Can You Afford Health Insurance if You Retire Before 65?

If you retire before age 65, health insurance is likely the largest unplanned expense in your retirement budget -- and its cost depends almost entirely on how much income you show on your tax return.

Key Takeaways

• Medicare eligibility begins at 65, leaving a coverage gap that can span several years for early retirees.

• For 2026, a single person with household income below approximately $62,600 may qualify for premium tax credits through the ACA marketplace, significantly reducing monthly costs.

• A 55-year-old paying full price without a subsidy can expect to pay close to $977 per month, a figure that rises with age.

• Modified Adjusted Gross Income (MAGI) determines subsidy eligibility, meaning Roth conversions, capital gains, and withdrawal sequencing can directly affect your healthcare bill.

The Medicare Gap and What It Costs

Medicare does not start until age 65. For anyone who retires at 60, 62, or even 64, that gap requires a coverage solution, and the Affordable Care Act (ACA) marketplace is typically the primary option.

The monthly premium you pay through the marketplace is not fixed. It is income-driven. The federal government uses your MAGI to determine whether you qualify for a premium tax credit, which functions as a subsidy applied directly to your monthly premium.

For 2026, a single-person household with income below roughly $62,600 is likely eligible for meaningful premium assistance. Above that threshold, the full unsubsidized cost for a 55-year-old runs close to $977 per month, according to the KFF Health Insurance Marketplace Calculator. That figure increases as you age, making the years between 60 and 65 the most expensive stretch.

Why Income Management Becomes a Healthcare Issue

Most early retirees focus on income management as a tax strategy. In the years before Medicare, it is also a healthcare cost strategy.

Your MAGI is the income figure the IRS uses to calculate your subsidy. Several common financial moves can push that number higher than expected:

• Roth conversions: Converting pre-tax retirement funds to a Roth IRA counts as ordinary income in the year of conversion.

• Capital gains distributions: Selling appreciated assets or receiving fund distributions can raise MAGI even when no paycheck is involved.

• Withdrawal sequencing: Drawing from taxable accounts versus tax-deferred accounts in different orders produces different MAGI outcomes each year.

Crossing the subsidy threshold by even a small amount can eliminate thousands of dollars in annual premium assistance.

Income management in early retirement is not just about taxes. It is about keeping your healthcare costs from quietly eating the plan. -- Warren Burger

How to Plan for the Bridge Before You Retire

The gap between early retirement and Medicare eligibility is manageable, but it requires planning that begins before you leave work, not after.

1. Project your MAGI for each pre-Medicare year. Map out expected income from Social Security (if taken early), part-time work, investment withdrawals, and any planned Roth conversions.

2. Use the KFF subsidy calculator as a planning tool. The KFF Health Insurance Marketplace Calculator (kff.org) allows you to estimate your premium tax credit based on household size, income, age, and location.

3. Sequence withdrawals strategically. Work with a financial planner to determine which accounts to draw from each year in order to stay below subsidy thresholds or minimize the cost of exceeding them.

4. Time large conversions carefully. Roth conversion years may be best separated from years when you need to keep MAGI low for subsidy purposes.

5. Build the actual premium cost into your retirement income projection. Use the unsubsidized figure as a ceiling and the subsidized estimate as a planning target, then stress-test both.