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Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.
I keep a running list of the questions I hear most often in client meetings. And if I had to pick the one that comes up more than any other, it would be some version of this: "But what do we do about health insurance?" It usually comes right after we've looked at the pension numbers. Right after we've mapped out Social Security timing and portfolio withdrawals. Right after the whole plan starts to come together and the idea of retiring at 57 or 58 feels real for the first time. Then healthcare enters the conversation, and everything stalls. I get it. The gap between early retirement and Medicare at 65 can feel like a giant question mark. And when you start searching for answers online, the numbers you find can be genuinely alarming. But here's what I've noticed after working with Washington public employees: the healthcare gap is almost never the dealbreaker people think it is. It's a real cost that requires real planning. But it's solvable. And I've watched too many people work years longer than they needed to because they never sat down and put actual numbers to the problem. The scary headlines (and what they're actually saying) Let's start with what you'll find if you Google "healthcare costs in retirement." Fidelity's 2025 Retiree Health Care Cost Estimate found that a 65-year-old retiring today can expect to spend an average of $172,500 on healthcare throughout retirement¹. That number has been climbing steadily since Fidelity started tracking it in 2002. Meanwhile, a recent survey from the Nationwide Retirement Institute found that 73% of U.S. adults list healthcare expenses going out of control as one of their top retirement fears². And about two-thirds of respondents said they couldn't even estimate what those costs would total². Those are real numbers. But context matters. That $172,500 Fidelity figure? It assumes enrollment in Medicare Parts A, B, and D. It covers premiums, copays, and out-of-pocket costs spread across the entire retirement¹. Nobody writes a check for $172,500 on their first day of retirement. It's an ongoing budget item, not a lump sum. And here's the part that rarely makes the headlines: according to Fidelity's own breakdown, about 44% of that total goes to Medicare Part B and Part D premiums, which are predictable, fixed monthly costs¹. What does the gap actually cost in Washington? For Washington State public employees, the healthcare question from retirement to Medicare at 65 really comes down to two options: PEBB retiree coverage (or some other association coverage such as WSCFF) or the ACA marketplace. Let's talk about PEBB first, because this is one of the biggest advantages you have as a state employee. If you're a vested member of a Washington State retirement plan (PERS, TRS, SERS, LEOFF, or others) and you meet certain eligibility requirements, you can continue your PEBB health insurance into retirement³. That's a significant benefit. You're not shopping for insurance on the open market with no employer backing. You're staying in the same pool you've been in your entire career. Now, the cost is real. For 2026, the PEBB retiree monthly premium for UMP Classic (subscriber only, non-Medicare) is $970.43 per month⁴. For subscriber and spouse, it's $1,935.11 per month⁴. That's meaningful money. But compare that to what the broader market looks like. According to recent data, average monthly ACA marketplace premiums for a 55-year-old are around $1,084, and for a 60-year-old, they climb to roughly $1,319 for a mid-tier Silver plan⁵. For a couple in their late 50s or early 60s, the math adds up fast. And employer-sponsored health benefit costs keep climbing. Mercer's National Survey of Employer-Sponsored Health Plans found that health benefit costs per employee rose 6% in 2025, with an even higher increase of 6.7% projected for 2026, the highest in 15 years⁶. The point isn't that healthcare is expensive (it is). It's that these are knowable numbers. You can plan for them. Putting it in your retirement plan Here's how I think about this with clients. Let's say you're a hypothetical PERS 2 member, age 56, planning to retire next year. Your spouse is also a public employee. You've got a combined $800,000 in retirement accounts and other savings. The healthcare gap for both of you is roughly nine years (from age 56 to 65). At current PEBB retiree rates, you're looking at around $1,935 per month for the couple. That's about $23,200 per year, or roughly $209,000 over nine years before Medicare kicks in. That's a lot of money. But it's a line item in your plan, not a mystery. And when you factor in your pension income, your DCP withdrawals, and eventual Social Security, this becomes a budgeting exercise, not a guessing game. From a tax perspective, those early retirement years before Social Security and required minimum distributions start can actually be the lowest-income years of your entire retirement. That creates an opportunity. You can do Roth conversions in lower tax brackets, pull from taxable accounts strategically, and potentially qualify for ACA premium tax credits if you go the marketplace route instead of PEBB. The tax planning and the healthcare planning are connected. You can't do one well without thinking about the other. What actually works After working through this with numerous public employee families, here's what I've seen make the biggest difference. Know your PEBB eligibility before you set a retirement date. The rules changed for PERS 2 members separating on or after January 1, 2024. Make sure you understand the age and service requirements that apply to your specific plan³. Budget for healthcare like you budget for other expenses. It's a large, predictable expense. Build it into your cash flow projections from day one. Don't treat it as an afterthought. Compare PEBB retiree coverage to the ACA marketplace every year. Depending on your income in retirement, marketplace subsidies could make a significant difference. This is especially true in those early retirement years when you're controlling your taxable income through strategic withdrawals. Think about the bridge, not just the gap. PEBB continuation coverage (COBRA) can serve as a bridge to PEBB retiree coverage if you need it³. Understanding the timeline and enrollment deadlines is critical. You generally have 60 days from when your employer-paid coverage ends to enroll in PEBB retiree coverage³. Don't forget about Medicare planning ahead of time. When you do turn 65, you'll want to enroll in Medicare Parts A and B. If you're on PEBB retiree coverage and become Medicare-eligible, you're required to enroll in Medicare to keep your PEBB benefits³. Start that process a few months early to avoid gaps. The real cost of waiting Here's the thing that doesn't show up on any premium schedule. Every year you work past the point where you could have retired is a year you didn't spend doing the things that matter most to you. For my clients, that's usually more time with grandkids, traveling while they're healthy, or just having a Tuesday morning where nobody needs them to be anywhere. The healthcare gap is real. But it's not a wall. It's a bridge you have to plan for and pay for. And once you see the actual numbers, most people realize the cost of the bridge is a lot less than the cost of the extra years they were thinking about working. If you're a Washington State public employee within five years of retirement and you've been putting off the healthcare conversation, now is the time to sit down and put real numbers on it. The answer might surprise you. Sources
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AuthorsBob Deal is a CPA with over 30 years of experience and been a financial planner for 25 years. Archives
April 2026
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