Healthcare in Early Retirement: Bridging to Medicare

How ACA subsidies, income control, and healthcare risk shape the decision

June 13, 2026

Healthcare is often the swing factor in an early retirement plan. A client may have enough assets, a reasonable spending rate, and a thoughtful portfolio, but if the years between employer coverage and Medicare are not planned carefully, healthcare can turn a comfortable retirement date into a much tighter one.

That is especially true in 2026. The additional ACA Marketplace savings that were created during the COVID period ended on December 31, 2025.¹ Under current law, 2026 premium tax credits have returned to the older structure: generally, household income must be at least 100% and no more than 400% of the federal poverty line, and the percentage of income a household is expected to contribute toward the benchmark Silver plan is higher than it was under the enhanced subsidy rules.²

That does not mean early retirement is off the table. It does mean the healthcare bridge needs to be modeled with the same seriousness as portfolio withdrawals, Roth conversions, Social Security timing, and tax planning. For many clients, the right answer is not simply "work until 65." The right answer is to understand the bridge, price the risk, and decide whether the plan can absorb it.

Medicare generally starts at age 65. A retirement at 60 creates a five-year healthcare bridge. A retirement at 62 creates a three-year bridge. A couple with one spouse age 64 and the other age 59 may have two different bridges at the same time. Those years can be covered through a spouse's employer plan, retiree medical benefits, COBRA, an ACA Marketplace plan, a private off-exchange plan, or some combination of those options.

The ACA Marketplace is often the most flexible bridge because it is available without medical underwriting and, for households that qualify, premium tax credits can materially reduce monthly premiums. The credit is not a flat dollar amount. It is a formula. It depends on household size, household modified adjusted gross income, the second-lowest-cost Silver plan in the local Marketplace, where the client lives, ages of covered household members, and whether the household has access to other affordable minimum-value coverage.³

This is why early retirement healthcare planning is not just an insurance decision. It is also a tax planning decision. The taxable income we create through IRA withdrawals, Roth conversions, capital gain realization, interest, dividends, pension income, and Social Security can change the subsidy. A dollar of income does not always have a one-dollar effect.

The 2026 rules are materially different from the 2025 rules. In 2025, the enhanced subsidy schedule capped the expected contribution for benchmark Silver coverage at 8.5% of income and allowed premium tax credits above 400% of the federal poverty line.⁴ For 2026, IRS Rev. Proc. 2025-25 sets the applicable percentage table at 2.10% for income below 133% of the federal poverty line, rising through the brackets, and topping out at 9.96% for income between 300% and 400% of the federal poverty line. Above 400%, the premium tax credit generally disappears under current law.²

For 2026 coverage, the relevant poverty guideline is the 2025 HHS poverty guideline because premium tax credit eligibility for a coverage year is based on the most recently published poverty guidelines as of the first day of open enrollment for that year.³ In the 48 contiguous states and Washington, D.C., the 2025 poverty guideline is $15,650 for a household of one, $21,150 for a household of two, and $32,150 for a household of four.⁵ Alaska and Hawaii use higher guidelines.

Figure 1 shows the income thresholds that matter most. The 400% line is the key upper limit in 2026: $62,600 for a one-person household, $84,600 for a two-person household, and $128,600 for a four-person household in the 48 contiguous states and D.C. Figure 2 shows why the change from 2025 to 2026 is so important. Under the enhanced rules, the upper-income cliff was suspended. Under current 2026 law, the cliff is back.

There is a second form of ACA help that can matter for early retirees with lower taxable income: cost-sharing reductions. These reduce deductibles, copays, coinsurance, and the out-of-pocket maximum, but only if the client chooses a Silver plan.⁶ That is a common place to make a mistake. A Bronze plan may have the lowest premium after tax credits, but a Silver plan with cost-sharing reductions may be the better risk-management decision for a household that expects meaningful care during the year.

Figure 1: 2026 premium tax credit income thresholds for the 48 contiguous states and D.C.

Figure 2: The 2025 enhanced subsidy schedule versus the 2026 current-law schedule.

The Marketplace formula starts with the benchmark premium. The benchmark is the second-lowest-cost Silver plan available to the household. The law then calculates an expected household contribution based on income as a percentage of the federal poverty line. The premium tax credit is roughly the benchmark premium minus that expected contribution. A household can apply the credit to another Marketplace plan, but the credit is anchored to the benchmark Silver plan.

