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Health Insurance Before Medicare: How to Retire Before 65

Author: Hazel Secco, CFP®, CDFA®

Estimated reading time: 11 minutes

Table of contents

Here’s the thing that stops a woman with two million dollars from retiring at 58. It’s not the market and not even about running out of money. It’s health insurance before Medicare: the five, six, or seven years between her last paycheck and her 65th birthday, staring at premiums that look like a second mortgage. Family coverage bought on your own can run well over $2,000 a month. So she works three more years she didn’t need to, purely for the benefits.

I have watched this happen again and again. And in most cases, the decision rests on a misunderstanding: the belief that a seven-figure portfolio disqualifies you from any help paying for coverage. That belief is wrong. Marketplace premium assistance is not based on your assets. It’s based on your taxable income for the year. And in an early-retirement year, before Social Security and before required withdrawals, that number is one you can help set.

In this post I’ll cover how the rule actually works, what changed for 2026 (the rules got stricter, and I won’t pretend otherwise), the “MAGI dial” that lets a wealthy woman legitimately show a modest income in her bridge years, and the one conflict, subsidies versus Roth conversions, that has to be decided on a single sheet of paper.

The MAGI Health Insurance Subsidy Rule: Assets Don’t Count, Income Does

Here’s the frame, and it’s the whole misunderstanding in one sentence: the health insurance marketplace does not look at your net worth. It looks at your income.

When you buy coverage on the ACA marketplace, any premium tax credit you receive is calculated from your modified adjusted gross income for that year, your MAGI. It’s not your bank balance, your 401(k), or even your house. Two women can hold identical $2 million portfolios, and the one with lower taxable income that year gets more help. That’s not a loophole. The program was built on income, because income is what it has always measured.

Why does nearly every successful woman assume the opposite? Because everywhere else in her financial life, having more money means qualifying for less. College financial aid, most needs-based programs: net worth counts against you. So she pattern-matches: “I’m wealthy, therefore I won’t qualify.” The MAGI health insurance subsidy breaks that pattern. And that single wrong assumption is often the thing keeping her at a desk she’s ready to leave.

One practical note before we go further: leaving a job and losing employer coverage is a qualifying life event, which means you don’t have to wait for open enrollment. You get a special enrollment period, generally 60 days around the loss of coverage, to buy a marketplace plan. The timing of your exit and the timing of your enrollment belong in the same conversation.

What Changed for 2026: ACA Subsidies for Early Retirement Just Got Stricter

Let me be direct, because this changed recently and a lot of older advice online is now wrong.

For several years, enhanced pandemic-era subsidies removed the income cap entirely. Even high earners could get some help, and nobody paid more than roughly 8.5% of income for a benchmark plan. Those enhanced subsidies expired at the end of 2025. For 2026, we’re back to the older, harsher structure. KFF’s analysis of 2026 marketplace filings shows insurers citing that expiration as a significant factor behind steep proposed rate increases, with a median proposed increase of 18%.

The big feature of the old structure is a cliff. There’s an income line at roughly 400% of the federal poverty level. For a single person, that’s somewhere in the low sixty-thousands; for a couple, somewhere in the mid-eighties. Confirm the exact figure for your year and household size. Below that line, you can qualify for premium tax credits that meaningfully cut your cost. Go one dollar over, and in 2026 the help can disappear entirely. That’s why it’s called a cliff, not a slope.

So the headline is not “you’ll automatically get subsidies.” It’s this: whether you get help now depends almost entirely on keeping your MAGI under that line. And in an early-retirement year, that’s a game you can actually play.

The MAGI Dial: How to Retire Before 65 and Still Afford Health Insurance

In early retirement, where your spending money comes from determines your taxable income, and different sources hit your MAGI very differently. I call this the MAGI dial, and it’s completely legitimate.

