Health Insurance for Retirees Under 65: Avoid These 7 Expensive Mistakes That Could Drain Your Savings in 2025

Planning for health insurance before you turn 65 is one of the most overlooked yet financially critical steps for retirees. Contrary to popular belief, Medicare doesn’t start automatically at retirement — it only kicks in at age 65. So, if you’re planning to retire early, you need a clear, strategic approach to cover your healthcare costs. Otherwise, you might face overwhelming out-of-pocket expenses, penalties, and coverage gaps that could devastate your hard-earned savings.

In this blog post, we’ll walk you through the seven costly mistakes retirees under 65 commonly make — and how you can avoid them to protect your financial security and your peace of mind. We’ll focus on both Canada and the USA as healthcare systems differ but the risks of getting it wrong remain the same.

Why Health Insurance for Retirees Under 65 Is More Complicated Than You Think

Retiring before Medicare eligibility age comes with a new set of financial challenges. Most people underestimate just how expensive healthcare can be when you don’t have employer coverage anymore. In the USA, private health insurance premiums for someone in their early 60s can easily exceed $800 – $1,200/month, depending on the plan and state. In Canada, while there is provincial coverage, many essential services (like prescriptions, dental, and out-of-country coverage) aren’t included, making private health plans or supplemental coverage necessary.

If you’re planning an early retirement in 2025, this post will help you avoid draining your savings on costly mistakes.

1. Overlooking ACA or Provincial Options for Early Retirees

Many early retirees assume that COBRA or expensive private insurance is the only route to cover the gap before Medicare or enhanced Canadian provincial coverage kicks in. That’s a mistake.

In the USA:

Thanks to the Affordable Care Act (ACA), you might qualify for subsidies even if you have significant savings. The ACA calculates eligibility based on your taxable income, not your total wealth. A common error is failing to leverage tax strategies to lower Modified Adjusted Gross Income (MAGI) and qualify for cheaper premiums.

For more details on ACA subsidies, see this Healthcare.gov guide.

In Canada:

Retirees under 65 often forget that while provincial coverage is robust for hospital care, it won’t cover prescriptions, paramedical services, dental, or medical travel. That’s where a private plan can fill the gaps affordably.

Tip: Compare plans designed for retirees, as these often bundle in the extras at a reduced rate.

2. Ignoring Health Insurance Marketplace vs. COBRA

If you’re leaving a job with great benefits, COBRA coverage can seem like an easy choice. However, COBRA is expensive — you’ll pay the full cost of the insurance, plus a 2% administrative fee.

Marketplace alternatives (USA):

Plan Type	Pros	Cons
COBRA	Easy transition, same coverage	Very expensive, no subsidies
ACA Marketplace	Potential subsidies, wider choices	Might mean switching doctors or networks
Short-Term Plans	Lower monthly premiums	Less comprehensive, doesn’t meet ACA rules

Key Mistake: Not exploring ACA options because you assume subsidies won’t apply.

3. Underestimating the True Cost of Healthcare

Even with insurance, retirees often overlook how deductibles, copays, coinsurance, and max out-of-pocket limits will impact their retirement budgets. For a healthy person, these seem trivial. For someone managing chronic illness, they add up fast.

Cost Planning Checklist:

Review max out-of-pocket limits annually.
Understand your prescription costs under the new plan.
Consider future needs: physical therapy, specialist care, dental, vision.

USA Example: A Bronze ACA plan might cost less monthly but leave you vulnerable with a $9,000 deductible.

Canada Example: Prescriptions or out-of-country emergencies can wipe out your savings without supplemental insurance.

4. Assuming Employer Retiree Coverage Is Guaranteed

Fewer and fewer companies offer retiree medical benefits anymore. Those that do can change coverage terms at any time — even after you’ve retired.

Reality Check:

Confirm in writing what’s covered and for how long.
Understand spousal continuation options.
Review alternatives annually against changing personal health needs.

5. Skipping HSA Strategies Before Retirement

Health Savings Accounts (HSAs) offer triple tax advantages in the USA: tax-free contributions, tax-free growth, and tax-free withdrawals for medical expenses.

Common Mistake: Not maximizing your HSA contributions while still employed. These funds can cover premiums for COBRA, ACA, or Medicare premiums (excluding Medigap) after retirement.

Key Tip: Build up your HSA now to offset post-retirement health costs tax-free.

Learn more about HSA strategies from Fidelity’s guide.

6. Overlooking Travel Health Insurance

Both Canadians and Americans love to travel during retirement — but most forget standard coverage often ends at the border.

USA:

Your ACA plan might only cover emergencies abroad, if at all.

Canada:

Provincial plans cover minimal care abroad. Without supplemental travel insurance, you could face six-figure bills in the USA.

Travel Insurance Checklist:

Review exclusions carefully.
Look for plans with annual multi-trip coverage if you travel often.
Verify coverage for pre-existing conditions.

7. Not Comparing Deductibles, Copays & Out-of-Pocket Maximums

Choosing health insurance isn’t just about monthly premiums. Look at the total cost of care. This mistake leads many retirees to pick the “cheapest” option that ends up costing more when care is needed.

Quick Comparison Example (USA):

Plan Type	Monthly Premium	Deductible	Max Out-of-Pocket	Best For
Bronze	$450	$8,000	$9,500	Healthy with savings
Silver	$650	$3,000	$7,500	Balanced needs
Gold	$850	$1,500	$6,500	Frequent healthcare users

Mistake: Picking Bronze purely for cost savings without factoring in usage.

Final Thoughts: Protect Your Retirement by Avoiding These Mistakes

Healthcare costs are one of the biggest risks to your retirement savings if you exit the workforce before age 65. These mistakes can cost you thousands unnecessarily. Plan proactively, compare your options, and revisit your choices annually as your health and regulations change.