Many health coverage decisions around retirement are time sensitive—and if you miss the window, the costs can last for years.
“Planning for health coverage is one of the biggest logistical and financial issues in the transition to retirement, yet it's often overlooked,” says Brad Koval, a director with Financial Solutions at Fidelity Investments.
That oversight can be costly. Once you leave employment, premiums, deductibles, and out-of-pocket limits can change significantly depending on what type of coverage you change to—and some choices can’t easily be undone.
One critical factor many people miss: Health insurance costs in retirement can be tied to income—sometimes with a lag. In the years between retirement and Medicare, income helps determine eligibility for Marketplace subsidies. After Medicare enrollment, income can also affect premiums through an extra charge to your monthly premium called Income-Related Monthly Adjustment Amount (IRMAA) surcharges. How and when income shows up can meaningfully influence health care costs across both phases of retirement.
Here are 4 key health care decisions to focus on in the year before and just after retirement.
1. What health plan makes sense in your final year of work?
If you’re planning to retire next year, your most important health plan decision happens this year, during your employer’s annual enrollment. This is your last chance to choose coverage as an employee—and the timing of your exit can materially affect what plan choice is most cost-effective.
Retiring early in the year can make a high-deductible health plan (HDHP) far less valuable if you don’t have enough time to meet the deductible. That’s when these plans typically start to pay off. Retiring later in the year may give you more time to benefit, while a different type of plan could be more cost-effective if you’re only working part of the year—so it’s worth comparing your options.
Here’s an example comparing an HDHP with an HMO for someone retiring early in the year. Suppose you expect $10,000 in medical expenses for the year (spread evenly) and plan to retire March 31.
If you work 3 months:
HDHP
- Deductible: $5,000, with 10% coinsurance after that
- Medical costs before retirement: $2,500, so you don’t meet the deductible
- Premiums: $200 a month, or $600 total
- Total cost: $3,100
HMO
- Copays for the first 3 months: $500
- Premiums: $500 a month, or $1,500 total
- Total cost: $2,000
If you work the full year:
HDHP
- Premiums: $2,400
- Out-of-pocket costs (deductible plus coinsurance): $5,500
- Total cost: $7,900
HMO
- Premiums: $6,000
- Copays: $2,000
- Total cost: $8,000
Bottom line: In this case, the HMO may cost less if you work only part of the year, while the HDHP may be slightly more cost-effective if you stay employed all year. In general, when you plan to retire before the end of the year, don’t just assume that your existing choices (in this case the selection of a health plan) will continue to be the right choices for you.
Because you may carry this coverage into early retirement—and won’t have unlimited chances to adjust it—it’s worth pressure testing your choice now.
Before enrolling, take stock of how you use health care today—and how that might change once you’re retired. This is your last chance to choose coverage as an employee—and that plan may carry into the transition period, such as through COBRA or until your next enrollment window.
Ask yourself:
- Are your current doctors, hospitals, and specialists in network?
- Do you have ongoing treatments or prescriptions you’ll need to continue?
- How often do you typically seek care?
- Do you value lower premiums—or more predictable, upfront costs?
This kind of self assessment can help you decide whether a lower premium, higher cost-sharing plan still makes sense—or whether paying more now could reduce surprises later, once you’re no longer covered through work.
2. What benefits must be used or funded before you leave your employer?
Some health benefits are only available while you’re actively employed—and once you retire, the window closes. As you approach your exit date, 2 accounts in particular deserve close attention: health savings accounts (HSAs) and flexible spending accounts (FSAs).
HSAs
If you’re eligible for an HSA, your final working years may be your last chance to add money—and even get a contribution to the account from your employer. HSAs offer a rare triple tax advantage:1
- Contributions are made pre-tax if done through payroll or can be taken as a deduction when you file if you contribute outside of payroll.
- HSAs offer tax-free growth potential.
- Withdrawals are tax-free for qualified medical expenses.
Eligibility to contribute to an HSA ends once you enroll in Medicare, including Part A. If you retire after you’re first eligible to enroll in Medicare, that coverage may begin automatically. While you can no longer contribute to an HSA after that point, any money already in the account remains yours to use.
