Insurance Planning

Whether and how your healthcare changes at retirement depends on a short sequence of facts, not on retirement itself. If you plan to keep working past 65, whether you can delay Medicare depends on your employer's size: 20 or more employees generally lets you stay on the group plan and delay Part B penalty-free, fewer than 20 generally means Medicare becomes primary at 65 regardless of employment. If you are leaving employer coverage before 65, you have three bridge options: your spouse's employer plan if available and usually the cheapest, COBRA continuation of your exact former plan at full cost plus a 2% fee for 18 months in most cases (longer for disability or certain second qualifying events), or an ACA marketplace plan whose real cost depends heavily on your household income and subsidy eligibility. Once you turn 65 without qualifying employer coverage, Medicare enrollment has an 8-month window with a permanent late penalty for missing it. The one detail almost everyone misses: enrolling in any part of Medicare, including free Part A, immediately ends your ability to contribute to an HSA.

The temporarily enhanced ACA premium tax credits, in place since 2021, expired on January 1, 2026, and the marketplace reverted to the original, less generous ACA subsidy rules. Two things changed at once: the premium tax credit available to households under 400% of the federal poverty level got smaller (a larger share of income is now required before the credit kicks in), and the hard cutoff at 400% of the federal poverty level came back, meaning households above that level now receive zero premium tax credit, not a reduced one. For a couple retiring before 65, this can mean a jump from a subsidized premium to the full, unsubsidized cost of a marketplace plan simply because household income crossed a specific line. Nationally, average subsidized premiums have risen roughly 114%, and households just above 400% FPL have seen the steepest increases of any income group.

There's no single best Medicare supplemental option; it depends on what you're optimizing for. Medigap Plan G is the most popular choice among people who want maximum predictability: it covers essentially every gap in Original Medicare except the $283 annual Part B deductible, works with any provider nationwide that accepts Medicare, and requires no referrals or network restrictions, but it costs $110-$200 a month for a 65-year-old, plus a separate standalone Part D plan running $40-$60 a month. Medicare Advantage bundles medical, drug, and often extra benefits like limited dental and vision through a private insurer, with an average premium around $14 a month on top of Part B in 2026, but it works through a provider network, involves copays and coinsurance, and caps your worst-case annual out-of-pocket cost at a higher number, often around $9,350. For a healthy retiree focused on monthly cost, Medicare Advantage usually costs less. For someone who wants to never think about a network or a surprise bill during a serious health event, Medigap usually provides better financial protection.

There is no universal answer, but there is a trap most federal retirees miss. FEHB is creditable coverage for Medicare Part D, so you can skip Part D without a penalty. FEHB held as a retiree is not the kind of coverage that lets you delay Part B penalty-free, because only coverage from active employment does that. A federal retiree who declines Part B at 65 and later changes their mind faces a permanent late enrollment penalty of 10% of the premium for every 12 months they could have enrolled but did not, plus a wait for the next General Enrollment Period. Federal employees still working past 65 are in a different position entirely and can safely delay Part B while covered through active employment, with a special enrollment period after they separate. Beyond the penalty question, the decision is plan-specific: the 2026 standard Part B premium is $202.90 per month, and a number of FEHB plans waive deductibles and cost sharing, or reimburse part of the Part B premium, once Medicare becomes the primary payer.

Managing healthcare costs and ACA subsidies before Medicare comes down to controlling modified AGI. Premium subsidies phase based on income relative to the federal poverty level, and crossing certain thresholds can cost a household $10,000–$25,000 a year in lost subsidies. The biggest unforced errors are unpredictable mutual fund capital gains distributions (which can push MAGI over a cliff in December), large IRA withdrawals, and Roth conversions that ignore the subsidy cost. Common solutions include transitioning taxable mutual funds to ETFs deliberately (often over multiple low-income years to spread realized gains), using taxable account spending to fund the bridge years instead of pre-tax withdrawals, and treating each year's MAGI as the binding constraint. The catch-22 of 'pay capital gains now to avoid them later' is real, but rarely the dominant tax cost compared to multi-year subsidy losses on a household with significant taxable balances.

IRMAA, the Income-Related Monthly Adjustment Amount, is a surcharge the Social Security Administration adds to your Medicare Part B and Part D premiums when your Modified Adjusted Gross Income from two years earlier exceeds a set threshold, $109,000 for a single filer or $218,000 for a married couple filing jointly in 2026. Under the standard premium, the government covers roughly 75% of the true cost of Part B and you cover about 25% through your premium. IRMAA shifts that split against you, up to 85% of the actual cost at the top tier, in five income steps. It applies separately to Part B and Part D, and if both spouses are enrolled in Medicare, each spouse owes their own surcharge based on the same household MAGI, effectively doubling the household hit rather than splitting it.

For a married couple retiring at 62 in Phoenix, the realistic pre-Medicare options are COBRA from the former employer, an ACA marketplace plan, an off-exchange ACA-compliant plan bought directly from an insurer, or a short-term plan. Illustratively, a couple that age might pay roughly $1,800 to $2,500 a month for COBRA and roughly $1,800 to $2,400 a month for an unsubsidized benchmark silver ACA plan. The difference is the premium tax credit: in 2026, a two-person household with MAGI under about $84,600 (400% of the federal poverty level) pays roughly 10% of income or less for the benchmark plan, which can bring that same coverage down to about $600 to $700 a month. One dollar over the line and the credit disappears. COBRA usually wins for the first few months if you have already met your deductible, are mid-treatment, or need a specific network. The ACA usually wins once you can control MAGI, which retirees with cash and taxable accounts often can. Short-term plans are cheap for a reason and are not a bridge strategy for anyone with health conditions. The timing rules matter as much as the price: dropping COBRA voluntarily mid-year does not open a special enrollment period.

Enrolling in Medicare happens in five stages: gather your information (Social Security number and identification), apply for Parts A and B through your my Social Security account at SSA.gov (this step is skipped automatically if you're already collecting Social Security benefits, since Parts A and B enroll you automatically in that case), confirm your enrollment once you have your Medicare number and coverage start date, add Part C (Medicare Advantage), Part D (prescription drug coverage), or a Medigap policy if your situation calls for it, and then keep records while staying alert for Medicare-related scams. The process typically takes a few weeks from application to confirmed coverage, so starting it inside your Initial Enrollment Period, the seven-month window centered on your 65th birthday month, matters more than getting every detail perfect on the first pass.

Medicare is the federal health insurance program for Americans 65 and older. It consists of four main parts: Part A covers inpatient hospital care and is premium-free for most people. Part B covers outpatient medical services and has a standard monthly premium (approximately $202.90 in 2026, higher if your income exceeds IRMAA thresholds). Part C (Medicare Advantage) is a private insurance alternative to original Medicare. Part D covers prescription drugs. Most retirees pay no premium for Part A, a monthly premium for Part B and D, and additional costs for copays, deductibles, and the gap coverage that original Medicare doesn't provide.

Whether to enroll in Medicare while still working depends almost entirely on your employer's size, not your age or how many more years you plan to work. If the employer has 20 or more employees, the group health plan stays primary and you can generally delay Medicare Part B without penalty as long as you're actively working and covered. If the employer has fewer than 20 employees, Medicare typically becomes primary at 65 regardless of employment status, and delaying enrollment can leave real coverage gaps. Part A is usually worth adding either way, since it's premium-free for most people, unless you're contributing to a Health Savings Account, in which case enrolling in any part of Medicare stops HSA contributions.