Think about what you can live on in a bridge year. Cash in the bank (money you already paid tax on) spends without adding a dollar to your MAGI. When you sell in a taxable brokerage account, your original principal isn’t taxed again; only the gain is, and you can often manage which gains you realize and when. Qualified Roth withdrawals don’t count toward the number at all. And if you’ve been funding an HSA, those dollars cover medical costs tax-free without touching your MAGI either. Put together, a woman can spend $100,000 in a year, funding a very comfortable life, while the income the marketplace measures stays modest enough to sit under the cliff.

Now contrast that with the choices that spike your MAGI: pulling from a traditional pre-tax 401(k) or IRA, which is fully taxable. Realizing large capital gains all at once. Turning on Social Security early. And the one this season keeps circling back to: a Roth conversion, which counts as income in the year you do it. None of those are bad moves. But each one turns the dial up, and near the cliff, that matters.

So the picture flips. It’s not “I have too much money to get help.” It’s “in the years before Social Security and required withdrawals, I have unusual control over the one number that decides whether I get help.” That control is the asset. Most people never know they have it.

The Conflict: ACA Subsidies vs. Roth Conversions in the Same Year

This is the part that separates a real plan from a clever tip.

Regular listeners know that a low-income early-retirement year is also the golden window for Roth conversions: moving pre-tax money to Roth while your rate is low, so it grows tax-free from there. Here’s the collision: a Roth conversion raises your MAGI. The very same low-income year that could earn you health insurance subsidies is the year you’d most want to fill with conversions. You often can’t max both at once. Dollars of conversion can cost you dollars of subsidy.

There’s no universal right answer. It’s a math problem, and it’s personal. If premium subsidies would save you, say, $10,000 or $15,000 this year, and a big conversion would blow past the cliff, maybe you do a smaller conversion and protect the subsidy. Or maybe the long-term tax savings from a full conversion clearly win, and you skip the subsidy on purpose. The point isn’t which one. The point is that they have to be decided together, on one sheet of paper, for each year of the bridge. Decide them in separate conversations and you’ll sabotage one with the other.

This is exactly the kind of multi-year choreography that a rushed December decision, a robo-tool, or a well-meaning friend will get wrong. It’s the same bracket-by-bracket thinking I lay out in The Executive Woman’s Tax Playbook, applied to one very specific collision.

What a Well-Planned Bridge to Medicare Looks Like

Let me share an example. A 59-year-old former marketing executive with about $2.3 million saved: some in a 401(k), some in a taxable brokerage account, a chunk in cash, a small Roth. She wants to retire now and bridge six years to Medicare at 65.

Example Case Study: What her retirement plan looks like

Here’s a version of the plan. In the early bridge years, she funds her lifestyle largely from cash and from brokerage sales where most of what she withdraws is original principal, keeping realized gains modest. Social Security stays off; she’s letting it grow toward 70 as longevity insurance anyway. That keeps her measured income under the cliff, so she qualifies for meaningful premium help during exactly the years coverage is most expensive. She still does small, deliberate Roth conversions, sized to fill the room beneath the cliff without going over. Then, once she’s on Medicare at 65 and the subsidy question goes away, she opens up larger conversions before required withdrawals begin. That’s also the point where her coverage planning shifts from the marketplace to Medicare decisions, a different set of choices with income tripwires of its own.

Same portfolio, same person. In one version she “can’t afford” to retire and works to 65 for the insurance. In the other, she retires at 59, gets help paying for coverage, and moves money to Roth on a schedule, because someone ran the income across all six years at once. The difference wasn’t more money. It was the dial. And if you’re not ready to fully stop, the same income logic applies to a phased retirement: part-time earnings simply become one more input to the dial.

One caveat, and I mean it: this is intricate, the rules are shifting year to year, and a mistake near the cliff is expensive. One dollar of excess income in 2026 can erase the entire credit. This is education to show you it’s possible, not a DIY instruction sheet. Run your actual numbers, and confirm current rules on your state’s marketplace before you count on anything.

