How do I cover health insurance if I retire before 65?

• The gap between your retirement date and Medicare at 65 is the biggest obstacle to retiring early, and it is now harder than it was in 2025
• Your four realistic options are a marketplace plan, COBRA, a spouse's plan, or part time work that carries benefits
• If you use a marketplace plan, your taxable income directly controls your premium, which means your withdrawal strategy and your health insurance are the same decision
• The subsidy cliff is a cliff, not a slope. There is no gradual phase out above the line
• This creates a real conflict with Roth conversions, which we cover below

From 2021 through 2025, enhanced premium tax credits capped what anyone paid for a benchmark silver plan at 8.5% of household income, and they removed the old upper income limit entirely. Those enhanced credits applied only to tax years beginning before January 1, 2026, and Congress did not extend them.

So for 2026 and 2027 coverage, the original ACA structure is back. Premium tax credits are available between 100% and 400% of the federal poverty level, and above that line there is no credit at all.

Two other changes matter. The repayment cap is gone: for tax years after 2025, if you received more advance credit during the year than your actual income entitled you to, you repay the full excess rather than a limited amount. And the required percentage of income contribution rose at every income band, so even people who still qualify generally pay more than they did in 2025.

For 2026 coverage, using the 2025 federal poverty guidelines for the 48 contiguous states and DC:

The figure that matters is modified adjusted gross income, not your gross withdrawals, and the thresholds are updated annually.

Think about what an early retiree actually has. The money is mostly in a pre tax 401(k). Getting it out creates taxable income. Taxable income is exactly what the subsidy formula measures.

So a 58 year old couple who needs $120,000 a year to live, drawing it all from a traditional 401(k), has roughly $120,000 of modified adjusted gross income. That is above the $84,600 cliff for a household of two, which means no premium tax credit, which for a couple in their late fifties can mean paying full price for coverage.

The same couple drawing $80,000 from the 401(k) and $40,000 from a taxable brokerage account, where only the gain portion is income, may land under the line. Same lifestyle, materially different health insurance cost.

This is why the account mix you retire with matters as much as the total. Having money in three buckets, pre tax, Roth, and taxable, is what gives you the ability to choose your reported income. Retiring with everything in a 401(k) leaves you with almost no levers.

It complicates it, and anyone who tells you otherwise is not doing the math.

The usual advice is to convert aggressively in the low income years between retirement and required distributions, filling up the lower brackets while they are cheap. That is still often right. But before 65, every dollar you convert is a dollar of modified adjusted gross income, which can push you past the subsidy cliff.

So the real question is which costs more: the tax you save by converting at 12% instead of 22% later, or the health insurance subsidy you give up by doing it. For a couple in their late fifties, the subsidy at stake can be substantial, and in a lot of cases it wins. In others, particularly where the pre tax balance is very large and required distributions are going to be punishing, converting and paying full price for coverage still comes out ahead.

There is no rule of thumb here. It depends on your balance, your spending, your household size, your age, and the premiums actually available to you. It is a modeling question, and it changes every year as the thresholds move.

One common sequence worth knowing: keep income under the cliff and skip conversions from your retirement date until 65, then convert heavily from 65 to the year required distributions begin, when Medicare has replaced the marketplace and the subsidy is no longer at risk. Whether that window is long enough to do real damage to the pre tax balance depends on how early you retired.

COBRA continues your employer plan, generally for up to 18 months, and you pay the full premium plus an administrative charge. It is expensive but it keeps your doctors and your deductible progress, and it is often the right choice for a short gap or for someone mid treatment. Check your exact eligibility and duration with your employer, because the rules vary with the circumstances of your separation.

A spouse's employer plan is usually the cheapest option if it exists. If your spouse is younger and still working, that alone can make an earlier retirement date workable.

Part time or seasonal work that carries benefits is a real strategy and an underused one, particularly in the first few years.

A health share or similar arrangement is not insurance and is not regulated as insurance. Some people use them. Understand clearly what is and is not covered before you rely on one to bridge seven years.

Energy careers often make retiring at 55 to 60 financially realistic, which means a longer bridge than most people face. Ten years of pre Medicare coverage is a materially different problem than two.

It also means severance timing interacts with this. A severance package that lands in the same year you start marketplace coverage can push your income over the cliff for that year. Where you have any control over which year it falls in, that is worth planning rather than discovering.