US health coverage and Social Security: the two ends of the gap

An early retirement is a gap. At one end you stop drawing a paycheck, and the employer plan that quietly paid most of your health insurance stops with it. At the other end, decades later, the federal machinery switches on: Medicare at 65, Social Security whenever you claim it. These two subjects share one article because they are the two ends of the same span.

They also fail in opposite directions, which is how a plan manages to be wrong twice. Health coverage is the biggest new line in an early retiree's budget, a bill that used to be invisible and now arrives every month with your name on it. Social Security is the biggest asset most plans miscount, usually by trusting a printed estimate that quietly assumes you keep working. One gets underestimated, the other overestimated.

One warning belongs at the top, and it bites harder here than anywhere else in this part. Every mechanism below was read against a primary source in 2026. The mechanisms move slowly; the health insurance rules moved anyway at the end of 2025, and every dollar figure attached to them is indexed. Read the current state at the source before you act, and make that reading part of the annual review (The annual review: the retiree's checklist).

Buying your own coverage before 65§

Without an employer, you buy an individual plan on the marketplace, healthcare.gov or your state's own exchange. Plans come in four metal tiers that describe how you and the insurer split the bill, not how good the care is: bronze pays about 60% of covered costs, silver 70%, gold 80%, platinum 90% (42 U.S.C. 18022(d)). You choose once a year, during an open enrollment running from November 1 to January 15 (45 CFR 155.410); outside that window only a qualifying event lets you in, such as losing other coverage, marrying, a birth or a permanent move.

Then the part that makes early retirement possible at all. An insurer "must accept every employer and individual in the State that applies for such coverage" (42 U.S.C. 300gg-1). It may not "impose any preexisting condition exclusion" (42 U.S.C. 300gg-3). And it may price you on four things only: individual or family, your rating area, your age within a 3:1 band, and tobacco (42 U.S.C. 300gg). Your medical history is not one of them. Before 2014 a single diagnosis could make individual coverage unbuyable at any price, and a FIRE plan that leaned on it had a trapdoor in it. Guaranteed issue is the foundation the whole gap sits on, and it is a statute rather than a habit.

The subsidy is a function of your income§

You rarely pay the sticker price. Section 36B gives a premium tax credit computed from a benchmark, the second lowest cost silver plan available to you: you are expected to contribute a percentage of your household income toward that benchmark, and the credit covers the rest. Buy a cheaper plan and you keep the difference; buy a richer one and you pay the excess. The expected percentage climbs with income up a statutory table that is re-indexed every year.

Income here means modified adjusted gross income: adjusted gross income plus tax-exempt interest, excluded foreign income, and the untaxed part of Social Security (26 CFR 1.36B-1). Note what that catches. Realized capital gains, traditional withdrawals and Roth conversions are all in it, and so is municipal bond interest, untaxed as it is. A sale puts only its gain in it, and a dollar from a Roth account or from your own taxable basis is not in it at all.

So which tap you open decides your insurance premium as surely as it decides your tax (US accounts, and the order you drain them). The same spending, funded from different accounts, can produce two health insurance bills thousands of dollars apart, and the machinery for steering it is the machinery of the tax article (US taxes in the withdrawal phase).

Then there is the shape of the schedule, and 2026 is the year to be careful. The enhanced credits enacted in 2021 and extended in 2022 applied only to taxable years beginning before January 1, 2026 (26 U.S.C. 36B(b)(3)(A)(iii)), and they lapsed on schedule at the end of 2025. What returns is the original design: eligibility runs from 100% to 400% of the federal poverty line and stops dead there (26 U.S.C. 36B(c)(1)(A)). It is a cliff, not a taper. At the top of the range, for 2026, the expected contribution is 9.96% of household income (Rev. Proc. 2025-25). One dollar above the line it is 100% of the premium.

The alternatives, briefly§

Employer coverage through someone else's job. The cheapest coverage in America is still the kind an employer subsidizes. A spouse who keeps working, or part-time work that carries benefits, moves the whole line off your budget, which is one of the underrated arguments for a staggered exit (Barista, Coast, side income: work you choose).

COBRA, a bridge measured in months. Leaving a job, you can usually keep the employer plan for 18 months, and up to 36 for other qualifying events, at up to 102% of the plan's full cost (29 U.S.C. 1162). Full cost includes the share your employer used to pay, so the number is often a shock. It buys continuity of network and deductible, not economy, and it ends on a date.

Health care sharing ministries. They are not insurance: nothing is guaranteed, no regulator stands behind the promise, and paying any given bill is at the group's discretion.

Direct primary care, a monthly fee to a practice for routine care, covers ordinary visits and no hospital, so it complements a catastrophic plan rather than replacing one.

And the HSA sits behind all of it. Money deducted going in comes out untaxed for qualified medical expenses at any age, which makes it the natural reservoir for deductibles and out-of-pocket costs across the whole gap (US accounts, and the order you drain them).