The timing of HSA contributions around Medicare enrollment can matter more than you might think. Contributions made after you’re no longer eligible may be considered excess contributions, which could be included in your taxable income and may trigger penalties if not corrected.
To help avoid that outcome, consider stopping HSA contributions based on when you plan to enroll in Medicare:
1. If you’re planning to enroll when first eligible
For most people, this is the first day of the month they turn 65 (or the first day of the month prior, if born on the first of the month). If you plan to enroll at that time, stop your contributions to your HSA before your Medicare coverage begins, which is typically around the time you enroll.
2. Planning to enroll in Medicare after the first month you are eligible
If you plan to delay enrollment, you may still need to stop contributing up to 6 months before you enroll. That’s because Medicare coverage can be applied retroactively in some cases, which can affect your HSA eligibility.
Read Viewpoints: HSAs and Medicare: Diagnose the possible pitfalls
To contribute to an HSA, you must be enrolled in an HSA-eligible health plan (aka a high-deductible health plan). For more information, read HSA contribution limits and eligibility rules for 2026 and 2027 on Fidelity Learn.
FSA
Health FSAs come with much tighter deadlines. Unlike HSAs, FSA rules are often “use it or lose it” when you leave employment. The full amount you elect for the year is available as of January 1—even before you’ve contributed it through payroll. And health FSAs may be continued through COBRA after you leave, so you don’t always need to spend everything before you go.
There are 2 common types:
A general purpose FSA can be used for a wide range of qualified medical expenses, including over-the-counter medications, prescriptions, deductibles and copayments, as well as dental and vision costs like eyeglasses or hearing aids.
A limited purpose FSA is typically paired with an HSA-eligible health plan and can generally only be used for qualified dental and vision expenses.
Qualified expenses generally must be incurred before your last day of employment, and claims must be submitted by your plan’s deadline. For example, if you plan to retire on June 30, you could use your full annual health FSA election for qualified expenses incurred on or before that date—but not for expenses incurred afterward.
If you have spent more money than you have contributed up to your retirement date, your employer can’t ask for the money back.
Also note that the health FSA contribution limit applies per employee, not per household—meaning each working spouse can elect the full amount if both are eligible.
3. How will you cover the gap if you retire before age 65?
If you retire before age 65 and are not disabled as defined by the IRS, you’ll need to secure health coverage to bridge the gap to the standard Medicare age (65)—and timing can be critical. Most employer health coverage ends at the end of the month you retire, which means replacement coverage must be lined up in advance to avoid gaps or unexpected costs.
These are the main options to consider.
Family-member coverage. If your spouse or domestic partner is working and has employer health coverage, joining their plan may be your simplest—and most cost effective—choice. Employer plans typically subsidize a large share of premiums, making this option significantly cheaper than buying coverage on your own.
If your spouse’s employer has 20 or more employees, you can generally remain on their plan while they’re working and delay enrolling in Medicare until that coverage ends. In some cases, you may also be able to join a spouse’s retiree medical plan from a former employer, though rules vary by plan.
Note: Keep in mind that if you are on your domestic partner's employer plan, you will not be eligible to delay enrolling in Medicare, as Special Enrollment Periods for loss of active employer coverage only apply to spouses.
COBRA. COBRA allows you to continue your existing employer health coverage, usually for up to 18 months, after you retire. You have 60 days to elect COBRA, and coverage can be retroactive to the date your prior plan stopped.
The trade-off is cost. You typically pay the full premium—plus up to a 2% administrative fee—making COBRA one of the most expensive options. Still, it can be worth considering if you want to keep your current doctors, are in the middle of treatment, or want to avoid restarting deductibles. For example, if you are in an HSA-eligible health plan (an HDHP plan) and have already met the out-of-plan maximum, or at least the deductible, the costs for continuing coverage through COBRA through the rest of the year could be relatively low.
COBRA often allows you to continue dental and vision coverage as well, usually at a higher cost.
You generally retain the ability to change coverage during your employer’s annual enrollment while on COBRA or if you experience a qualifying life event.
The Health Insurance Marketplace. For coverage in the 2027 calendar year, the open enrollment period will run from November 1, 2026, to December 15, 2026.
