The Biggest Fear Holding Back Early Retirement
You've hit your FIRE number. Your investments can support your lifestyle indefinitely. You're ready to quit.
Then you remember: Health insurance.
For most Americans, health insurance is tied to employment. Medicare doesn't kick in until age 65. If you're retiring at 35, 45, or even 55, you face a potentially decades-long gap where you need to figure out healthcare on your own.
This is often cited as the #1 obstacle to early retirement. But it's solvable. Here's your complete guide to bridging the gap.
đź’ˇ Key Insight: Healthcare costs are the wild card in early retirement planning. Unlike predictable expenses like housing, medical costs can vary dramatically. You need both insurance AND an emergency fund specifically for healthcare.
Understanding the Timeline
Day 1-60: COBRA Eligibility
You can extend your employer health plan for up to 18 months (sometimes 36) by paying the full premium plus 2% admin fee.
Day 1 Forward: ACA Marketplace
You can purchase individual health insurance through Healthcare.gov or your state exchange. Losing employer coverage triggers a Special Enrollment Period.
Age 65: Medicare Eligibility
Once you turn 65, you qualify for Medicare regardless of employment status. The gap you're bridging is from retirement until this age.
Your 5 Main Options
1. ACA Marketplace Plans
What it is: Individual health insurance purchased through Healthcare.gov or state exchanges.
Cost: Varies widely. Subsidies available based on income (not assets).
Best for: Early retirees with low taxable income who can optimize for subsidies.
2. COBRA
What it is: Continuation of your employer health plan for 18-36 months after leaving.
Cost: Full premium + 2% (often $500-2,000/month for family coverage).
Best for: Bridge coverage while you figure out a long-term plan. Not sustainable long-term.
3. Spousal Coverage
What it is: Get added to your spouse's employer plan.
Cost: Varies by employer, typically $200-800/month for spouse addition.
Best for: One spouse retires early while the other continues working for benefits.
4. Health Sharing Ministries
What it is: Not insurance, but a community that shares medical bills.
Cost: $100-500/month.
Caution: Not regulated like insurance. May deny coverage for pre-existing conditions.
5. Barista FIRE
What it is: Work part-time at companies that offer health benefits (Starbucks, Costco, etc.).
Cost: Your time (20-30 hrs/week) in exchange for subsidized premiums.
Best for: Those who want some structure and social interaction post-retirement.
6. HSA + High-Deductible Plan
What it is: Pair a high-deductible health plan with a Health Savings Account.
Cost: Low monthly premiums, high deductible ($3,000-7,000).
Best for: Healthy individuals who can cover deductible from emergency fund and want to invest HSA funds.
The ACA Subsidy Hack for Early Retirees
This is the secret weapon of the FIRE community. The Affordable Care Act provides subsidies based on income, not net worth. If you retire early with $2 million in assets but only $30,000 in annual income (from Roth conversions or dividends), you can qualify for significant subsidies.
The Income Optimization Strategy
- Keep reported income between 100-400% of Federal Poverty Level (for a family of 4, that's $31,200-$124,800 in 2026)
- Use tax-advantaged withdrawals: Live off Roth contributions (tax-free) and long-term capital gains (low tax rate)
- Time Roth conversions strategically: Convert traditional IRA to Roth in low-income years to pay less tax
- Harvest capital losses: Offset capital gains to keep taxable income low
Example: A couple with $1.5M invested lives on $50,000/year. They structure it as:
- $20,000 from Roth contributions (not counted as income)
- $20,000 from long-term capital gains (counts, but low tax)
- $10,000 from taxable dividends
Their Modified Adjusted Gross Income (MAGI) is only $30,000, qualifying them for substantial ACA subsidies. A plan that normally costs $1,200/month might only cost them $200-400/month after subsidies.
The HSA Triple Tax Advantage
If you're healthy and can handle a high deductible, pairing an HSA with your health insurance is one of the best financial moves you can make:
- Tax-deductible contributions: Reduce taxable income today
- Tax-free growth: Invest the funds and they grow tax-free
- Tax-free withdrawals: For qualified medical expenses (or use it like a Roth IRA after 65)
💰 Pro Strategy: Max out your HSA before retiring ($4,150 individual / $8,300 family in 2026). Pay medical expenses out of pocket during your working years. Let the HSA grow tax-free for decades. You can reimburse yourself for those old medical expenses anytime—even 30 years later—tax-free.
Budgeting for Healthcare in Early Retirement
As a rule of thumb, budget $500-1,500/month per person for health insurance premiums (before subsidies). Add another 10-20% for out-of-pocket costs (deductibles, copays, prescriptions).
⚠️ Don't Underestimate This
Healthcare inflation runs at 5-8% annually, higher than general inflation. A $600/month premium today could be $1,200/month in 20 years. Build this into your FIRE number calculations.
The Worst-Case Scenario Plan
What if you get hit with a major medical emergency? Even with insurance, out-of-pocket maximums can be $9,000-18,000/year for a family.
Your safety net should include:
- Emergency fund of 6-12 months expenses (standard advice)
- Additional $20,000-50,000 earmarked for healthcare emergencies
- Understanding of your plan's out-of-pocket maximum
- Flexibility to return to work temporarily if needed
International Healthcare Arbitrage
Some early retirees opt to spend significant time abroad in countries with excellent, low-cost healthcare:
- Medical tourism: Major procedures done in Thailand, Mexico, or Costa Rica for 50-80% less
- Expat insurance: International health plans cost $100-500/month with global coverage
- Slow travel: Spend winters in Southeast Asia or Latin America with high-quality, affordable healthcare
State-by-State Differences
Healthcare costs vary dramatically by state. Some states expanded Medicaid, some didn't. Some have robust ACA exchanges, some don't.
Most FIRE-friendly states for healthcare:
- California, New York, Massachusetts (strong ACA exchanges, good subsidies)
- States with Medicaid expansion (31+ states as of 2026)
Less FIRE-friendly:
- States that didn't expand Medicaid (coverage gap for low-income individuals)
- States with few insurance providers (less competition = higher prices)
Consider this when deciding where to retire early.
The Action Plan
Here's what to do before you pull the trigger on early retirement:
- Research ACA plans in your state 6 months before retiring
- Model your income to optimize for subsidies (MAGI between 100-400% FPL)
- Max out your HSA in your final working years if eligible
- Build a healthcare emergency fund of at least $25,000
- Consider geographic arbitrage (living abroad or in low-cost states)
- Have a contingency plan (spouse's insurance, part-time work, etc.)
- Enroll within 60 days of losing employer coverage to avoid gaps
The Bottom Line
Healthcare is the biggest variable in early retirement planning, but it's not an insurmountable obstacle. With the ACA, subsidies, HSAs, and strategic planning, you can access quality healthcare without employer benefits.
The key is preparation. Don't wait until you quit to figure this out. Research your state's options, model your income, and build healthcare costs into your FIRE number. With proper planning, healthcare becomes manageable rather than a deal-breaker.
đź’ˇ Remember: Thousands of people have successfully retired early and solved the healthcare puzzle. You can too. The peace of mind of having a solid healthcare plan in place is priceless.