What to Do This Week

  • Estimate your bridge-year MAGI before you set a retirement date. List what you’d actually live on for each year between retirement and 65, then sort every dollar into “counts toward MAGI” or “doesn’t.” The gap between spending and taxable income is your planning room.
  • Look up the current ~400%-of-FPL cliff for your household size. Check your state’s marketplace or healthcare.gov for the exact 2026 figure. Roughly low-$60Ks for a single filer, mid-$80Ks for a couple, but use the published number, not my approximation.
  • Build a cash and brokerage-principal runway. Low-MAGI bridge years require low-MAGI money to spend. If nearly everything you own sits in pre-tax accounts, start repositioning now, while you still have paychecks.
  • Put Roth conversions and subsidies on one sheet of paper. Before converting a single dollar in a bridge year, price what the conversion costs you in lost premium credits. Decide the trade deliberately, year by year.
  • If you’re leaving a job this year, calendar your special enrollment window. You generally have 60 days around losing employer coverage to enroll in a marketplace plan. Don’t let the deadline pass while you’re negotiating your exit.

Want the full framework?

The tax moves behind this episode (the bracket planning, Roth sequencing, and account-location decisions I walk through with clients) are in my free guide, The Executive Woman’s Tax Playbook. It’s a free PDF you can read in one sitting. Get the playbook here.

Hazel Secco, CFP®, CDFA®, is the founder of Align Financial Solutions, a fee-only fiduciary firm that works with high-earning women and female executives on retirement planning, equity compensation, and tax strategy.

Already past the research phase? Book a free 15-minute Align Call: https://alignfinancialsolutions.com/book-a-call/

🌐 https://alignfinancialsolutions.com 📺 https://www.youtube.com/@AlignYourRetirement 💼 https://linkedin.com/in/hazel-secco

Frequently Asked Questions

How do I get health insurance before Medicare if I retire early?

You buy coverage on the ACA marketplace, and losing employer coverage is a qualifying life event that opens a special enrollment period of generally 60 days. Premium tax credits are calculated from your modified adjusted gross income for the year, not your assets, so a seven-figure portfolio does not by itself disqualify you from help.

Do ACA subsidies count assets or income?

Income only. Marketplace premium assistance is calculated from your MAGI for the year, never your net worth, 401(k), or house. Two women with identical $2 million portfolios can get very different help depending on taxable income that year. In an early-retirement year, before Social Security and required withdrawals, that income is a number you can help set.

What is the ACA subsidy cliff for 2026?

The enhanced pandemic-era subsidies expired at the end of 2025, so the income cliff at roughly 400 percent of the federal poverty level is back for 2026: roughly the low sixty-thousands for a single person and the mid-eighties for a couple. One dollar of excess income can erase the entire credit, so confirm the exact figure for your household size.

Should I do Roth conversions while getting ACA subsidies?

Decide the two together, on one sheet of paper, for each bridge year. A Roth conversion raises the same MAGI your subsidy is based on, so dollars of conversion can cost dollars of premium credit. Some years a smaller conversion sized under the cliff protects the subsidy; other years the long-term savings of a full conversion clearly win.

Disclaimer: Advisory services are offered through Align Financial Solutions LLC (“AFS”), an Investment Advisor in the State of New Jersey. This article is for educational purposes only and does not constitute personalized tax, legal, investment, or financial planning advice. Rules and figures are current for 2026 and subject to change. All client scenarios are hypothetical composites for illustration and do not represent any specific client outcome. Consult a qualified professional about your specific situation.

Sources

  1. Modified Adjusted Gross Income (MAGI), HealthCare.gov Glossary. https://www.healthcare.gov/glossary/modified-adjusted-gross-income-magi/
  2. Special Enrollment Periods, HealthCare.gov. https://www.healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period/
  3. How Much and Why ACA Marketplace Premiums Are Going Up in 2026, KFF. https://www.kff.org/health-costs/issue-brief/how-much-and-why-aca-marketplace-premiums-are-going-up-in-2026/
  4. Get Started with Medicare, Medicare.gov. https://www.medicare.gov/basics/get-started-with-medicare
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