How Early Retirees Pay for Health Insurance Before 65
You've run the numbers. Your savings can cover your spending. Then one question stops the plan cold: what do I do about health insurance until Medicare starts at 65?
If you leave work at 50 or 55, that's 10 to 15 years of buying coverage on your own. For a lot of early retirees, it's the biggest open question in the plan. The good news is that you have more control over the cost than most people realize. The key is understanding how the rules look at your income, not your savings.
Your options before Medicare
Most early retirees end up with one of four choices, or a mix of them over time.
Your spouse's or partner's employer plan
If your spouse or partner is still working, joining their plan is often the cheapest route. It lasts as long as they stay in that job.
COBRA
COBRA lets you keep your same employer plan, usually for up to 18 months after you leave. The catch is cost. You can be charged up to 102% of the plan's full price (SSA). Itis a useful bridge for the first year or so, but it isn't a 10-year plan. It also tends to be expensive, because your employer is no longer paying its share.
Retiree coverage from your employer
Some companies offer health coverage to retirees, and the rules vary by employer. Ask HR before you give notice.
An ACA marketplace plan
This can carry you all the way to Medicare at 65. What you pay depends heavily on your income, which you can often plan around.
For most people retiring in their 50s, the marketplace plan becomes the long-term answer. Leaving a job and losing that coverage generally opens a special enrollment window, so you don't have to wait for open enrollment (AAA). That's where the planning gets interesting.
How marketplace subsidies work, in plain English
The marketplace gives you a tax credit to help pay your premium. How much you get depends on your household income for the year. It does not look at how much you have saved. Someone with a large portfolio and a modest income can still qualify (PolicyRisk).
There's a catch for 2027, and it's a big one. From 2021 through 2025, Congress made these credits more generous and let higher earners qualify. That expansion ended on December 31, 2025. The House passed a three-year extension in January 2026, but the Senate hasn't acted, so 2027 subsidies follow the original rules (Solace).
Under those rules, the credit stops completely once income goes above 400% of the federal poverty level. People call this the subsidy cliff. Earning even $1 over the line can mean no credit at all (Mira). For 2027 coverage, the line is:
$63,840 for a single person
$86,560 for a household of two
Those figures are for the continental U.S. and come from the 2026 poverty guidelines (Harney District Hospital).
Below the cliff, the amount you pay for a benchmark silver plan is capped at a share of your income. For 2027 that share runs from about 2% to about 10%, depending on where your income lands (Freedinsure). Above the cliff, you pay full price.
An example: same spending, 3 very different bills
Meet Dana and her husband, both 56. Dana left her biotech job at the end of 2026, and they're buying a marketplace plan for 2027. They need $90,000 to live on for the year.
To keep the math simple, assume the full-price benchmark silver plan for the two of them costs $2,000 a month, or $24,000 a year. Your real number depends on your age, ZIP code, and plan, so get an actual quote.
Version A: everything from the 401(k)
Dana takes all $90,000 from her old 401(k). The marketplace counts all of it, which puts them above the $86,560 cliff. They get no help and pay the full $24,000 for the year.
Version B: a little from cash
Dana takes $85,000 from the 401(k) and $5,000 from cash savings. The cash doesn't count, so the marketplace sees $85,000. That's just under the cliff. They pay about $8,700 for the year, which is 10.22% of their income.
Version C: a mix of accounts
Dana takes $45,000 from the 401(k), $25,000 from their Roth contributions, and $20,000 from selling company shares. The Roth contributions aren't income. The shares were worth $16,000 when they vested, so only the $4,000 gain counts. The marketplace sees $49,000, and they pay about $3,800 for the year, roughly 7.8% of their income.
They spend the same $90,000 in all three versions. Version B saves roughly $15,000 in premiums compared with Version A. Version C saves about $20,000. The only difference is which accounts the money comes from.
To keep it simple, these examples ignore dividends and interest, which would also count.
The percentages come from the IRS table for 2027, which sets what share of income you pay for the benchmark plan at each income level (IRS Rev. Proc. 2026-26).
