How to Bridge the Gap Between Retirement and Age 65

Learn strategies to cover health insurance and living expenses when you retire before Medicare kicks in at 65.

  1. Calculate your true early retirement costs. Add up your regular living expenses plus health insurance premiums, which typically run $800-2,000 monthly for individuals or $2,000-4,000 for families buying marketplace plans. Include higher deductibles and out-of-pocket maximums since employer plans won't cover you. Factor in potential COBRA coverage for 18 months if you're leaving a job — it costs your full premium plus 2% but maintains your current coverage.
  2. Build a bridge account for accessible money. Save money outside retirement accounts in taxable investment accounts, high-yield savings, or CDs. This money covers expenses without the 10% early withdrawal penalty from 401(k)s and traditional IRAs before age 59½. Aim to cover 5-10 years of expenses, depending on when you plan to access retirement accounts.
  3. Learn the penalty-free withdrawal rules. Traditional and Roth IRAs allow penalty-free withdrawals for specific situations like first-time home purchases ($10,000 lifetime limit) or higher education expenses. Roth IRA contributions (not earnings) can be withdrawn anytime without penalties. Some 401(k) plans allow in-service withdrawals after age 59½ even if you're still working.
  4. Consider the Rule of 55 or SEPP withdrawals. If you leave your job at age 55 or later, you can withdraw from that employer's 401(k) without the 10% penalty. Alternatively, set up Substantially Equal Periodic Payments (SEPP) from IRAs — you commit to taking equal annual distributions for 5 years or until age 59½, whichever is longer. Both strategies require careful planning since you can't change course easily.
  5. Research health insurance marketplace options. Shop for individual health insurance through your state's ACA marketplace during open enrollment (November-January). Compare bronze, silver, gold, and platinum tiers — bronze has lower premiums but higher deductibles. Check if your income qualifies for premium tax credits, which phase out around $60,000 for individuals and $125,000 for families as of 2026.
  6. Plan your Medicare transition at 65. Enroll in Medicare Part A (hospital coverage) and Part B (medical coverage) during your initial enrollment period starting 3 months before you turn 65. Delaying Part B enrollment without creditable coverage results in permanent premium increases of 10% for each 12-month period you wait. Research Medicare Supplement (Medigap) policies and Part D prescription drug coverage to fill gaps in original Medicare.