What changes at 65§

Medicare arrives. Part A covers hospital stays and is premium-free if you are insured for Social Security, on the same 40 quarters of coverage discussed below (42 U.S.C. 426). Part B covers doctors and outpatient care for a monthly premium, Part D covers drugs. Then you pick a lane: original Medicare, usually plus a Medigap policy that pays what Part B leaves, or a Medicare Advantage plan bundling everything into one private plan with a network. Mark the Medigap window in the calendar: the six months that open when you turn 65 and enroll in Part B are the one time an insurer may not underwrite you on health (42 U.S.C. 1395ss). Afterwards, in most states, it may.

The FIRE-specific point is the surcharge. Higher-income beneficiaries pay an income-related monthly adjustment on both Part B and Part D, and the income it reads is the modified adjusted gross income of "the taxable year beginning in the second calendar year preceding the year involved" (42 U.S.C. 1395r(i), and 1395w-113 for Part D). A two-year lookback, with indexed thresholds and steps rather than a taper. So the conversion you make at 63 sets the premium you pay at 65, and a big conversion program wants to be finished, or sized on purpose, before that clock starts. Two smaller things land at 65 too: HSA contributions must stop once you are entitled to Medicare (26 U.S.C. 223(b)(7)), and HSA money may pay Medicare premiums but not a Medigap premium (26 U.S.C. 223(d)(2)(C)).

What does not happen at 65 is that the health line goes to zero. Premiums, surcharges, drugs, dental and hearing and the long tail of what Medicare never covered keep it alive. What changes is its shape: a smaller fixed premium, and a fatter tail of out-of-pocket spending that grows with age. That is the back half of the spending smile (Real spending in retirement (the retirement smile, Die With Zero)).

Social Security when you stopped at 45§

Four mechanics decide your benefit, and a short career meets each of them differently.

Forty credits. You are fully insured with 40 quarters of coverage (42 U.S.C. 414), earned at a maximum of four a year against an indexed earnings threshold (42 U.S.C. 413). Ten years of work, which almost any FIRE career clears without trying.

Thirty-five years, zeros included. The benefit runs off average indexed monthly earnings, averaged over your highest 35 years of wage-indexed earnings (42 U.S.C. 415(b)). Work 20 and the other 15 are zeros in that average. That is the mechanical cost of leaving early, and it is not a cut in proportion to the years missed: it is a divisor that stays at 35 whatever you do.

Bend points, pushing the other way. The formula replaces 90% of the first slice of that average, 32% of the next and 15% of the rest (42 U.S.C. 415(a)), with the dollar boundaries indexed to the national average wage. It is steeply progressive, and for a short career that is cheerful news. The zeros pull your average down, but the dollars that survive land further down the formula, where they are replaced at 90 cents instead of 15. A FIRE career gets a smaller benefit and a better replacement rate on what it did earn, which is why the honest number is usually less alarming than the arithmetic of the zeros suggests.

Claiming age. Full retirement age is 67 for anyone born in 1960 or later (42 U.S.C. 416(l)). Claim earlier and the benefit is cut by 5/9 of 1% for each of the first 36 early months and 5/12 of 1% for each month beyond (42 U.S.C. 402(q)), a 30% cut at 62. Claim later and it grows by 2/3 of 1% a month, 8% a year, until 70 (42 U.S.C. 402(w)). That delayed credit is the best inflation-linked life annuity an American household can buy, which is the argument Annuities and safety first: buying a floor builds on.

And the household version. A spouse can claim up to half of the higher earner's primary insurance amount, and a surviving spouse steps up to roughly the deceased's own benefit (42 U.S.C. 402). So the higher earner's delay is not only a bet on their own longevity: it raises the check the survivor will live on. In a couple, that usually makes the higher earner's claiming age the more consequential of the two decisions.

Reading your SSA statement without fooling yourself§

Log in to your account at ssa.gov and the Statement shows your earnings record and estimated benefits at 62, at full retirement age and at 70. Those estimates assume you keep earning roughly what you earn today, every year, until you claim.

For a FIRE plan that assumption is exactly wrong, and wrong in the expensive direction: the printed figure credits you with working years you are about to not have. Anyone who says Social Security is unknowable is skipping a ten-minute job. SSA's own calculators, the Retirement Estimator and the downloadable Detailed Calculator, take your real earnings history and let you set future earnings to zero. That run, not the Statement's headline, is the number your plan should carry.

Putting it in the plan§

Social Security enters a plan as a deferred, inflation-indexed income stream that starts at your claiming age and cuts what the portfolio has to cover from that date on. How to model such a flow, and why the withdrawal rate before it starts is not the rate after, belongs to Pensions and other income in the plan. Enter it net of the tax it will attract, and enter it prudently.

How prudently deserves two honest sentences rather than a sermon. The 2026 Trustees Report projects the retirement fund's reserves depleted in late 2032 and the combined funds in 2034, with continuing tax revenue still covering 78% and 83% of scheduled benefits, so the gap between benefits scheduled and benefits payable is real and is roughly a fifth. What Congress does about it before then is a political forecast rather than a financial one, which is why the standard practice is to haircut the number instead of arguing: many plans carry 70% or 75% of the estimate for someone decades away, full value for someone close to claiming, and test the plan both ways.

The essentials§

Going further§