One more detail. Dana is 56, so 401(k) withdrawals would normally come with a 10% early withdrawal penalty. Because she left this employer at 55 or older and kept her money in its plan, the Rule of 55 lets her withdraw without that penalty, if her plan allows it. That benefit doesn't carry over to an IRA (KVIA).
*This is a hypothetical example to show how the rules work. It's not a projection, and your numbers will be different.
What counts as income, and what doesn't
The marketplace uses a number called modified adjusted gross income. It starts with the adjusted gross income on your tax return, then adds back untaxed foreign income, non-taxable Social Security, and tax-exempt interest (HealthCare.gov).
In everyday terms, these usually count:
Withdrawals from a traditional 401(k) or IRA
Capital gains when you sell investments in a regular brokerage account
Dividends and interest, including tax-free municipal bond interest (HealthSherpa)
The taxable part of a Roth conversion. Converting pre-tax 401(k) or IRA money counts in full, including an in-plan conversion inside your 401(k) (Empower). A clean backdoor Roth, or converting after-tax 401(k) contributions, counts only the earnings since you put the money in, which stays small if you convert quickly (Fidelity)
These usually don't:
Spending from cash savings
Qualified Roth distributions (HealthSherpa)
The part of a stock sale that's just getting your own money back. Only the gain counts
That last point matters if you hold company stock. When RSUs vest, you're taxed on their value at vest. If you sell later, only the growth since then shows up as income. Shares that haven't moved much can be a low-income source of cash in early retirement.
This is why the accounts you build while you're still working matter so much. A mix of pre-tax, Roth, taxable, and cash gives you choices about how much income shows up each year. One more trade-off to know about: converting pre-tax money to Roth in your early retirement years raises your counted income, so it can cost you subsidy dollars. Sometimes it's still worth it. That's a year-by-year decision.
Where your spending money comes from
Once you know what counts, you can choose where each year's spending comes from. Most early retirees use a mix of three sources.
Roth contributions can come out at any time, tax- and penalty-free, no matter your age or how long the account has been open. They also come out before any earnings (Green Leaf Trust). Keep a running total of what you've put in over the years so you know how much is available. If you funded your Roth through backdoor conversions, that money follows the conversion rules, which include a five-year clock on any part that was taxed when you converted (Q3 Advisors).
In a taxable brokerage account, only the gain counts when you sell. Shares that haven't grown much, including company shares that are close to their value at vest, add very little to your income. Ask your brokerage how to choose which specific shares you sell.
Every dollar you take from a pre-tax 401(k) or IRA counts as income. Before 59½, you'll also need a way around the 10% penalty, such as the Rule of 55 from the example above.
Put together, the approach looks like this. Pick a target income for the year. Fill it with pre-tax withdrawals or a Roth conversion, then cover the rest of your spending with Roth contributions, cash, or shares with small gains. Version C in the example works this way.
Lower isn't always better, though. In states that expanded Medicaid, including Pennsylvania, adults under 65 with income up to 138% of the poverty level are eligible for Medicaid (healthinsurance.org). For a couple, that's about $29,900 (Harney District Hospital). Drive your income too low and you may be steered to Medicaid instead of a marketplace plan. A very low-income year can also waste low tax brackets you could have used for Roth conversions. The goal is the right income for your plan, not the lowest one.
What to do this fall
Open enrollment for 2027 marketplace coverage starts November 1, 2026 (Solace). In Pennsylvania, Pennie's window runs through January 15, 2027, and you need to sign up by December 15 for coverage that starts January 1. Those dates have shifted this year because of federal court cases, so confirm them at pennie.com before you count on a deadline (PHLP). In other states, check HealthCare.gov or your state's own marketplace.
Estimate your 2027 household income, using the lists above.
Compare it to the cliff: $63,840 if you're single, $86,560 for a couple.
If you're close to the line, look at where your spending money will come from. Cash, Roth contributions, or investments with small gains may keep you under it.
Get a real quote on the marketplace, both with and without the subsidy.
Update your marketplace account if your income changes during the year. There's no longer a cap on how much extra credit you may have to pay back at tax time (Solace).
If you're planning to leave work in the next few years, this is worth mapping out before your last day, not after.
Your tax situation, financial goals, and company stock plan details are specific to you and should be reviewed with a qualified professional before you act.