There’s an exception for people who’ve lost their employer coverage, known as the Special Enrollment Period. This allows you to enroll within 60 days of when your coverage stopped, provided you can prove that you lost your health insurance.
Plan options vary based on where you live and typically depend on your county or ZIP Code. There are several coverage levels—the broad categories are broken down by “metal levels.”
Each “metal level” indicates how costs are typically split between you and the insurer:
- Bronze plans cover about 60% of total costs
- Silver plans cover about 70%
- Gold plans cover about 80%
- Platinum plans cover about 90%
Bronze plans typically have the lowest premiums and highest out-of-pocket costs, while platinum plans have the highest premiums and lowest out-of-pocket costs.
Each of these levels has a myriad of health plans within them to choose from: HMOs, PPOs, and high-deductible health plans (HDHPs). Dental-only plans are available in the public marketplace as well.
All bronze plans and catastrophic plans (for those who qualify for them) offered through the marketplace are now HSA-eligible—be sure to confirm when choosing a plan however. Some silver, gold, and platinum plans may also qualify as HDHPs, so it’s worth confirming eligibility if contributing to an HSA is part of your strategy.
Important for income planning:
- Some lower-income individuals enrolled in a silver plan may qualify for cost-sharing reductions, which can reduce deductibles, copayments, and out-of-pocket maximums—making coverage more affordable than it might appear based on premiums alone.
- Depending on your income, you may qualify for a premium tax credit that lowers your monthly premiums.
Because these subsidies are based on modified adjusted gross income (MAGI), decisions like when you retire, which accounts you draw from, and whether you realize capital gains can all affect what you pay for health coverage before Medicare.
Depending on which option you choose, the amount of time you have to switch your coverage may vary. For public marketplace plans, you typically have 60 days to enroll from the time you lose coverage. Employer plans typically have 30-day special enrollment periods, but some employers may extend this. These periods are important to keep in mind, as the further you get from the date you lose coverage, the fewer options you may have available to you.
Income planning examples before Medicare:
- Drawing more from taxable accounts, with low or no capital gains, versus tax-deferred accounts may help keep reported income lower.
- Spreading income over multiple years—rather than taking large one-time withdrawals—may preserve eligibility for premium tax credits.
- Roth withdrawals generally don’t increase reported income, which can be helpful in subsidy years.
- Using an HSA for qualified medical expenses can help avoid taxes and preserve eligibility for subsidies.
- Avoiding strategies and transactions that result in significant income amounts, such as the sale of a home or Roth conversions, would also help someone remain eligible.
Read Viewpoints: Your bridge to Medicare
4. When and how to enroll in Medicare
Medicare is one of the most time-sensitive health care decisions you’ll make around retirement. Enrollment windows are limited, and missing them can mean late penalties, coverage gaps, or higher costs that last for years.
Your initial enrollment period typically runs from 3 months before the month you turn 65 through 3 months after. Those born on the first of the month have an initial enrollment period that runs from 4 months before the month they turn 65 until 2 months after. Miss this window and you could face lifetime late enrollment penalties or gaps in coverage.
There are important exceptions. If you’re covered under a spouse’s employer plan—or you continue working past 65 and receive coverage from an employer with 20 or more employees—you can generally delay enrolling in Medicare until that active coverage ends. (Remember, this option is not available to domestic partners). Once it does, the clock starts again, with new deadlines you don’t want to miss.
If you delay Medicare past 65, you may have an 8-month window after your employer coverage ends to enroll in Parts A and B. However, other parts of Medicare—like prescription drug and Medicare Advantage coverage—follow tighter timelines, so acting quickly still matters.
Choosing your Medicare path. When you enroll, you’ll need to choose between 2 main paths: traditional Medicare or Medicare Advantage. Today, more than half of Medicare beneficiaries enroll in Medicare Advantage, which is offered through private insurers
How Medicare works: Medicare has 3 main parts.
- Part A covers inpatient hospitalizations, skilled nursing facility services, and home health and hospice care.
- Part B covers preventive services, outpatient hospital and physician services, and drugs administered by doctors.
- Part D covers prescription drugs that you take at home.
