Happy Friday Reader ☀️
Welcome back to Safe Money Weekly, where I share retirement income planning strategies, case studies, and ideas to help you retire with more confidence and less uncertainty.
One of the most common questions I hear from people considering early retirement is surprisingly simple:
“What do I do about health insurance before Medicare starts at 65?”
For some people, this is actually one of the biggest things keeping them from retiring earlier.
How Do Early Retirees Actually Pay for Health Insurance Before 65?
The good news is that people retire before 65 all the time.
And there are generally 3 ways people bridge the healthcare gap.
1️⃣ Stay on a spouse’s health insurance
If one spouse continues working, the retiring spouse can often remain covered under their employer-sponsored plan.
For couples retiring at different ages, this is usually the simplest solution.
2️⃣ Use COBRA
COBRA can generally allow you to temporarily continue the health insurance you had through your employer.
The downside?
You usually have to pay the full premium yourself, which can make it considerably more expensive than it was while you were working.
Still, for someone retiring relatively close to 65, it can be a useful short-term bridge.
3️⃣ Purchase coverage through the ACA Marketplace
This is where retirement planning gets much more interesting.
Many early retirees purchase coverage through the ACA Marketplace.
And the amount you pay can be heavily influenced by your household income.
Which means:
How you create retirement income can directly affect what you pay for health insurance.
For example, needing $100,000 to fund your lifestyle doesn’t necessarily mean creating $100,000 of taxable income.
You may be able to strategically use:
✔️ Cash reserves
✔️ Brokerage investments with a high cost basis
✔️ Qualified Roth IRA distributions
✔️ Smaller Traditional IRA withdrawals
A retiree can potentially spend a significant amount of money while keeping taxable income much lower.
And that may result in significantly better healthcare subsidies.
But There’s a Trade-Off
The years immediately after retirement can also be some of the best years to complete Roth conversions.
But Roth conversions create taxable income.
So you may face a decision:
Do I keep my income low to maximize healthcare subsidies?
OR
Do I intentionally recognize more income now to reduce my lifetime tax bill later?
There isn’t one answer that works for everyone.
Sometimes it makes sense to keep income low for a few years before Medicare.
Other times, giving up some healthcare subsidies to complete Roth conversions may create a much larger long-term tax benefit.
The mistake is optimizing either decision in isolation.
The Bigger Lesson
Healthcare before 65 is absolutely something you need to plan for.
But it’s often much more manageable than people expect.
And the years before Medicare can create an incredibly valuable planning window where you have more control over:
💰 Where your income comes from
📊 How much taxable income you recognize
🏥 What you pay for health insurance
🔄 How much you convert to Roth
💵 When you begin Social Security
That’s why retirement income planning is about much more than simply asking:
“Do I have enough money?”
It’s about figuring out how all of your different income sources should work together.
I’ve included the full blog below if you’d like to go a little deeper into the topic.
And if you’re approaching retirement and trying to figure out how healthcare, taxes, Social Security and retirement income should all fit together…
Let’s chat retirement 😎
Have a great weekend!
Matt
P.S. As always, below you'll find all of my newest articles, videos, case studies, and retirement resources.