Bridging to Medicare: The Forgotten Retirement Expense

Medicare doesn’t start until 65. For anyone retiring before then, the years in between are usually the largest cost they never budgeted for — and since 2026, a single dollar of income can swing it by $14,000.

When someone tells me they want to retire at 60, my first question usually isn’t about their portfolio. It’s about health insurance.

That catches people off guard. They’ve spent years thinking about the number — the balance they need to hit before they can walk away. What they haven’t thought about is that Medicare doesn’t start until 65, and for those five years in between, they’re buying their own coverage at full price.

I call this the bridge. It’s the stretch between your last day of work and your Medicare eligibility date, and for most early retirees it’s the largest expense they never budgeted for.

People guess low. Usually very low.

When I ask clients what they think health insurance will cost them before 65, the answers cluster somewhere around a few hundred dollars a month. That’s what they remember paying out of their paycheck — the employee share, not the real cost. Their employer was quietly covering the other two-thirds.

The real number for a couple in their early sixties, buying their own coverage without any subsidy, can run north of $22,000 a year in premiums alone.¹ Add deductibles and out-of-pocket costs and you’re realistically looking at $28,000 to $30,000 in any year where someone actually uses their insurance.

That’s not a line item. That’s a second mortgage.

The rules changed at the start of 2026

For four years, the Affordable Care Act had an unusual feature: no matter how high your income, you never paid more than 8.5% of it toward a benchmark health plan. Those enhanced credits expired at the end of 2025.²

What came back is what people call the subsidy cliff. Premium tax credits are now available if your income falls between roughly 100% and 400% of the federal poverty level. Above that line, the credit isn’t smaller. It’s gone entirely.

The market reacted about how you’d expect. Sign-ups from households sitting just above the cliff fell 44% in a single year.³ Deductibles jumped 37% on average, to a record $3,786 per person, as people traded down to cheaper plans with much bigger gaps.³

Here’s the part I want early retirees to notice: the households that got hit hardest weren’t wealthy ones. They were middle-income — people living on $85,000 or so, drawing from retirement accounts, no paycheck coming in. That’s not an abstract policy statistic. That’s a description of a newly retired couple.

What a dollar can cost you

Take a couple, both 62, retired, pulling their income from an IRA. If they keep their income just under the 400% threshold, they’ll pay a capped percentage — a little under 10% of income — toward a benchmark silver plan. Call it $8,000 for the year. If they go one dollar over, they pay the full unsubsidized rate. Call it $22,000.

One dollar of income. A $14,000 swing. I don’t know of another place in the tax code where a single dollar does that much damage. And it’s entirely avoidable — if you know the threshold is coming and you have the flexibility to steer around it.

The thresholds move every year, and they lag by one. Your 2026 coverage is measured against the 2025 poverty guidelines; your 2027 coverage will be measured against the 2026 figures, which put 400% at $63,840 for one person and $86,560 for a couple in most states.⁴

Two things trip people up. The calculation uses modified adjusted gross income, not taxable income — so the standard deduction doesn’t help you here. And the credit gets reconciled when you file. Guess low at enrollment, earn more than you expected, and you can owe the difference back at tax time.

The mechanics of how this drains a portfolio

Here’s a made-up example to show the shape of the problem. A couple retires at 60 with $1,000,000 in a traditional IRA. Health coverage runs $25,000 in year one and rises 6% a year. Every dollar comes out of the IRA, and they lose about 15% of each withdrawal to taxes.

Age	Health cost	Pre-tax withdrawal
60	$25,000	$29,400
61	$26,500	$31,200
62	$28,100	$33,100
63	$29,800	$35,100
64	$31,600	$37,200
Total	$141,000	~$166,000

Roughly $166,000 gone in five years. That’s 17% of the starting balance spent before groceries, travel, property taxes, or anything else they actually retired to do.

And the damage doesn’t stop at 65. Those dollars left the portfolio early, so they never compounded. At 6% growth, that $166,000 would have been worth close to $300,000 by age 75.

Notice too that the withdrawals themselves create the income that determines the subsidy. Pull more to cover premiums, and you can push yourself over the cliff, which raises premiums, which means pulling more. That loop is why this can’t be solved with a spreadsheet you build once and forget.

Your four options, honestly assessed

COBRA. Continues the plan you already have. It’s the simplest choice and sometimes the right one — if you’re mid-treatment, if you’ve already met your deductible for the year, or if you’re retiring in the fall and just need to reach January.

But it’s a bridge to the bridge, not the bridge itself. Retirement-triggered COBRA typically runs 18 months. If you retire at 60, that gets you to 61 and a half, and you still have three and a half years to solve for. You also pay the entire premium plus an administrative fee — no employer contribution — which usually means $9,500 or more for one person and north of $27,000 for a family.⁵

One trap worth knowing: if you let COBRA run out, that opens a special enrollment window on the Marketplace. If you simply drop it partway through, generally it doesn’t. That timing mistake can leave someone uninsured until the next open enrollment.

