Retiring Before 65? Here's What You Need to Know to Bridge the Gap Until Medicare and Social Security Kick In

According to recent data, 62 has become the new 65. This generation of healthier, more active, more connected seniors wants to start enjoying their Golden Years as soon as possible.

But there's one reason why age 65 is still a major marker on a retirement timeline: Medicare eligibility. Early retirement can also trigger some critical decisions about the best time to start claiming Social Security benefits.

Let's look at five items on Keen Wealth's early retirement checklist that we use to help seniors bridge the gap to Medicare and Social Security.

1. Pre-65 Health Insurance Options

Married couples often have a simple and cost-effective solution for early retirement health care coverage: moving to the working spouse's employer-subsidized plan.

If that's not an option, then you'll have to start paying for insurance out of pocket via:

• COBRA (Consolidated Omnibus Budget Reconciliation Act), which allows some retirees to stay on their employer-subsidized plan for 18-36 months. The good news is you get to keep your current coverage. The bad news is you'll be paying 100% of the monthly premiums, plus an administrative fee.

• HealthCare.gov sells health care plans that may be subsidized based on your needs, income level, and state of residence.

At Keen Wealth, we often connect folks with health care professionals who can help them sort through things like premiums, deductibles, and copays, as well as which doctors and hospital systems are covered by various plans. Seniors who are taking prescription medication or dealing with ongoing medical conditions have to be especially vigilant about picking the right plan.

2. Income Management

When transitioning from living off a paycheck to living off savings and investments, retirees always want to make sure that they meet their income needs without triggering any unintended tax consequences.

 But maintaining this delicate balance is especially important to early retirees who decide to buy insurance from their state's marketplace. The lower your taxable income, the larger the subsidies you may be eligible for. Proper planning and withdrawal sequencing could create big savings between now and Medicare eligibility.

In a typical Keen Wealth portfolio that's balanced and diversified, we might advise an early retiree to start making tax-free withdrawals from Roth IRAs or cash savings accounts. Withdrawals from taxable brokerage accounts are usually taxed at a lower capital gains rate as well. Starting with these accounts can keep taxable income low and boost health care subsidies. Then, once the retiree moves to Medicare, we'll adjust this sequencing strategy and reoptimize for maximum account growth and minimal tax liability.

3. Delaying Social Security Benefits

Many seniors with an early retirement goal consider taking Social Security as soon as they're eligible at age 62. But if you can afford to delay taking your benefits until your full retirement age, the size of your monthly benefit will increase by approximately 8% every year until you reach age 70.

Again, a diversified and balanced portfolio often provides better options for early retirees than taking Social Security early. While you're waiting for your benefits to max out, you might be able to adjust your withdrawals from fixed income, low-volatility investments for a stable source of income. This can also help maintain that low base of taxable income that maintains your eligibility for valuable health care subsidies.

4. Aligning Investment Strategy With Withdrawal Needs

During your working years, your financial focus is typically on growth and accumulation. In retirement, your financial plan will shift into distribution mode. A typical financial plan might utilize "buckets" that are meant to cover various stages of retirement and specific needs.

For example:

• Short-term (0–2 years): Cash, CDs, and short-term bonds to cover immediate living expenses.

• Mid-term (3–5 years): A balance of stocks and bonds to maintain growth and sustain livable income.

• Long-term (6+ years): A higher allocation to stocks, to ensure long-term growth and protection against inflation.

Keen Wealth often helps early retirees adjust these buckets to their specific timelines. We might look for ways to boost the short-term bucket to cover two or three years of health care premiums until Medicare eligibility. Timing Social Security might affect the mid-term or long-term buckets. Instead of sticking to a static withdrawal rate, we'll constantly monitor a retiree’s needs and goals within the context of their comprehensive financial plan and adjust as needed.

5. Maintaining Long-Term Outlook

Aiming for early retirement can narrow a senior's focus: hitting a "number," covering your current monthly budget, locking in health care coverage after that last day of work, filling up the rest of this year's calendar with travel plans.

But so many of the financial decisions seniors make today can have long-term consequences on retirement.

If you jump on an affordable health care plan that offers limited coverage, a medical emergency might break the bank. Maybe you’re forced to take Social Security ahead of schedule – at a permanently reduced benefit rate – to make ends meet.

If you withdraw too much too soon from your accounts in the run up to Medicare eligibility, you might trigger an Income-Related Monthly Adjustment Amount (IRMAA) to your premiums.

If you overspend early in retirement, you might miss out on opportunities to grow your wealth, such as making Roth conversions when your tax liability is low.

While none of us can see the future, a comprehensive financial plan can anticipate these kinds of long-term challenges, consequences, and opportunities, no matter when you decide to retire. The sooner you visit Keen Wealth and start prepping for retirement, the earlier you'll be able to make a successful transition on your preferred timeline.

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About Bill

Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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