The Healthcare Bridge: Covering the Years Between Retirement and Medicare

Of everything that derails an early retirement plan, healthcare coverage is what people underestimate most. If you stop working before 65, the years between your last day of employer coverage and your first month of Medicare need a deliberate decision, and that decision also governs how you take income.

The bridge is an expense line that also ties your insurance cost to your reported income, which changes the order you draw from accounts.

The Four Paths

Most pre-Medicare retirees land on one of four, sometimes blending them across the years.

• COBRA. Coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) continues your employer plan, usually for 18 months, at full cost once the employer subsidy disappears. Often $1,500 to $2,500 per month for a couple. A short bridge, rarely the long-term answer.
• Marketplace (ACA) plan. Coverage bought through the Affordable Care Act (ACA) marketplace. Premium varies widely by state, age, and income. With careful income planning, eligible households can qualify for premium tax credits that cut net cost.
• Spousal coverage. If a partner still works and has employer coverage, that plan is often cheapest. Worth re-checking each year.
• Direct purchase off-exchange. Comparable to marketplace plans without the subsidy.

The Subsidy Math Is Where Plans Break

The ACA premium tax credit is calculated against your modified adjusted gross income (MAGI), so every extra dollar of reported income can reduce the credit.

The stakes rose in 2026. The enhanced credits that applied from 2021 through 2025 expired, and the cliff at 400% of the federal poverty level is back: for 2026 coverage, a household of 2 in the lower 48 states with MAGI above about $84,600 gets no credit at all. One dollar over that line can cost the full subsidy.

A large Roth conversion in a pre-Medicare year can cost more in lost subsidies than it saves in future taxes. Capital gains realized to fund living expenses count toward MAGI. Tax-free Roth withdrawals do not, and already-taxed brokerage dollars count only to the extent of their gain, which makes both unusually valuable between 60 and 65. This is one of the few stretches of life where keeping reported income low beats maximizing it.

Three Less-Obvious Levers

1. The HSA, if you have one. A health savings account (HSA) is deductible going in, with tax-free growth, tax-free out for qualified medical expenses. After 65, withdrawals for any reason are taxed as ordinary income but not penalized.
2. Out-of-pocket maximums alongside premiums. A cheaper premium often carries a $15,000+ family deductible. Budget the realistic maximum on top of the premium.
3. The handoff at 65. Medicare enrollment is timed to your birthday month. Ending marketplace coverage and starting Medicare without a gap is easy to get wrong.

The Takeaway

Which accounts your bridge-year spending can come from changes the answer. A household with meaningful Roth or brokerage assets can hold reported income low and keep the subsidy. A household whose money sits almost entirely in a traditional individual retirement account (IRA) cannot, and the bridge costs closer to full freight whichever plan they pick.

A common misstep is a couple doing two sensible things at once. They retire at 62 and convert to Roth aggressively, because the low-income window is when conversions look best. Together, the conversion income can erase premium tax credits worth more than the conversion saved, and nobody sees it until tax time.

If you plan to retire before 65, the interaction between coverage and withdrawal order is worth sorting out before you set the date.

The information provided is for educational purposes only and does not constitute investment, insurance, legal, or tax advice. Consult with qualified professionals for guidance specific to your situation.