The ACA Marketplace. Where most early retirees land, and where planning actually moves the number, because your premium depends directly on a figure you have real control over.

A spouse’s employer plan. Frequently the cheapest answer on the table, and a genuinely good reason to stagger retirement dates by a year or two. One person keeps working and covering the household while the other retires early.

Retiree medical or part-time work with benefits. Rare in the private sector now, still common in public sector and union jobs. Get it in writing before you count on it.

Steer clear of health care sharing ministries and short-term plans unless you understand exactly what you’re buying. They’re not insurance, they generally don’t have to cover pre-existing conditions, and they aren’t bound by ACA consumer protections.

Where the leverage actually is

Your spending and your reported income are two different numbers. This is the whole game. A retiree can spend $110,000 a year and report $70,000 of income, depending on which accounts the money comes from. Most people don’t realize they have that dial, let alone that they can turn it.

Build the taxable account before you retire. Money pulled from a brokerage account only counts as income to the extent of realized gains. If you’re selling something with a high cost basis, most of what you withdraw doesn’t show up as income at all. Cash works the same way. Having two to four years of expenses sitting outside your IRA is what makes everything else possible.

Roth conversions and ACA subsidies fight each other. The years between retirement and RMDs are the classic window for conversions — low brackets, no paycheck. But every converted dollar counts as income, and a conversion that pushes you past the cliff can cost more in lost credits than it saves in future taxes. You usually can’t win both in the same year. You have to pick, year by year, and the right pick depends on your bracket, your balances, and how many years you have left before Medicare.

Don’t overlook the HSA. As of January 2026, every bronze plan sold through the Marketplace counts as HSA-qualified, and some silver and gold plans qualify on their own terms… One timing rule matters enormously here. If you enroll in Medicare after 65, Part A coverage can be backdated up to six months, and your HSA contribution limit is zero for every month Medicare covers you — including the retroactive months… Plan on stopping contributions roughly six months before you apply.

Re-shop every single year. Your subsidy is calculated against a benchmark plan that gets recalculated annually. The plan that was priced well in 2026 may not be in 2027. Open enrollment for 2027 coverage is expected to begin November 1, 2026, but the closing date is genuinely unsettled right now — a CMS rule that would have shortened the window was vacated by a federal court in June 2026 and is under appeal, and state-based exchanges set their own deadlines regardless.¹³ Confirm your dates directly with HealthCare.gov or your state exchange rather than assuming last year's calendar. Auto-renewing without looking is one of the most expensive habits in this whole area.

Handle the 65th birthday deliberately. Medicare has its own enrollment window and its own late penalties, and Marketplace coverage needs to be ended on purpose, not allowed to lapse. If one spouse hits 65 before the other, the household’s math changes that year too.

The part I’d underline

Every decision above interacts with every other one. The Roth conversion changes the subsidy. The subsidy changes the withdrawal. The withdrawal changes the tax bill. The tax bill changes what’s left to convert next year.

And most of these decisions have a deadline attached. Miss an enrollment window and you wait a year. Convert in December without checking your income and you can’t undo it. Guess wrong on your income estimate and you settle up at tax time.

This isn’t a decision you make once at retirement. It’s a sequence of decisions you make every year for five or ten years, each one constrained by the last, under rules Congress has already changed twice and may change again.⁷

That’s the argument for mapping it out before you retire — year by year, through age 65, for both spouses — rather than finding out in April what a choice you made last summer actually cost.

If you’re thinking about retiring before 65, this belongs at the front of the conversation, not the back of it.

Questions? Let us help.

This material is for informational purposes only and does not constitute investment, tax, or legal advice. Past performance is not indicative of future results. Please consult a qualified advisor before making financial decisions.

Footnotes

1. Bipartisan Policy Center, Enhanced Premium Tax Credits: Who Benefits, How Much, and What Happens Next? (December 2025), estimating annual 2026 premiums of approximately $22,600 for a 60-year-old couple with income just above 400% of the federal poverty level. Link

2. Congressional Research Service, Enhanced Premium Tax Credit and 2026 Exchange Premiums: Frequently Asked Questions, Report R48290. The premium tax credit itself continues; only the temporary enhancement expired. Link

3. KFF, What We Know So Far About 2026 ACA Marketplace Enrollment, Premiums, and Deductibles (May 19, 2026). Link

4. U.S. Department of Health and Human Services, 2026 Poverty Guidelines (Federal Register, January 2026); percentages calculated from published guideline amounts. Marketplace eligibility applies the prior year’s guidelines to the coverage year. Alaska and Hawaii use higher tables.

5. KFF, 2025 Employer Health Benefits Survey (October 2025), reporting average total annual premiums of $9,325 for single coverage and $26,993 for family coverage. COBRA may be charged at up to 102% of the total premium. Link

6. CMS / HealthCare.gov, 2027 Open Enrollment Period. Confirm current dates directly with HealthCare.gov or your state-based exchange.

7. The enhanced credits were enacted in 2021, extended in 2022, and allowed to expire at the end of 2025. The House passed a three-year extension in January 2026 that did not advance in the Senate. Link