The Bridge Years

Medicare

A hypothetical Cedar Park couple (invented for this letter, not real clients) wants to retire at 61. The portfolio math works. The house is paid off. The spreadsheet says go.

Then they price health insurance for the four years until Medicare, and the spreadsheet starts sweating.

The bridge years, from your last day of employer coverage to your first day of Medicare at 65, are the most expensive insurance years of most people's lives, and they're also the years where smart tax planning can cut the bill in half. Or where one wrong move can double it.

What the bridge actually costs

Their options, priced honestly:

COBRA: keep the employer plan up to 18 months by paying the FULL premium plus 2%. For family coverage that's commonly $1,700 to $2,400 a month. It's familiar and keeps your doctors, but it's expensive, it expires before 65 if you retire at 61, and riding it past 65 is a Medicare penalty trap.

The ACA marketplace: where most early retirees land. Unsubsidized, a silver plan for a 61-year-old couple in Travis County runs roughly $1,800 to $2,600 a month. Sticker price for the four-year bridge: $90,000 to $120,000. There's the sweat.

But almost nobody should pay sticker. ACA subsidies are based on your INCOME, not your assets. And a retired couple living off cash, Roth withdrawals, and lightly-taxed brokerage sales can have a seven-figure net worth and a five-figure income. To the marketplace, they look modest. The subsidies can be enormous: keep your MAGI around $60,000 to $80,000 and that $2,200 premium can drop to a few hundred dollars a month.

This is the bridge-year superpower: for four years, your income is a dial you control, and every notch on the dial changes your premium.

The cliff

Here's where the dial gets dangerous. The enhanced subsidies that softened the ACA's edges expired at the end of 2025. The original structure is back, and it contains a cliff: cross roughly 400% of the federal poverty level (about $84,000 MAGI for a couple in 2026) by a single dollar and the subsidies don't shrink. They vanish. Entirely.

A couple at $83,900 of MAGI might pay $500 a month. The same couple at $84,100 pays $2,300. One dollar of income, $20,000+ a year of premium. It makes the IRMAA cliffs look gentle.

And what pushes people over? The usual suspects from these letters: a Roth conversion sized without checking the cliff, a big capital gain harvest, a large IRA withdrawal for a new roof. Every one of those is income. The 0% capital gains letter and the Golden Window letter both carry an asterisk that says "check the ACA cliff first," and this is the letter that asterisk was pointing to.

The bridge-year triage

Which creates a genuine strategy conflict, and it's worth naming honestly: the bridge years ARE prime Golden Window years. Convert aggressively and you lose subsidies now. Convert nothing and the RMD freight train grows for later. There's no universal answer, only a ranking:

If bridge premiums with subsidies save you $15K to $20K a year, protecting the subsidy usually wins from 61 to 64, with conversions throttled to stay under the cliff. Then at 65, Medicare arrives, the ACA cliff disappears, and you get a clean 8-year conversion runway to 73 with only IRMAA to manage. The window doesn't close at 65. It changes guards.

Fund the bridge from the right buckets: cash reserves, Roth contributions (not conversions), and high-basis brokerage sales generate spending money with almost no MAGI. This is the one stretch of life where the withdrawal-order recipe inverts: the accounts you'd normally save for last become the ones you spend first, precisely because they're invisible to the subsidy math.

And time the retirement date itself. Retire in January and your final-year W2 income is tiny, making you subsidy-eligible in year one. Retire in November and your full salary poisons the whole year's MAGI. The difference between a November and January retirement can be worth $20,000 of premium.

For the Cedar Park couple

Retiring at 61 still works. It just costs a plan: a January exit, spending drawn from cash and basis, conversions capped under $84K, subsidies harvested for four years, then the conversion throttle opened at 65.

The bridge is the most expensive part of early retirement only for the people who walk onto it without looking down.