Example one: assume a married couple retiring before Medicare has 2026 household MAGI of $70,000. For a household of two in the 48 contiguous states and D.C., that is about 331% of the federal poverty line. Under the 2026 table, the expected contribution percentage is 9.96%. Their expected annual contribution is about $6,972, or $581 per month. If their local benchmark Silver premium were $1,900 per month, or $22,800 per year, their estimated annual premium tax credit would be $15,828, or about $1,319 per month. If they bought a plan costing $1,400 per month, the estimated net premium would be roughly $81 per month after the credit.

Example two: keep the same couple and the same $1,900 monthly benchmark, but raise MAGI to $85,000. The 400% federal poverty line threshold for a household of two is $84,600. At $85,000, the household is above the 2026 upper limit. Under current law, the premium tax credit generally falls to zero. In this illustration, a few hundred dollars of additional income can turn an estimated $1,199 monthly subsidy at $84,500 of MAGI into no subsidy at $85,000 of MAGI. Figure 3 shows that cliff visually.

Example three: assume a single retiree has MAGI of $38,000. That is about 243% of the federal poverty line for a household of one. Under the 2026 table, the expected contribution percentage is roughly 8.2% after interpolation between the 200% and 250% brackets. The expected annual contribution is about $3,100, or $259 per month. If the local benchmark Silver premium were $900 per month, the estimated premium tax credit would be about $641 per month.

These examples are simplified, but the planning lesson is practical. In the early retirement years, one Roth conversion, one large capital gain, one consulting project, or one mutual fund capital gain distribution can change the healthcare premium bill. Sometimes that trade is worth making. A well-timed Roth conversion can still be valuable even if it reduces or eliminates an ACA subsidy. But it should be an intentional trade, not a surprise discovered at tax filing.

Figure 3: Illustrative ACA cliff for a married couple with a hypothetical $1,900 monthly benchmark Silver premium.

Early retirement is most appropriate when the healthcare bridge has been built into the plan, not left as a footnote. I view the bridge as workable when four things are true.

First, the plan can afford the unsubsidized premium if the subsidy disappears. A plan that only works if income stays under a precise ACA threshold is fragile. Income estimates change, tax laws change, markets distribute taxable gains, and life rarely follows the spreadsheet exactly. Subsidies are valuable, but they should be treated as a planning benefit, not the foundation of the plan.

Second, the client has control over taxable income. Retirees living from taxable cash, basis, Roth dollars, and carefully staged IRA withdrawals often have more room to manage MAGI. Retirees who need large pre-tax IRA withdrawals every year, receive large pensions, or plan major taxable asset sales during the bridge years may have less flexibility.

Third, the client understands that insurance is not just the premium. A low-premium plan with a narrow network, high deductible, weak prescription coverage, or poor out-of-state access may be the wrong plan for someone with ongoing medical needs. The bridge must be priced using total expected cost: premiums, deductibles, copays, coinsurance, prescription drugs, out-of-network risk, dental and vision gaps, and the cash reserve needed for a bad medical year.

Fourth, early retirement still works after stress testing. If a client can retire at 60 only by assuming strong market returns, perfect tax management, no healthcare surprises, and no change in law, the plan is too tight. If the client can retire at 60 with a healthcare reserve, a flexible spending plan, a portfolio withdrawal rate that survives weak early returns, and the ability to pay full Marketplace premiums for a period if necessary, the conversation becomes much more constructive.

The first watchout is MAGI. The Marketplace uses modified adjusted gross income. For many clients, MAGI is close to AGI, but it also adds back items such as tax-exempt interest, non-taxable Social Security benefits, and excluded foreign income.⁷ Marketplace income includes capital gains, investment income, most IRA and 401(k) withdrawals, taxable wages, self-employment income, pension income, and Social Security income.⁷ Roth IRA qualified distributions are not included, but traditional IRA distributions are.

The second watchout is reconciliation. If a client takes advance premium tax credits during the year, the credit is reconciled on the federal tax return using Form 8962. If actual income is higher than projected, part or all of the advance credit may need to be repaid. IRS guidance specifically warns that for years other than the enhanced-subsidy years, households above 400% of the federal poverty line are not allowed a premium tax credit and must repay all advance credit payments.³ That is the cliff that matters in 2026.

