Retiring at 57: the eight years to Medicare, and how to pay for them

1. The shape of the eight years

Take the standard case: MRA at 57 with 30 years, a $38,000 annuity, a $1,500 monthly supplement, self-plus-one FEHB. Here is what the eight years look like if nothing is planned.

Two forces work against you in the first five years and one turns around at 62. The annuity is frozen in nominal terms until then, so every premium increase is a straight cut in disposable income. Then the supplement ends and the income drops by a third in a single month, while the COLA that finally starts adds back a few hundred dollars a year. The gap between rows four and one is the entire planning problem.

What fills it is the TSP, and the good news is that the money you draw in these years is drawn in the lowest tax brackets you will ever see. The details are in bridging to Social Security and turning 62.

2. The five-year rule is the whole game

Everything in this guide assumes you carry FEHB into retirement. That requires continuous enrollment in FEHB for the five years immediately before your retirement date, or since your first opportunity to enroll. Coverage under TRICARE counts toward the five years as long as you are enrolled in FEHB on the day you retire. There is no partial credit and, outside narrow exceptions, no waiver.

If your fifth year lands after your planned MRA date, wait. Lifetime FEHB is worth more than any pension gain you could get from leaving earlier — the government contribution alone runs to several hundred thousand dollars over a retirement. The mechanics, including the OPM skip-over example and the TRICARE strategy, are in the five-year rule guide.

One more warning specific to early retirement: if you separate without being eligible for an immediate annuity, FEHB ends 31 days later and never comes back, even if you later take a deferred annuity. Only an immediate or postponed annuity carries the coverage.

3. What FEHB actually costs before 65

The premium itself does not change because you retired. The government continues paying roughly 70% of it, the same share as for an active employee, and you pay the same enrollee share. That is the single most valuable feature of federal retirement healthcare and the reason the eight-year bridge is manageable at all.

What does change is the direction of travel. Premiums rose an average of 12.3% for 2026 and have risen every year for a decade. Your annuity, before 62, does not move at all. Over eight years at 5% annual premium growth, a $700-a-month enrollee share becomes about $1,035 — a $4,000-a-year increase absorbed entirely by a fixed income for the first five of those years.

Open Season, November 9 to December 14 for 2027 coverage, is when a retiree can change plans, and there is no penalty for switching. Most retirees never do. The enrollment tier is worth checking too: benefits are identical across tiers, so an empty-nester on self plus family is paying for nothing.

4. The after-tax change nobody mentions

As an active employee, your FEHB premium came out of your paycheck through premium conversion — pre-tax, reducing your taxable income. Annuitants cannot use premium conversion. The premium is deducted from your annuity after tax.

Nothing about the premium changed; your cost did. On an $8,400 annual premium at a 22% marginal rate, losing the pre-tax treatment costs about $1,850 a year. That is a real reduction in spendable income that appears the month you retire and shows up in no OPM estimate. Anyone building a retirement budget off their current net pay is overstating it by roughly that amount.

There is a partial offset for some retirees: medical expenses including FEHB premiums are deductible as itemized deductions above 7.5% of adjusted gross income. With a $38,000 annuity and an $8,400 premium, the threshold is $2,850 and the premium alone clears it — but only if you itemize, which most retirees taking the standard deduction do not. Self-employed retirees with consulting income may be able to deduct premiums above the line, which is worth a conversation with a preparer.

5. Why FEHB beats the alternatives

The comparison is lopsided, and the reason is the government contribution: no Marketplace plan matches roughly 70% of premium with no income test. A retiree with a $38,000 annuity might qualify for Marketplace subsidies, but the ACA subsidy cliff returned for 2026, so a modest increase in income — a large TSP withdrawal, a Roth conversion — can eliminate the subsidy entirely in a year when FEHB would not have cared. See bridging healthcare before 65 and conversions vs. ACA subsidies.

If your spouse has employer coverage, the right move is to suspend FEHB rather than cancel it. Suspension preserves the right to return; cancellation is permanent, and it is the one-way door described in cancelling FEHB in retirement.

6. The cliff at 62, in the middle of the bridge

Five years into the eight, the supplement stops. It is the largest single income event in the bridge, and it arrives with no notice beyond a smaller annuity payment.

Three ways to meet it, in rough order of preference. Bridge with the TSP and delay Social Security, which converts a temporary shortfall into a permanently larger, inflation-indexed, survivor-protected benefit later. Claim Social Security at 62, which restores the income immediately at a permanent 30% discount for anyone with a full retirement age of 67. Or work part-time, which is fine after 62 because the earnings test no longer touches a supplement you are not receiving — though it does apply to Social Security if you have claimed it.

What makes the federal version of this decision easier than the private-sector version is that FEHB does not depend on any of it. Your health coverage is not tied to the claiming decision, to your income, or to a Marketplace subsidy. That is precisely the freedom that lets a federal retiree wait, and it is the argument the turning-62 guide works through in detail.

7. Year 63: the IRMAA lookback

Two years before Medicare, a decision you are not thinking about sets a cost you will pay at 65. Medicare uses a two-year lookback: the modified adjusted gross income on your tax return for the year you turn 63 determines whether you pay the standard Part B premium at 65 or an income-related surcharge on top of it.

For a retiree with a $38,000 annuity, that sounds academic — the 2026 threshold is $109,000 single and $218,000 joint. It stops being academic if the year you turn 63 is also the year you do a large Roth conversion, sell a rental property, or take a lump sum from the TSP. A single $80,000 conversion at 63 can add $1,148 to $2,885 per person to your Medicare cost at 65, and for a couple both on Medicare, twice that.

The planning rule is simple: finish aggressive Roth conversions by 62, or size them against the IRMAA threshold that will apply two years out. The projected 2027 brackets and an estimator are in the 2027 IRMAA preview; the sequencing is in the conversion ladder.

8. Arriving at 65

The bridge ends and the decisions change. Your initial Medicare enrollment period opens three months before the month you turn 65 and runs seven months. Part A is free if you or your spouse have 40 quarters of Medicare-covered employment, and there is essentially no reason to decline it.

Part B is the real question: $202.90 a month in 2026 and a projected $218.60 for 2027, more with IRMAA. Taking it makes Medicare the primary payer, and many FEHB plans respond by waiving their deductible and coinsurance for Medicare-enrolled members; several reimburse $800 to $1,200 of the Part B premium. Declining it keeps FEHB as your primary coverage and avoids the premium, but a later change of mind carries a 10%-per-year lifetime late-enrollment penalty. Postal retirees under PSHB face a Part B requirement, not a choice, with narrow exemptions.

The full analysis is in the Part B decision, the givebacks in which plans reimburse your premium, and the penalty math in the late-enrollment penalty. Whatever you decide, do not drop FEHB. Even for retirees who take Part B, FEHB is a better supplement than most Medigap policies and it is the only one you can never buy back.

9. Planning the eight years

• Confirm the five-year rule in writing with HR before you set a retirement date. This overrides every other consideration on this page.
• Model the premium at 5% annual growth for eight years, not at today’s rate, and check the year-eight budget.
• Add roughly 20% to your premium cost in the budget to account for losing pre-tax premium conversion.
• Review your enrollment tier and plan at the first Open Season after retiring. Benefits are identical across tiers; the price is not.
• Size the TSP bridge for the 62-to-claiming-age gap and hold those years in the G Fund before you need them.
• Finish Roth conversions by 62, or size them against the IRMAA threshold two years ahead.
• Calendar your Medicare initial enrollment period for three months before your 65th birthday month.
• Never cancel FEHB. Suspend if you have another option; the door back is only open to suspenders.

10. Frequently asked questions