Retiring before Medicare eligibility: bridging the health-insurance gap without going broke

Most people who dream of retiring before 65 discover, fairly quickly, that the dream is not about their portfolio. It is about how to cover health insurance between the last day of work and the date Medicare coverage begins.

In the U.S., there is no automatic bridge. Employer coverage ends when the job ends. Medicare eligibility for most people begins at 65. What happens in between is arranged privately, at prices that surprise almost everyone the first time they see them.

The three options for the gap years

For most early retirees, there are three practical choices to cover health insurance between retirement and Medicare.

COBRA extends your employer coverage for up to 18 months, at the full unsubsidized cost. That often means $700 to $2,000 per person per month. It is the least surprising option, but the most expensive.

The ACA marketplace offers individual plans with premiums based on your projected Modified Adjusted Gross Income (MAGI). Depending on income, you may qualify for substantial subsidies, sometimes bringing premiums into the low hundreds per month, or even to zero.

A spouse's employer plan, if available, is often the simplest solution. If you can time your retirement so a working spouse still covers the household, the gap becomes much easier to bridge.

Why MAGI is the number that matters

The single number that determines your ACA premiums is your Modified Adjusted Gross Income, or MAGI. And MAGI in early retirement is largely under your control, because you get to choose which accounts to draw from.

Traditional IRA and 401(k) withdrawals add to MAGI. So do capital gains from a taxable account. Roth withdrawals do not. Cash withdrawals do not. If you can meet spending with a mix that keeps MAGI low, your ACA subsidy can be many thousands of dollars per year higher.

The trap is called the subsidy cliff. The temporary expansion that softened the 400 percent Federal Poverty Level cliff expired at the end of 2025. Per current IRS guidance for 2026, households above 400 percent of FPL are again ineligible for premium tax credits, and $1 of additional MAGI over that threshold can cost thousands in lost subsidy. Model your MAGI against the 2026 rules, not the 2021 through 2025 rules.

The order you tap your accounts in the gap years is worth more than most people's asset allocation choices.

Medicare is not free

A common assumption is that once Medicare kicks in at 65, healthcare gets solved. It is much better than the ACA gap, but it is not free.

Part B has a monthly premium. Per CMS, the standard Part B premium in 2026 is $202.90 per month per beneficiary. Part D for drug coverage adds more. Most people carry a Medigap plan or Medicare Advantage plan to cover out-of-pocket costs. And if your income in a given year exceeds certain thresholds, Part B and Part D premiums increase, sometimes substantially, under IRMAA.

Realistic total Medicare-related spending for a couple often runs $500 to $900 per month. Not catastrophic, but not zero.

A concrete bridge example

A couple retires at 60. They want to spend $75,000 a year. They have $900,000 in a 401(k), $150,000 in a Roth, and $200,000 in a taxable account.

For the 5 years to Medicare, unsubsidized ACA coverage in their state would cost about $1,800 a month for the couple, or $21,600 a year. If they can keep MAGI around $50,000, subsidies cut the net premium to roughly $500 a month, or $6,000 a year.

To hold MAGI at $50,000 while spending $75,000, they draw the difference from the Roth and the taxable account, where withdrawals do not add to MAGI in the same way. Over the 5 bridge years, the ACA savings alone are close to $75,000. That is not a rounding error.

How to plan the bridge

• Count the exact months from your target retirement date to age 65.
• Estimate ACA premiums at three MAGI levels: low, middle, and cliff.
• Map which accounts you would draw from to hit each MAGI level.
• Add expected out-of-pocket healthcare, not just premiums.
• Reserve the bridge years' healthcare cost in safer assets, separately from spending.
• Recheck each year during open enrollment.

Early retirement in the U.S. is more feasible than most people think. But it requires the bridge to be drawn, not just the destination.

The biggest misconception is that early retirement is about having "enough." It has less to do with the total and more to do with how the money is arranged. A $1 million portfolio with the right structure often outlasts a $1.3 million portfolio without a bridge plan.