Retiring Before 65? Here's What Health Insurance Actually Costs
Medicare doesn't start until 65. Everything before that is on you to cover, and the bill depends less on your savings than most people assume.
An unsubsidized ACA marketplace plan for someone in their early 60s commonly runs several hundred to over a thousand dollars a month, depending on state and plan. That number scares a lot of people out of retiring early. Here's the part that doesn't get said enough: ACA premium tax credits are based on your taxable income, not your net worth. A retiree sitting on $1.5 million who keeps their taxable income low can qualify for a real subsidy. A working 60-year-old earning $90,000 usually can't.
Why the Subsidy Math Favors Early Retirees
Health insurance subsidies look at modified adjusted gross income, or MAGI. Nothing about the size of your portfolio shows up there directly. What shows up is what you actually withdrew and had to report as taxable: traditional IRA withdrawals, Roth conversions, realized capital gains, interest, dividends. A Roth withdrawal of money already converted or contributed doesn't count toward MAGI at all.
That creates an unusual situation. Someone with $1.5 million invested, living mostly off a taxable brokerage account and Roth withdrawals, might report $38,000 in MAGI for the year. Someone earning a $90,000 salary reports $90,000. The retiree, despite having far more money, often qualifies for a bigger subsidy. Net worth and taxable income just aren't the same thing, and the ACA only looks at one of them.
Where This Collides With Everything Else
Managing MAGI down to maximize a subsidy pulls directly against two other things this site covers. Converting money in a Roth conversion ladder adds to MAGI the year you convert. Pulling extra from a traditional IRA during the low-tax-bracket window described in the withdrawal order guide does the same thing.
Neither move is wrong. They just trade against each other. A dollar of Roth conversion today might save real money on future taxes, while simultaneously shrinking this year's ACA subsidy. There's no universal right answer here. It depends on how large the subsidy actually is at your income level, how much you'd save by converting, and how many years you're bridging.
Three Ways to Cover the Gap
| Option | How it works |
|---|---|
| ACA marketplace | Buy a plan directly, subsidy-eligible based on MAGI |
| COBRA | Continue a former employer's plan, usually at full unsubsidized cost, for a limited time |
| Spouse's employer plan | Join a working spouse's coverage if available |
Bridge to 65 FAQ
What is the bridge to 65?
The gap between retiring and turning 65, when Medicare eligibility starts. Anyone retiring before 65 covers health insurance themselves during this stretch, usually through an ACA marketplace plan, a spouse's employer plan, or COBRA.
How much does coverage actually cost?
Unsubsidized, commonly several hundred to over a thousand dollars a month, depending on age, state, and plan. What you actually pay depends heavily on your ACA premium tax credit, which is based on income, not assets.
Do subsidies really help retirees?
Often significantly. Subsidies are based on taxable income, not net worth. A retiree with meaningful savings but low taxable income can qualify for real help, something a salaried worker at the same income level often can't match in net worth terms but is treated identically to for subsidy purposes.
What counts toward income here?
Modified adjusted gross income: traditional IRA and 401(k) withdrawals, taxable Roth conversions, realized capital gains. Already-converted or already-contributed Roth withdrawals generally don't count, which is exactly why withdrawal order and conversion timing both affect your subsidy.
Educational purposes only. This guide describes general ACA and Medicare eligibility mechanics and is not personalized insurance, tax, or financial advice. Subsidy formulas and income thresholds are set by current law and change; verify current figures at healthcare.gov. Retire BFF is not a registered investment advisor or licensed insurance broker.