Retiring before 65: health insurance and the ACA

Medicare starts at 65. If you stop working earlier, you need another way to pay for health care until then. For many early retirees, insurance is the biggest new cost after leaving a job.

The good news is that you have options, and one of them rewards careful income planning. This guide covers the choices and how the marketplace premium tax credit works in 2026.

Your options before Medicare

• Retiree coverage from your employer. Some employers still offer it. Check the cost and whether it can change.
• COBRA. You can usually keep your old employer's plan for a limited period, often 18 months. You pay the full premium plus a small fee, so it's rarely cheap.
• A spouse's employer plan. If your partner keeps working, joining their plan is often the simplest choice.
• The ACA marketplace. Individual plans sold through HealthCare.gov or your state's exchange. Losing job coverage opens a special enrollment window, so you don't have to wait for the yearly sign-up period.
• Medicaid. In states that expanded it, households with very low income may qualify instead of getting marketplace help.

Many early retirees use COBRA for a few months, then move to the marketplace in January. Others time their last day of work so the move lines up with a new plan year.

Whichever route you take, budget for more than the premium. Deductibles and out-of-pocket maximums on individual plans can be several thousand dollars a person.

How the premium tax credit works

Marketplace plans can come with a premium tax credit. It's based on your household income compared with the federal poverty line for your household size.

The credit uses a reference plan, the second-cheapest silver plan where you live. It's called the benchmark plan. You're expected to pay a set share of your income toward it, and the credit covers the rest. You can apply the credit to any metal level.

For 2026 coverage, the expected share depends on where your income falls:

The poverty line used for 2026 coverage is $15,650 for one person and $21,150 for two, in the 48 contiguous states and DC. Alaska and Hawaii have higher figures.

The cliff is back

The larger credits of recent years ended after 2025. For 2026 coverage there's again no credit above 400% of the poverty line. For a couple, that's income over $84,600.

There's also no longer a cap on paying back excess advance credit. If you estimate low and your income comes in high, you repay the difference in full at tax time.

A worked example

Ana and Sam are 60 and 61 and retired last year. The benchmark silver plan for the two of them costs $22,000 a year in their area. That figure is invented for the example.

Year one: income of $70,000. That's about 331% of the poverty line for two. Their expected share is 9.96% of income, or $6,972. The credit pays the other $15,028 of the benchmark premium.

Year two: income of $85,000. A Roth conversion pushes them just over the cliff of $84,600. Their credit drops to zero, and they pay the full $22,000.

Had they kept income at the cliff, their credit would have been about $13,574. Going $400 over cost them that much in premiums.

Managing your income

The credit uses modified adjusted gross income (MAGI). For this purpose it includes tax-exempt interest and any Social Security benefits that aren't taxed. Some money you spend doesn't count at all.

That gives early retirees real control. You can live on cash and on the basis of taxable investments, and choose how much to convert or realize each year.

A few habits help:

1. Estimate carefully at enrollment. The exchange pays your credit in advance based on your estimate.
2. Watch the year-end numbers. Conversions and gain sales are easy to adjust in December. Fund distributions late in the year can surprise you.
3. Weigh the trade-off. Sometimes converting more and giving up the credit for one year still lowers lifetime taxes. Compare both on your plan.
4. Don't forget the lookback at 63. Medicare premiums at 65 depend on income two years earlier. See IRMAA and ACA subsidy cliffs.

How the app handles health insurance before 65

In the plan's Healthcare section, you choose a marketplace plan, another plan such as retiree coverage or COBRA, or no plan. For a marketplace plan, you enter the yearly premium per adult and the benchmark silver plan per adult. The app doesn't look up premiums for your area.

Each year before 65, the app works out the premium tax credit from that year's income, including the cliff. If income falls below the credit's floor, the app assumes Medicaid would apply and doesn't model its costs or rules.

From 65, the plan switches to Medicare Part B and Part D premiums from the data, with income-related surcharges based on income two years earlier. Out-of-pocket costs grow at a healthcare inflation rate.

On the Taxes screen, Roth conversion options can stay under the subsidy cliff before 65.

Frequently asked questions

Can I get a credit if I retire mid-year?

Yes. Losing employer coverage lets you enroll outside the yearly period. The credit for that year depends on your income for the whole year, including wages earned before you retired.

Is COBRA or the marketplace cheaper?

It depends on your income and the plans available. With a credit, the marketplace is often cheaper. Without one, compare the full premiums and the deductibles.

Does an HSA help here?

Yes, if your marketplace plan qualifies. Contributions lower your income for the credit, and withdrawals for medical costs are tax-free. See the HSA in retirement.