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When it comes to retirement planning, your clients have a lot to consider — especially if they want to retire before 65. Tax planning and income management are top of mind for most advisors and clients when creating retirement plans, but an oversight I see advisors make again and again is not considering how their clients will receive healthcare coverage if they retire before 65.
Having worked with financial advisors for many years, I can say confidently that most clients will retire “early” — well in advance of 65 in some cases. For the 60.4% of Americans under 65 who receive healthcare coverage through an employer, that means transitioning to a new type of insurance. Once retired, this insurance disappears. So if your client retires before 65 (when they’re eligible for Medicare), how will they fill this coverage gap?
In this article, I’ll share three mistakes advisors make when it comes to the intersection of early retirement and health insurance, and what to do instead.
1. Assuming COBRA will be the right choice for all their pre-65 retiree clients.
For those unfamiliar, COBRA (the Consolidated Omnibus Budget Reconciliation Act) coverage is the continuation of your client’s employer-sponsored plan. Just continuing your client’s employer-sponsored health insurance sounds like a no-brainer, right? Unfortunately, this option is rarely the optimal choice for most pre-65 retirees, and assuming it’s the best option is a big mistake.
COBRA coverage only lasts a maximum of 18 months for most pre-65 retirees. If your client is retiring more than 18 months before they turn 65, this still leaves them with a coverage gap. Additionally, this type of insurance can be one of the most expensive options. This is because your client pays the entire premium plus a 2% administration fee, whereas before, their employer likely paid a large portion of the plan cost. This usually comes as a big surprise to clients when they need to submit their first payment.
Once enrolled in COBRA, the only time you can switch to a Marketplace plan is during Open Enrollment (November 1 to December 15 in most states), or when COBRA runs out at the 18-month mark. I have heard time and time again that clients thought this could bridge them a month or two into their retirement, only to be disappointed to learn that no one warned them that they would be ineligible to qualify for a Special Enrollment Period on the Marketplace.
Rather than assuming COBRA is the best option for all pre-65 retiree clients, review all their healthcare coverage options and ask yourself the following questions:
- How long will my client need healthcare coverage in retirement before they’re eligible for Medicare? If it’s just a few months, COBRA might be a good option.
- Has my client met their deductible for the year? If they have, and only need coverage for a few months, COBRA might be a good option.
- How much will my client pay per month for COBRA coverage? Can we tap into income management strategies to minimize their Marketplace premiums instead? The answers to those questions will determine whether or not you and your client should look for coverage outside of COBRA.
2. Assuming their client makes too much to enroll in ACA Marketplace insurance.
It’s a common misconception that you have to stay under a certain income to qualify for ACA Marketplace insurance. This isn’t true. The only criteria that can be used to determine someone’s coverage eligibility are their age, sex, and smoking status. What is determined by income is the availability of Premium Tax Credits, which can greatly reduce the cost of ACA plan premiums.
An important note about Premium Tax Credits: Thanks to the One Big Beautiful Bill Act, they’re reverting to how they worked before the COVID relief acts. Eligibility for tax credits is resetting to 400% of the Federal Poverty Line (FPL) in 2026. There is speculation that the government is going to push something through late in the year to keep the tax credits in place. However, it’s critical for advisors to plan for either managing income such that it remains below 400% of the FPL or plan for a "worst case scenario" of paying the full price of a plan in the event your client’s income exceeds that threshold, even if your client has been claiming tax credits to date.
Even with pre-COVID tax credit eligibility requirements, couples with an income as high as $84,000 can qualify for a Premium Tax Credit in 2025. Plus, early retirement often creates changes in adjusted gross income, so individuals who might not have been eligible for plan premium assistance before may find that premiums that were previously quite high have been significantly reduced for them based on their lower, post-retirement income.
Rather than assuming your client has too high an income to qualify for affordable coverage on the ACA Marketplace, ask yourself the following questions:
- What is their adjusted gross income for retirement? Plug that number into the Federal Marketplace or your client’s state-specific Marketplace to see if they qualify for a Premium Tax Credit — you might be surprised by the results.
- Are there any income-lowering strategies I can use to help my client qualify for a Premium Tax Credit? The answer is probably yes.
- Does my client need healthcare coverage for longer than 18 months? If yes, the Marketplace is likely their most affordable, long-term, and comprehensive option.
3. Leaving clients on their own to figure out healthcare coverage in early retirement.
Having clients figure out healthcare coverage and costs on their own leaves them, their financial plan, and your advisor-client relationship open to a lot of unnecessary risk.
If you aren’t helping clients navigate health insurance for early retirement, they’ll go to someone who does. And that someone may not have the same sense of fiduciary responsibility as you, and may take away some (or all) of your client’s business from you. Not only have I seen it happen, but studies show that clients expect to receive their financial advice all under one roof. Envestnet, Inc. found that 62% of U.S. investors prefer or already use a single financial provider for all their needs. Their research also found that investors expect holistic advice.
Additionally, not including healthcare planning in your clients’ early retirement plans puts the plan you’ve spent so much time and effort on at risk. If you leave clients on their own to decipher healthcare coverage and costs, they might enroll in expensive coverage and hurt their early retirement plans by overspending on coverage.
Rather than having clients navigate healthcare coverage on their own during early retirement, or referring them to a third-party where you have no fiduciary oversight, try the following:
Final Thoughts
Healthcare planning is a major component of a successful early retirement plan. Making sure your client chooses the optimal health insurance option for their needs, preferences, and goals so they don’t experience a gap in coverage, overspend, or (worst of all) delay their retirement plans will save you (and your client) an unnecessary headache.
Christine Simone founded an award-winning healthcare planning company, Caribou, which Move Health successfully acquired. Currently, she is a Partner at Move Health. She's driven by her passion to slash hidden incentives in healthcare to support smarter financial decision-making, and she’s within the small fraction of women founders who have raised venture capital.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
