Price the gap before you pick the retirement date

Quick answer: Medicare generally starts at 65, no matter when you stop working or claim Social Security. Before you give notice, price every way to cover the months in between, and set the date only after you've seen the number.

Retire at 60 and you have 60 months to cover. Five years, no employer paying the bulk of the premium, and no Medicare card coming in the mail. That surprises more people than any market drop does.

It's also the line item you have the most control over. So price it first.

What you're choosing between

Most people in the gap have five doors.

• COBRA. You keep your old employer's plan and pay for it yourself.
• The marketplace. You buy an ACA plan at HealthCare.gov or through your state's exchange.
• A spouse's plan. If your wife is still working, her employer's coverage may take you on.
• Retiree coverage. Some employers and unions still offer it. Ask HR in writing before you decide anything.
• A bridge job. Part-time or full-time work with benefits.

Each one has a price, a deadline and a catch. Start with the one everyone lands on by default.

COBRA: same plan, real price

COBRA generally covers up to 18 months after you leave a job, if your employer had 20 or more workers. Smaller employers often fall under state continuation rules instead, so ask which applies.

The catch is the bill. While you worked, your employer paid a large share of the premium and it came out of your paycheck in small bites. Under COBRA you pay the whole premium, plus up to 2 percent for administration.

A worked example, with made-up numbers. Say you pay $300 a month for family coverage today. The plan's full cost is $1,900. With the 2 percent fee, you'd pay $1,938 a month. Over 18 months, that's $34,884 before you've seen a doctor. These figures are an illustration. Your HR department can tell you your real full premium in one phone call.

Two deadlines matter. You generally have 60 days to elect COBRA after you get your notice, and then a short window, commonly 45 days, to make the first payment. Coverage can reach back to the day your old coverage ended. Miss either window and the door shuts.

And one trap. Once you're in COBRA, you generally can't walk out and join a marketplace plan mid-year just because you found a better price. That usually waits for open enrollment. Choose on purpose.

The marketplace and the income dial

Losing job-based coverage, including by retiring, generally opens a special enrollment period of 60 days. You can usually start the application up to 60 days before the coverage ends. Use that. You can see real plans and real prices before you quit.

Most retirees miss this part. Marketplace premium tax credits are based on your modified adjusted gross income (MAGI) for the year. In the gap, your income is mostly something you choose. What you withdraw, from where, and what you sell all show up on the form.

Traditional IRA withdrawals count as income. Realized gains in a brokerage account count. Qualified Roth withdrawals generally don't. So the order you spend your accounts in can change what you pay for health insurance. That's one more reason to read Which Retirement Account To Spend From First before you draw a dime.

A paid-off house can help too. Lower fixed costs mean you need less income to live on, which makes it easier to hold your MAGI down. When To Pay Off The Mortgage Before You Retire walks through that trade-off.

One warning. Congress has changed how generous these credits are, and whether they stop at an income line, more than once in recent years. Don't plan around last year's rules. Check HealthCare.gov and IRS.gov for the current ones, and have a CPA run your numbers before you rely on them.

Two practical points on plans themselves:

• Check that your doctors and your prescriptions are on the plan you pick. A cheap premium with the wrong network isn't cheap.
• Look at the out-of-pocket maximum, not just the premium. That's your worst-case year for covered, in-network care.

Other doors, read twice

Some people look at health care sharing arrangements or short-term plans because the monthly price is lower. Know what you're looking at.

Sharing arrangements generally aren't insurance. In many states they aren't regulated as insurance, and there's usually no guarantee that a bill gets paid. Short-term plans can turn you down or exclude conditions you already have. Rules vary by state and have changed over time.

Neither is automatically wrong for a healthy 61-year-old who understands the limits. But you'd be trading certainty for price, and that deserves a long look at the fine print and a conversation with a licensed professional.

Time the exit

The month and day you leave matter more than people think.

Your deductible and out-of-pocket maximum reset on a plan-year schedule. If you've had a big year of care and you've already met your deductible, leaving at year's end can be cheaper than leaving in March. If you've got surgery planned, get it done on the plan that's paying.

Employer coverage often ends on the last day of the month you leave. Ask HR for the exact date, in writing, and mark the 60-day window on a calendar.

A spouse's plan works differently. Joining it after losing other coverage usually carries a shorter window, often 30 days. Ask her HR department today, not the week you retire.

The handoff at 65

This is where good gap-year plans go wrong.

Medicare's Initial Enrollment Period runs seven months around your 65th birthday: three months before, the month itself, and three months after. Miss it without qualifying coverage, and Part B can carry a lifelong late penalty, generally 10 percent for each full 12-month period you could have enrolled and didn't.

The key point: COBRA and retiree coverage generally don't count as the kind of coverage that lets you delay Part B without penalty. Coverage from a current job does. So if you're 65 and living on COBRA, don't assume you're covered. Call Medicare.gov or 1-800-MEDICARE and confirm your dates.

If you have a health savings account, know this too. Part A can reach back up to six months once you enroll, and HSA contributions during a month of Medicare coverage can bring a tax penalty. The usual advice is to stop contributing about six months before you apply for Medicare or Social Security. Check IRS.gov or ask your CPA. You can generally use HSA money for COBRA and Medicare premiums, but not for Medigap.

Claiming Social Security at 62 doesn't buy you Medicare early. It's a separate decision on a separate clock.

Build the gap budget

Do it in five steps, on paper, before you give notice.

1. Count the months from your last day to 65.
2. Get the COBRA full-premium number from HR.
3. Get real marketplace quotes for your age and ZIP code.
4. Add the out-of-pocket maximum for each. That's your high-water mark.
5. Total each path. Premiums times months, plus one year of worst-case spending.

Then ask the honest question. Does the number fit with the plan, or does it say work another year? Sometimes the answer is a bridge job with benefits. Sometimes it's a part-time role that fills the days, as laid out in What to do with Tuesday morning when you retire. Working one more year isn't failure. It's cheaper than being wrong.

Limits, ages, penalties and income thresholds all change. Check the current ones at HealthCare.gov, Medicare.gov, SSA.gov and IRS.gov. This is general education, not advice for your situation. Before you act, sit down with a fee-only fiduciary adviser and a CPA, and bring the gap budget with you.

Pick the date last. The number comes first.