Part 1 — Direct Answer

Retiring before age 65 — when Medicare eligibility begins — requires a plan for health insurance coverage during the gap period. The main options are: continuing employer coverage through COBRA (up to 18 months), purchasing a plan through the ACA marketplace (Healthcare.gov), joining a spouse's employer health plan, or using a combination of these over the years until Medicare begins. The cost of health insurance is one of the most significant and frequently underestimated expenses for early retirees. For a 60-year-old couple in Arizona, ACA marketplace premiums before subsidies can easily exceed $2,000-$3,000 per month.

Part 2 — Detailed Explanation

Health insurance is the single most common financial barrier to early retirement. Workers who retire before 65 lose employer-sponsored coverage — which is typically heavily subsidized — and must replace it at full market rates or manage their income to qualify for subsidized ACA coverage.

COBRA allows you to continue your employer's health plan for up to 18 months after leaving employment. The coverage is identical to what you had while working — same network, same benefits, same plan. The cost is the full premium (employer + employee share) plus a 2% administrative fee. For many employees who were paying $300-$500 per month with employer subsidy, the COBRA premium can come as a shock — often $1,500-$2,500 per month for a family. Despite the cost, COBRA may be worth it if you have ongoing healthcare needs, established specialist relationships, or are mid-treatment for a condition.

ACA marketplace plans (available at Healthcare.gov or through Arizona's marketplace) offer a range of coverage levels from bronze to platinum. The critical financial planning dimension is income-based subsidies. ACA premium tax credits are available to individuals and families with income between 100% and 400% of the federal poverty level — and under recent legislative changes, subsidies extend beyond 400% FPL for higher-income households as well. For an early retiree with the flexibility to manage their income, optimizing MAGI to capture ACA subsidies can reduce marketplace premiums dramatically.

Managing income for ACA subsidies requires careful planning when you also have IRA assets you might want to convert. Roth conversions increase MAGI and reduce or eliminate ACA premium tax credits. A $100,000 Roth conversion in a year when you're relying on ACA subsidies could cost $15,000-$25,000 in lost premium tax credits — potentially more than the tax benefit of the conversion. The years between retirement and Medicare eligibility require balancing Roth conversion opportunity against ACA subsidy preservation, with the optimal strategy depending on your specific income, assets, and healthcare needs.

A spouse's employer plan is often the most cost-effective option if available. If your spouse is still working and has employer-sponsored coverage, joining their plan as a dependent typically costs significantly less than individual marketplace coverage. This option obviously requires a working spouse with access to employer benefits.

Part 3 — What This Means for You

If you are planning to retire at 60, 62, or any age before 65, healthcare costs need to be a central part of your retirement income budget — not an afterthought. For a couple retiring at 60 in Arizona with no ACA subsidies, budgeting $3,000-$4,000 per month for health insurance premiums and out-of-pocket costs is realistic. Over five years until Medicare begins, that's $180,000-$240,000 in healthcare costs alone.

The good news is that careful income management can substantially reduce this cost. Keeping MAGI in the range that maximizes ACA subsidies — while also making strategic Roth conversions in years when subsidy preservation is less critical — requires coordinating the health insurance decision with the retirement income strategy. This is a multi-year plan, not a single-year optimization.

Part 4 — Common Mistakes and Misconceptions

• The most common mistake is not budgeting for health insurance before retirement. Many pre-retirees focus on whether they have enough to cover living expenses without factoring in the full cost of unsubsidized health insurance.
• The second mistake is doing large Roth conversions in years when ACA subsidies would be more valuable. The tax benefit of a Roth conversion can be entirely offset by lost premium tax credits in years when you are relying on marketplace coverage.
• The third mistake is missing Medicare enrollment deadlines. If you had marketplace or other non-employer coverage during the pre-Medicare years, you must enroll in Medicare during your Initial Enrollment Period at 65. Delaying Medicare enrollment after marketplace coverage ends — even briefly — can trigger permanent late enrollment penalties.