work, your salary for the months you worked, any bonus, unused vacation payout and severance all count. Many people are over the line in the first calendar year and under it after that.
• Reconciliation. If you take an advance credit on an income estimate and the year closes higher, you repay the extra when you file. A large Roth conversion or an unplanned capital gain in the fall can do it. Our guide on paying back the premium tax credit explains the math.

Claiming Social Security at 62

Claiming at 62 adds income that counts for the Marketplace credit, and the benefit is permanently reduced, by about 30 percent for people whose full retirement age is 67. Some retirees delay claiming and draw from savings instead, which can keep their income under the subsidy line for these three years. Others need the income now. There is no single right answer, but decide with the health insurance math in front of you, not after. Talk it through with your financial planner or CPA.

A private plan priced on your health

If you are healthy, a private, medically underwritten plan deserves a quote, especially if your retirement income will sit above the subsidy line:

• Priced on age, ZIP code and health, not on your withdrawals or Social Security.
• You answer health questions to apply, and approval depends on those answers. It is not guaranteed.
• If approved, it can start on the first of any month, so it can begin the day after your employer coverage or COBRA ends.
• Benefits and pre-existing condition rules vary by plan, and private plans are not ACA Marketplace plans. Read the plan documents.

Many retirees use a private plan while they are healthy and keep the Marketplace as the fallback at each open enrollment. If your health changes, the Marketplace must still accept you during the next enrollment window.

A sample timeline

1. Six months before your last day: estimate your income for the retirement year and the next two years.
2. Two months before: get a COBRA estimate from HR and a private plan quote.
3. Last month of work: apply for the private plan with a start date the day after group coverage ends, if approved. Keep COBRA's election window as your backup.
4. Each November: compare your plan with the Marketplace on your updated income.
5. Three months before 65: enroll in Medicare, then set your individual plan to end the day before Medicare starts.

Where you live matters

Prices and plan choices vary a lot by state and county. I see early retirees in Florida, North Carolina and Michigan weigh these options differently because their local Marketplace rates and networks differ. The state pages for early retiree health insurance in Michigan and Florida go into local detail.

Let's map your three years

I am licensed in 31 states and work by phone or video, in English or Spanish. Send your retirement date, ZIP code, ages, a short health summary and your expected income for each year until 65, and I will lay out COBRA, the Marketplace and a private plan side by side. Request a quote or call (786) 218-2384. For the broader picture, see early retiree health insurance, and if your spouse is younger than you, read health insurance for a spouse under 65.