Retiring at 62 means 3 years without Medicare or employer coverage

Retiring before age 65 means losing employer health coverage before you qualify for Medicare. That gap creates one of the biggest financial risks in early retirement. Healthcare costs accelerated sharply through 2025, pushing the total U.S. health spending bill to $5.7 trillion, a 7.3% jump from the prior year. Healthcare services alone climbed 6.7% over that same period, well above general inflation. These increases make the coverage gap between retirement and Medicare eligibility more expensive to bridge than it has been in years.

Medicare eligibility begins at age 65, but employer coverage typically ends the day you retire. Leave work at 62 and you face three years without your workplace plan. Understanding your bridge coverage options is the difference between a secure transition and a financial crisis.

The Two Main Bridge Options

Most early retirees choose between COBRA continuation coverage and Affordable Care Act marketplace plans. COBRA preserves your existing employer plan for up to 18 months after leaving work, but at a steep cost. You pay the full premium your employer previously subsidized, plus an administrative fee of up to 2%. For a single retiree in their early 60s, that bill can run $700 to $900 a month, and family coverage can exceed $1,500. The sticker shock is real: most workers paid only a fraction of that total while employed, since employers typically cover the majority of the premium.

ACA marketplace plans offer an alternative, particularly for retirees whose income falls within the subsidy range. But the landscape shifted significantly in 2026. The enhanced premium tax credits introduced by the American Rescue Plan in 2021 and extended through 2025 by the Inflation Reduction Act expired at the end of 2025, and Congress did not renew them. The result: average net premium payments among marketplace enrollees rose 58%, from $113 to $178 a month, and average deductibles jumped 37% to a record $3,786. Analysts at the Urban Institute project that roughly 7.3 million people will lose subsidized marketplace coverage in 2026 as a result, with 4.8 million becoming uninsured entirely. For early retirees counting on marketplace affordability, that policy shift changes the math considerably.

What Matters Most in Your Decision

The central question is whether continuity of care outweighs cost savings. COBRA preserves your existing provider network and coverage terms, which matters most when you have ongoing treatments or long-standing relationships with specialists. Marketplace plans can cost less, especially if your retirement income keeps you below the subsidy threshold, but they require navigating new networks and accepting potentially higher deductibles.

Your income level shapes marketplace affordability through the subsidy structure. Tax credits phase out as income rises, and the calculation counts all sources including wages, investment returns, retirement account withdrawals, and Social Security benefits. Retirees drawing from taxable brokerage accounts face a particular trap: a single large withdrawal in one year can push modified adjusted gross income above the subsidy cutoff, eliminating tax credit eligibility entirely for that plan year. Strategic income planning, including Roth conversions and careful sequencing of withdrawals, has become more important than ever in the post-2025 subsidy environment.

Planning for the Full Gap

Because COBRA only lasts 18 months, retiring more than a year and a half before 65 means eventually needing marketplace coverage regardless. Some retirees use COBRA initially while researching plan options, then switch during the next open enrollment period. Others go straight to marketplace plans to avoid COBRA's full unsubsidized costs. Neither approach is universally better. The right path depends on your health status, your provider relationships, and how much control you have over your taxable income each year.

Once you do reach 65, timing matters. The Medicare initial enrollment window opens three months before your birthday month and closes three months after it, creating a seven-month enrollment period. Missing that window triggers late enrollment penalties that accumulate monthly and follow you for as long as you have coverage. The standard Medicare Part B premium for 2026 is $202.90 a month, up from $185 in 2025, and those penalties compound on top of whatever the base premium is at the time you finally enroll. The financial case for enrolling on time is straightforward.

Making the Choice Work

Start by calculating your total healthcare costs under both scenarios, including premiums, deductibles, and out-of-pocket maximums. Prescription drug coverage deserves its own comparison, since formularies can differ sharply between your employer plan and marketplace alternatives. If you have any flexibility in your retirement date, even a few months can meaningfully shrink the coverage gap or improve your subsidy eligibility for a given plan year.

The costliest mistake is letting coverage lapse entirely. A gap in insurance leaves you personally liable for every medical bill during that window, and an unexpected hospitalization can do lasting damage to a retirement portfolio. Bridge coverage, whatever form it takes, protects the financial security you spent decades building while you wait for Medicare to begin.

Editor's note: This update reflects 2025 full-year national health spending data of $5.7 trillion (a 7.3% increase), the expiration of the ACA enhanced premium tax credits at end of 2025, the resulting 58% rise in average net marketplace premiums and record-high average deductibles of $3,786 in 2026, updated COBRA cost ranges for retirees in their early 60s, and the 2026 Medicare Part B standard premium of $202.90 per month.

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