If you're planning to retire before 65, there's a five-, ten-, or even fifteen-year gap you have to bridge before Medicare kicks in. For a lot of people, that gap is the single most expensive — and most overlooked — line item in the whole plan.
It's not just the premiums. It's that the cost of your health insurance in those years is tied directly to your income, and income is the one thing early retirees suddenly have a lot of control over. Get the timing right and a couple can insure themselves for a few hundred dollars a month. Get it wrong by a single dollar and the same coverage can cost two or three times as much.
Here's what actually drives the number, and how to plan for it before you hand in your notice.
Why the pre-Medicare gap is its own financial problem
Medicare eligibility starts at 65 for almost everyone. If you stop working at 55, that's a decade you're responsible for your own coverage with no employer footing most of the bill. You generally have three ways to fill it:
Stay on an employer plan through COBRA. When you leave a job, federal COBRA rules let you keep your existing employer coverage for up to 18 months (longer in specific situations like disability). The catch: you now pay the full premium plus a small administrative fee — often $700 to $1,500+ a month for an individual, more for a family — because your employer is no longer subsidizing it. COBRA is a useful bridge for the first year or so, but for most early retirees it's too short and too expensive to be the whole answer.
Buy a plan on the ACA marketplace. This is where most early retirees land, because marketplace plans come with premium tax credits (subsidies) that are based on your income. And for early retirees, income is surprisingly adjustable.
Get coverage through a spouse's plan. If your partner is still working and has employer coverage, this is often the cleanest and cheapest option. It's worth checking before you assume you need to buy your own.
The first and third options are situational. The ACA marketplace is the one almost everyone has to understand — and in 2026, the rules around it changed in a way that matters a lot.
What changed in 2026: the subsidy cliff is back
For the 2021 through 2025 plan years, a temporary set of "enhanced" premium tax credits made marketplace coverage much cheaper and — critically — removed the hard income cutoff for subsidies. During those years, even higher earners could qualify for some help, capped so that nobody paid more than 8.5% of their income toward a benchmark plan.
Those enhanced credits expired at the end of 2025. Starting with the 2026 plan year, the older rules came back, and with them the subsidy cliff at 400% of the federal poverty level.
Here's why "cliff" is the right word. Below roughly 400% of the poverty line — around $63,000 of income for an individual and about $84,000 for a couple for the 2026 plan year — you qualify for premium tax credits on a sliding scale. Earn one dollar more than that threshold and your subsidy doesn't shrink. It disappears entirely. You pay the full, unsubsidized premium.
For an early-retired couple in their late 50s or early 60s, full-freight marketplace premiums can run $20,000 to $30,000+ a year. Sliding just over the cliff can mean tens of thousands of dollars in extra cost for the exact same plan. That's not a rounding error in a retirement plan — it can be the difference between a plan that works and one that doesn't.
The part most people miss: you control your income now
Here's the insight that changes how early retirees should think about all of this. ACA subsidies are based on your modified adjusted gross income (MAGI) — and once you've stopped working, you largely decide what that number is.
When you're employed, your income is mostly your salary, and you can't do much about it. When you're retired, your income is whatever you choose to realize:
- Which accounts you pull from (a withdrawal from a taxable brokerage's principal isn't all income; a Roth withdrawal generally isn't income at all; a traditional IRA/401(k) withdrawal is fully taxable income).
- How much you convert from a traditional IRA to a Roth in a given year.
- Whether you realize capital gains this year or wait.
- Interest, dividends, and any part-time income.
Add those up and you get your MAGI — the number that decides your subsidy. That means a retiree with $2 million in assets can, in many cases, deliberately keep taxable income under the cliff and qualify for meaningful premium help, while still funding a comfortable lifestyle by drawing on a mix of Roth, taxable, and cash.
The collision early retirees keep walking into
This is where it gets genuinely tricky, because the years before 65 are also the prime window for Roth conversions. The standard early-retirement playbook says: while your income is low, convert traditional IRA money to Roth at a low tax rate to shrink future required minimum distributions and lock in tax-free growth.
The problem is that a Roth conversion adds to your MAGI — the same MAGI that determines your ACA subsidy. So in the pre-65 window, two good strategies are fighting over the same income budget:
- Convert aggressively to save on future taxes, and you may blow past the subsidy cliff and pay full price for health insurance.
- Keep income low to maximize the subsidy, and you give up cheap Roth conversion space you'll never get back once RMDs and Social Security start.
There's no universal right answer. The break-even depends on your traditional balance, your state, your projected RMDs, the size of the subsidy you'd be giving up, and how many years you have until Medicare. But you can't even see the trade-off without modeling both paths side by side, year by year, with real tax brackets and real subsidy math.
How to actually plan for it
A few principles hold for almost everyone bridging to Medicare:
Treat the pre-65 years as a connected sequence, not one year at a time. A Roth conversion you skip at 58 to protect a subsidy is conversion space you may want back at 62. Decisions in one year change the best move in the next. The whole bridge has to be planned as a unit.
Budget for the realistic premium, not today's. Health insurance costs rise faster than general inflation, and your premium climbs as you age into your 60s. A plan that assumes flat costs will understate this line item badly.
Know exactly where your cliff is. The 400% FPL threshold moves a little each year and depends on household size. Knowing your specific number turns "somewhere around there" into a hard line you can manage income against.
Coordinate the handoff to Medicare. Don't forget the COBRA-to-Medicare trap: once you're 65, COBRA is not considered creditable coverage for delaying Medicare Part B, and missing your enrollment window can mean lifelong penalties. The bridge has a specific landing.
See the whole bridge before you commit
The reason this is hard isn't the individual facts — it's that they all interact. Your withdrawal sequence drives your MAGI, your MAGI drives your subsidy, your subsidy competes with your Roth conversions, and all of it has to be projected across every year from your retirement date to 65, then handed cleanly to Medicare.
That's the kind of multi-year, multi-variable problem a spreadsheet struggles with, because changing one assumption ripples through every following year. It's exactly what Tally was built to model. The lifetime forecast projects your income, taxes, withdrawals, and Roth conversions year by year with real federal and state tax brackets, so you can see what a given year's MAGI does to your tax bill — and test, with a what-if scenario, whether converting more this year is worth giving up the subsidy.
If you're staring down the gap between your retirement date and 65, you can map the whole bridge with Tally's free 14-day trial — no credit card required. It's a lot easier to plan the next ten years when you can actually see them.