If you work for a Washington school district or other public employer under TRS, PERS, or SERS, one question tends to stop early retirement plans in their tracks: how do you pay for healthcare before Medicare kicks in at 65? The good news is there are several real options, and which ones apply to you often depends on whether you are on Plan 2 or Plan 3. Let’s walk through each option, what it actually costs, and how to pay for it.
Your Medical Coverage Options
Before figuring out how to pay for healthcare, you need to know which coverage options are actually available to you. There are four main paths: COBRA, PEBB, a spouse’s plan, or the private market.
COBRA
COBRA gives you 18 months of continuous coverage through your former employer’s plan after you separate from service. It keeps you on the same benefits you are used to, but the cost is usually higher than before, since your employer is no longer paying its share. COBRA was really designed as a bridge between jobs, but it can also work as a bridge into retirement while you wait for another option to open up.
PEBB (Public Employees Benefits Board)
PEBB is generally one of the strongest options available, since it is built specifically for public employees and tends to be more competitively priced than private market coverage. But eligibility depends heavily on your pension plan, which we will cover in the next section.
A Spouse’s Plan or the Private Market
If your spouse has employer coverage, adding yourself to their plan is worth pricing out, though sometimes it is more expensive than expected. The private market is always a fallback too. Depending on your income in early retirement, you may qualify for reduced premiums, and a site like Washington Health Plan Finder is a good place to compare coverage.
Here is a quick side-by-side view of the four options, so you can see how they stack up against each other before digging into the pension-plan details.
| Option | Typical Cost | Best Used For |
|---|---|---|
| COBRA | Higher, since the employer no longer shares the cost | A short bridge, up to 18 months, right after separating from service |
| PEBB | Competitive, often better than private market | Long-term coverage once you are eligible |
| Spouse’s Plan | Varies widely by employer | Households where a spouse still has active employer coverage |
| Private Market | Varies with income, may qualify for subsidies | Filling gaps when no other option fits |
Why Your Pension Plan Matters for PEBB Eligibility
This is the part that surprises a lot of people. Whether you can enroll in PEBB right away when you retire early depends on whether you are on Plan 2 or Plan 3.
| Plan | PEBB Access When Retiring Early |
|---|---|
| Plan 3 | Can enroll in PEBB right away, without collecting your pension first |
| Plan 2 | Must start collecting your pension before you’re eligible for PEBB |
If you are on Plan 3, you can move straight into PEBB as soon as you retire, no strings attached. If you are on Plan 2, PEBB requires you to already be collecting your pension payment. Since most people retiring early on Plan 2 do not want to lock in a reduced pension benefit just to get health coverage, PEBB often is not realistic for them right away.
That is exactly where COBRA earns its keep. For a Plan 2 early retiree, COBRA’s 18 months of coverage can serve as the bridge that gets you closer to age 65 and Medicare eligibility, without forcing your hand on the pension decision.
Three Ways to Actually Pay for It
Knowing your coverage options is only half the equation. You also need a plan for where the premium money comes from. There are three main approaches.
- Option 1: Work a little, on your own terms. You do not need a full-time job, just enough income to cover the premium. If your medical insurance costs $700 a month, ask yourself what you could enjoy doing that would cover that amount. Substitute teaching a few days a week or starting a small side business are both common choices.
- Option 2: Find an employer that pays for it. Some employers offer medical coverage, or pay a majority of it, even for part-time staff. Starbucks, Home Depot, and Walmart are commonly mentioned examples. That is a solid trade: part-time hours, reduced or covered medical costs, and a bit of extra income on top.
- Option 3: Pay out of pocket and be fully done working. If you do not want to work at all, you can cover premiums from Social Security income or by drawing down savings and retirement accounts.
Is Drawing Down Savings for Two Years Really That Scary?
A lot of people get nervous about the idea of pulling money out of a retirement account just to pay for health insurance. It is a real cost, and that hesitation makes sense. But it helps to remember that this is usually a short-term draw, not a permanent one.
If you are retiring two years before eligibility for Medicare or your full pension, then you are only drawing on savings for those two years, not forever. Once you turn 65, healthcare costs typically drop as Medicare kicks in, your full pension likely turns on, and you may start Social Security as well. At that point your income picture changes, and the accounts you drew from during the gap years often have time to recover in the market.