The third watchout is access to other coverage. A person is not eligible for the premium tax credit for a month if they are eligible for Medicare, Medicaid, TRICARE, or affordable minimum-value employer coverage for that month.³ A spouse's employer coverage, retiree coverage, COBRA timing, and Medicare enrollment can all change the answer. The practical point is simple: do not retire, decline coverage, and assume the subsidy will be there without checking the actual eligibility rules.

The fourth watchout is the Medicaid boundary. Very low income can lead to Medicaid eligibility instead of Marketplace premium tax credits, and the result depends heavily on the state. In Medicaid expansion states, that may be fine. In non-expansion states, the gap below 100% of the federal poverty line can be a serious issue for some households. Early retirees trying to keep income low should not accidentally keep it too low.

The fifth watchout is the Medicare handoff. The bridge ends, but healthcare planning does not. Medicare has its own enrollment deadlines, supplement choices, Part D decisions, and income-related monthly adjustment amounts. Higher income in the bridge years can affect Medicare premiums two years later because IRMAA uses prior-year tax information. A Roth conversion at 63 may be good tax planning and still raise Medicare premiums at 65. Again, the issue is not whether the trade is good or bad. The issue is whether the trade is visible before the client makes it.

The planning sequence should start with the retirement date, but it cannot stop there. We want to map the exact months between employer coverage and Medicare for each spouse, compare COBRA, spouse coverage, retiree medical, Marketplace, and off-exchange options, and then model both subsidized and unsubsidized premiums. The unsubsidized scenario is the stress test.

Then we want to build an income plan. That includes which account pays spending, whether to realize capital gains before retirement or after, whether to build a cash reserve before the bridge years, how much Roth conversion room is worth using, and whether the ACA cliff changes the order of withdrawals. A client with large taxable basis may have a very different ACA profile than a client whose entire retirement income must come from a traditional IRA.

Finally, we want to decide what the bridge is for. Some clients want to retire as soon as the math works. Others would rather work one or two more years and lower the risk. Some would retire but consult part-time, even if the income reduces subsidies, because the work is enjoyable and keeps the plan stronger. Some would rather pay full premiums and use the low tax years for Roth conversions. The ACA subsidy is one input. It is not the entire plan.

The takeaway is that early retirement can be appropriate when the healthcare bridge is deliberate, the cash flow can absorb bad outcomes, and the tax strategy is coordinated with the insurance strategy. It is risky when the plan depends on a narrow income target, ignores deductibles and networks, or assumes that the subsidy rules will stay favorable forever.

I do not view healthcare as a reason to automatically delay retirement to 65. I view it as one of the main planning gates that has to be cleared before early retirement is responsible.

For clients with enough assets, manageable spending, flexible income sources, and a willingness to plan around the ACA rules, the bridge to Medicare can be very workable. For clients with tight withdrawal rates, high fixed spending, concentrated taxable gains, or limited income flexibility, the bridge may argue for a later retirement date or a phased transition.

The practical work is straightforward: price the bridge, stress test the bridge, coordinate the bridge with the tax plan, and revisit it every year during open enrollment. Our team will continue monitoring ACA subsidy rules, Medicare planning issues, and the planning opportunities that show up in the years between work and Medicare.

All my best,

Brandon VanLandingham, CFA, CMT, CFP

Founder / CIO

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1. HealthCare.gov, How to save on your monthly insurance bill with the premium tax credit, https://www.healthcare.gov/lower-costs/save-on-monthly-premiums/ 2. IRS, Rev. Proc. 2025-25, 2026 premium tax credit applicable percentage table and required contribution percentage, https://www.irs.gov/pub/irs-drop/rp-25-25.pdf 3. IRS, Eligibility for the Premium Tax Credit, https://www.irs.gov/affordable-care-act/individuals-and-families/eligibility-for-the-premium-tax-credit 4. IRS, Rev. Proc. 2024-35, 2025 premium tax credit applicable percentage table under ARPA/IRA enhanced rules, https://www.irs.gov/pub/irs-drop/rp-24-35.pdf 5. Federal Register, HHS, Annual Update of the HHS Poverty Guidelines, January 17, 2025, https://www.federalregister.gov/documents/2025/01/17/2025-01377/annual-update-of-the-hhs-poverty-guidelines 6. HealthCare.gov, Cost-sharing reductions, https://www.healthcare.gov/lower-costs/save-on-out-of-pocket-costs/ 7. HealthCare.gov, Count income and household size, https://www.healthcare.gov/income-and-household-information/income/

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