Health Insurance for Early Retirement
In 2026 the ACA premium subsidy cliff has returned: households above 400% of the federal poverty level ($62,600 single, $84,600 for two) get zero subsidy, and you repay any advance credits with no cap. The strategy for early retirees is to manage MAGI — income counts from traditional IRA withdrawals, Roth conversions, capital gains — while qualified Roth withdrawals and cash don't count, then use a Roth conversion ladder to generate affordable income that keeps you under the cliff.
The Big FIRE Question: Insurance Before Medicare
Medicare starts at 65, but FIRE retirees typically quit work decades earlier. The gap years — say 45 to 65 — need health insurance, and in the US that's usually the single biggest line item in a retirement budget.
Your options fall into a few buckets: an ACA marketplace plan (usually subsidized), a spousal employer plan, COBRA continuation for up to 18 months, Medicaid if income is low enough, an HSA plus high-deductible plan, or healthcare-sharing ministries. For most early retirees, the ACA marketplace is the workhorse — if you engineer your income to qualify for subsidies.
How ACA Subsidies Work
ACA premium tax credits cap what you pay for a benchmark silver plan at a percentage of your income. Your subsidy is the difference between the plan's premium and that cap.
Because the subsidy is income-based, your annual income determines both eligibility and cost. That's the lever FIRE retirees pull: the lower your reported income, the bigger your subsidy, down to near zero premiums.
Critically, eligibility is based on Modified Adjusted Gross Income (MAGI) for the coverage year — which you can largely control in early retirement through which accounts you withdraw from and when.
The 2026 Subsidy Cliff: Exact Numbers
The enhanced ACA subsidies that ran 2021-2025 expired at the end of 2025. In 2026 the 400% of Federal Poverty Level (FPL) cliff is back, with no phase-out.
The 2026 income limits for subsidy eligibility (based on 2025 poverty guidelines):
1 person: up to $62,600 (400% FPL). 2 people: up to $84,600. 3 people: up to $106,600. 4 people: up to $128,600.
Below 100% of FPL you generally fall into Medicaid (in expansion states) rather than marketplace subsidies. Above 400% of FPL — even by one dollar — you get zero subsidy and may have to repay all advance credits, with no repayment cap starting in 2026. The planning target is a band, and you want a buffer below the line.
What Counts as Income for Subsidies (MAGI)
For ACA purposes, MAGI adds back tax-exempt interest, nontaxable Social Security, and foreign income to your adjusted gross income. What counts:
Traditional IRA and 401(k) withdrawals, Roth conversions, capital gains, dividends, interest (including municipal bond interest), rental income, part-time wages, pensions, and the untaxed portion of Social Security benefits.
What doesn't count: qualified Roth IRA withdrawals, the contribution basis you're returning, HSA distributions used for qualified medical expenses, and plain cash from savings.
The practical consequence: two households spending the same $85,000 can sit on opposite sides of the cliff purely based on which accounts they spend from. Spending from Roth contributions and cash keeps MAGI low; spending from a traditional IRA raises it.
The Roth Conversion Ladder Meets the ACA
The Roth conversion ladder generates taxable income you control — and it's exactly the tool ACA planning revolves around.
In low-income early-retirement years you convert traditional IRA money to Roth: the conversion adds to MAGI, but if it lands you between roughly 100% and 400% of FPL, you can still qualify for subsidies. You've effectively turned locked-up pre-tax money into future tax-free spending while keeping premium costs near zero.
The tension: every dollar of conversion raises MAGI and can shrink or destroy your subsidy if it pushes you over 400% of FPL. In 2026 with the cliff and uncapped clawback, the penalty for overshooting is severe. Most planners convert up to (but not over) the cliff, and pause conversions in years you rely on subsidies — resuming after 65 when Medicare replaces the marketplace.
A Step-by-Step Healthcare Plan for FIRE
1. Estimate your gap-year budget, including expected premiums. 2. Decide which accounts will fund it — Roth contributions, taxable cash with high basis, and HSA first, because they don't raise MAGI. 3. Pick a target MAGI inside the subsidy band (e.g., 300-380% of FPL) to leave a buffer below the cliff. 4. Size your annual Roth conversions to hit that target income. 5. Open a marketplace plan, reporting your projected income for the year. 6. If income changes mid-year, update the marketplace immediately — the 2026 repayment rules make overestimating expensive. 7. Revisit at 65: Medicare replaces the marketplace, and the calculus around conversions changes again.
Health insurance is a solvable problem in early retirement — it just rewards planning your income as carefully as you plan your spending.
Frequently Asked Questions
How do early retirees get health insurance?
The most common answer is an ACA marketplace plan, ideally with premium subsidies — which requires keeping your modified adjusted gross income between about 100% and 400% of the federal poverty level. Other options: a spouse's employer plan, COBRA for up to 18 months after leaving work, Medicaid in low-income years (in expansion states), and an HSA paired with a high-deductible plan.
What is the ACA income limit for subsidies in 2026?
In 2026 the enhanced subsidies expired and the 400% FPL cliff returned. You're subsidy-eligible up to $62,600 for one person, $84,600 for two, $106,600 for three, and $128,600 for four. Go above 400% FPL by even a dollar and you receive zero subsidy, with no phase-out.
Does a Roth conversion count as income for ACA subsidies?
Yes. Roth conversions add to your modified adjusted gross income, which is what determines ACA subsidy eligibility. They're also the main income lever early retirees use to stay within the subsidy band while unlocking pre-tax retirement money — but convert too much and you can push yourself over the 400% FPL cliff.
What happens if I go over the ACA subsidy cliff?
You lose your entire premium subsidy — there's no gradual phase-out in 2026. If you received advance premium tax credits during the year and your final income exceeds what you reported, you must repay the excess, and starting in 2026 that repayment is uncapped. This is why planners keep a buffer below the line and update the marketplace promptly when income changes.