Medicare Timing and Gap Coverage When You Retire Before 65

Medicare does not start until the month you turn 65, full stop. If you retire even one day before then, you need a plan to cover the gap. About 40 percent of Americans retire before 65, and many of them are caught off guard by what private health insurance costs without an employer paying most of the premium.

Three paths cover almost everyone who retires early. The first is COBRA, which lets you keep your former employer plan for up to 18 months. The second is the ACA marketplace at healthcare.gov, where federal subsidies can lower premiums sharply based on income. The third is a spouse plan, if your husband or wife is still working and their employer covers dependents. Each path has trade-offs in cost, doctor network, and timing.

COBRA is the simplest because the plan and doctors stay the same. The catch is the price. You now pay the full premium that your employer used to subsidize, plus a 2 percent administrative fee. A family plan that cost you $300 a month at work might cost $1,800 a month on COBRA. For most retirees this is a short bridge of a few months, not a long-term answer.

The ACA marketplace is where most early retirees end up. A 62-year-old couple with $60,000 of retirement income may pay less than $500 a month total, because subsidies are generous between ages 60 and 65. Healthcare.gov has a special enrollment window of 60 days starting the day your work coverage ends, so do not miss that window. After 60 days, you wait until the next open enrollment period in November.

A spouse plan is often the cheapest path if available. Switching to your spouse's coverage usually qualifies as a life event. So you do not have to wait for open enrollment. Ask the working spouse's HR department for the family premium and the deductible before assuming it is the best choice.

Sign up for Medicare three months before your 65th birthday, even if you have other coverage. The initial enrollment window is seven months wide (three months before your birthday month, the month itself, and three months after), and missing it can mean lifetime late penalties.

(Sources: Medicare.gov — When to Sign Up; healthcare.gov — Coverage After Job Loss; Department of Labor — COBRA Continuation Coverage)