Traditional Medicare vs. Medicare Advantage. Traditional Medicare generally offers the broadest access to doctors and hospitals nationwide. However, it does not cap out-of-pocket costs, so many retirees add a Medigap (supplemental) policy to help cover deductibles, copays, and coinsurance. Medigap may also cover certain services Medicare doesn’t, such as some care outside the US.
Read Viewpoints: 6 key Medicare questions
Medicare Advantage plans bundle Parts A and B—and usually Part D—into a single plan. These plans must cover everything traditional Medicare does, but typically restrict you to a provider network and require prior authorization for certain services. Many Advantage plans include added benefits such as dental, vision, or hearing coverage.
Read Viewpoints: Are Medicare Advantage plans really an advantage?
Some retirees who have health benefits from a former employer are automatically enrolled in a Medicare Advantage plan—often with broader provider networks than standard Advantage plans.
Comparing costs. With traditional Medicare, you generally pay:
- A monthly premium for Part B
- A premium for your Part D prescription plan
- Possibly a premium for Part A
- Optional premiums for Medigap coverage
Part B premiums, deductibles, and coinsurance reset each year.
Just as income affects subsidies before Medicare, higher income in retirement can trigger Income-Related Monthly Adjustment Amount (IRMAA) surcharges on Medicare premiums—sometimes years after the income is received—making multi-year income planning especially important. For 2026, these surcharges begin at incomes above $109,000 for individuals and $218,000 for couples filing jointly.
If you receive a letter letting you know that IRMAA has been applied, you may be able to reduce or eliminate the IRMAA you pay using form SSA-44 if your income has been reduced by a life-changing event. The events include retirement, reduction in hours, and divorce, among others. Submitting this form and eliminating IRMAA could save you up to nearly $975 in 2026.
Read Viewpoints: Will your retirement income impact Medicare surcharges?
Medicare Advantage plans are often less expensive upfront because you don’t buy separate Medigap coverage and may not need a standalone drug plan. The trade-off is managed care: restricted provider networks, prior authorization requirements, and higher costs if you go out of network.
Enrolling in Medicare after age 65
If you delay enrolling in Medicare, you may have up to 8 months after your employer coverage ends to sign up for Part A and Part B—but not all deadlines are that flexible.
The window to enroll in Medicare Advantage or a Part D prescription drug plan is much shorter: just 2 months after you lose active employer coverage. Even waiting until the end of the 2-month period would result in a meaningful coverage gap.
Waiting too long can limit your options, create coverage gaps, or trigger lifetime penalties—even at the end of that 2-month window. To help avoid that, aim to have coverage in place starting the first day after your employer plan ends.
Changing plans—and a critical catch. If you enroll in Medicare Advantage when you first become eligible, you generally have a limited window to switch plans or return to traditional Medicare without restriction. Beyond that, changes are limited to annual enrollment periods:
- January 1–March 31 to change Medicare Advantage plans or return to traditional Medicare
- October 15–December 7 to switch from traditional Medicare to Medicare Advantage
One critical detail many people overlook: In most states, Medigap insurers only guarantee you coverage for the first 6 months you are enrolled in Medicare Part B. After that window closes, insurers may deny coverage or charge more based on pre-existing conditions. Exceptions include New York, Connecticut, Maine, and Massachusetts.
There are several good resources to contact for help.
- The State Health Insurance Assistance Program network (SHIP) provides one-on-one counseling in every state.
- The Medicare Rights Center offers a free consumer helpline: (800-333-4114).
- You can also reach out to Medicare directly at 800-633-4227 to find Medicare Advantage and Part D Plans in your area and to enroll directly.
- Fidelity Medicare Services® can help you compare your options and find the right Medicare plan.
Compare total costs—not just premiums.
As you weigh health coverage options around retirement, monthly premiums tell only part of the story. The decisions you’re making now can shape your health care costs for years, so it’s critical to look at the full picture.
- Deductibles
- Out-of-pocket maximums
- Copayments and coinsurance
- Prescription drug costs
- Potential eligibility for premium tax credits or cost-sharing reductions—especially if your income drops during the years between retiring and enrolling in Medicare
Taking a holistic view of costs—especially during the transition years before Medicare—can help you choose coverage that fits both your health needs and your retirement income plan.