Here is a simple way to see the size of that gap in dollars. Say your monthly premium is $700 and you need to bridge a two-year gap before Medicare.
| Monthly Premium | Gap Length | Total Cost to Bridge the Gap |
|---|---|---|
| $700 | 2 years (24 months) | $16,800 |
| $700 | 1 year (12 months) | $8,400 |
Seeing the actual total makes this much easier to plan around than an open-ended monthly number. A $16,800 gap to cover over two years is a concrete target you can save toward, combine with part-time income, or draw from savings, well before you ever hand in your resignation letter. Run this same math with your own estimated premium and expected gap length, and you will have a real number to work toward instead of a vague worry in the back of your mind.
Common Mistakes to Avoid
- Assuming PEBB works the same for everyone. Plan 2 and Plan 3 members face very different rules for PEBB eligibility. Confirm your own plan’s rules before you build a budget around it.
- Forgetting COBRA is temporary. COBRA’s 18 months will run out. Make sure you have a follow-up plan, whether that is PEBB, Medicare, or another option, before that window closes.
- Underestimating the total dollar amount. A monthly premium can feel manageable in isolation, but multiplying it out across the full gap period, as shown in the table above, gives you a much clearer target to plan and save toward.
- Not comparing all four options. COBRA, PEBB, a spouse’s plan, and the private market can all have very different price tags for the exact same coverage period. It is worth pricing out more than one before committing.
How This Fits Into Your Bigger Retirement Plan
Healthcare rarely stands alone as a decision. It connects directly to your pension timing and your Social Security timing, since all three pieces are working off the same calendar: the years between when you stop working and when you turn 65.
For example, if you are on Plan 2 and decide to delay your pension to avoid a reduced benefit, you are also delaying your PEBB eligibility, which means COBRA or the private market becomes your healthcare bridge for that same stretch of time. If you are on Plan 3 and can access PEBB immediately, your healthcare decision becomes much less tangled up with your pension timing. Seeing how these pieces interact before you set a date can save you from making one decision that quietly boxes in another.
Put a Plan Together Before You Decide
Healthcare is usually the single biggest wildcard in an early retirement plan, but it is also one of the most solvable, once you know your coverage options and have a realistic dollar figure to plan around. Before you set a retirement date, it is worth mapping out your specific PEBB eligibility, COBRA costs, and gap-year budget with a professional who understands how TRS, PERS, and SERS rules interact with these coverage options. You can schedule a personal meeting and we will build that plan together based on your actual pension plan and timeline.
Frequently Asked Questions
Can I enroll in PEBB if I retire early on Plan 2?
Only if you start collecting your pension payment, which most early retirees on Plan 2 want to avoid since it locks in a reduced benefit. COBRA is usually the more practical bridge option for Plan 2 early retirees.
How long does COBRA coverage last?
COBRA typically provides up to 18 months of continuous coverage through your former employer’s plan after you separate from service.
Is Plan 3 easier for early retirement healthcare?
In this specific area, yes. Plan 3 members can enroll in PEBB immediately upon retirement without needing to start their pension first, which gives them more flexibility than Plan 2 members in the years before Medicare.
Do I have to work to pay for healthcare in early retirement?
No. Working part-time is one option, but you can also pay premiums from Social Security income or by drawing down savings for the gap years until Medicare and your full pension begin.
What happens to my healthcare costs once I turn 65?
Costs typically go down once you become eligible for Medicare. At the same time, your full pension usually turns on, and you may choose to start Social Security, which changes your overall income picture.
Can I combine part-time work with drawing from savings?
Yes, and many early retirees do exactly that. A part-time job can cover a portion of the premium, while a smaller draw from savings covers the rest, which reduces how much you need to pull from your accounts each month.
Should I price out my healthcare gap before I set a retirement date?
Yes. Since healthcare is usually the biggest unknown in an early retirement plan, pricing it out ahead of time, using your actual premium estimates and gap length, turns a vague worry into a specific number you can plan around.
P.S. If you found this breakdown helpful and want more videos on funding an early retirement from WA DRS, come join a community of over 150 members working through these exact decisions together, with free courses and resources included.
