The Thing That Decides When You Can Retire

What about health insurance?

Ask people why they're still working at 62 and the answer is usually money. Push a little and it's often something narrower: health insurance.

You're too young for Medicare and too far from a paycheck to want to buy coverage yourself. So you stay another three years for the benefits.

Sometimes that's the right call. Often it isn't — and the reason it isn't is a rule most people have never heard of, which quietly controls what that coverage costs.

For anyone under 65

The Affordable Care Act marketplace gives you a premium tax credit based on your household income measured against the federal poverty level. The lower your income, the larger the credit.

From 2021 through 2025, a temporary expansion removed the upper income limit entirely — everyone got some help, and premiums were capped at a share of income no matter how much you made.

That expansion expired on January 1, 2026. Congress didn't extend it. The original rules came back, and with them the thing that matters most here.

The cliff

Under current rules, the credit is available to households between 100% and 400% of the federal poverty level. At 400% you get help. At 400.01% you get nothing.

Not a smaller credit. Nothing.

For 2026 coverage that line sits at roughly $62,600 for a single person and $84,600 for a couple, with about $22,000 more for each additional person in the household.

So picture a couple, both 62, living on $84,000 a year. They receive a credit that might be worth $1,000 a month or more, because marketplace premiums for people in their early sixties are genuinely expensive. Now they take one extra IRA withdrawal in December and land at $85,000.

They lose the entire credit. Every dollar of it. And because the credit is reconciled on the tax return, they have to pay back what they received during the year.

One thousand dollars of income. Twelve thousand dollars of consequence, or worse.

That's the cliff. It's the sharpest edge in the entire retirement tax code, and it's aimed squarely at people between 60 and 65 — precisely the group deciding whether they can afford to stop working.

Why this is good news, not just bad

Here's the part that changes the conversation.

In early retirement, you have more control over your reported income than at any other time in your life.

While you were working, your income was your salary. You couldn't adjust it. Now, if you've stopped working, your income is largely whatever you decide to withdraw — and where you withdraw it from.

And the rules on what counts are specific:

Counts toward the threshold: IRA and 401(k) withdrawals, Roth conversions, pension income, interest and dividends, capital gains, wages, and tax-exempt interest. Social Security counts too, including the portion that isn't taxable.

Does not count: withdrawals from a Roth account. Not the contributions, not the earnings, not any of it. It's simply not income for this purpose.

And that's the whole game. A 62-year-old couple with money in both a traditional IRA and a Roth can decide, more or less, what income they report — by choosing which account to spend from.

Live on Roth withdrawals and taxable savings, keep reported income under the line, and the credit can be worth ten to fifteen thousand dollars a year. For the three to five years between retiring and Medicare, that's a genuinely large number — often the difference between retiring at 62 and working until 65.

Cash and taxable brokerage help too, since only the gain portion of a sale counts, not the principal you're returning to yourself.

The tension you should know about

This creates a real conflict with something we'll work on in August.

The years between your last paycheck and Social Security are usually the lowest-tax years of your life — the natural window for Roth conversions.

But a conversion is income. And if you're on a marketplace plan under 65, a conversion can push you over the cliff and cost you the entire credit.

So for anyone in that situation, the honest answer is often: the subsidy wins. A credit worth twelve thousand dollars usually beats the tax savings from a conversion of similar size. Do the conversions after 65, when Medicare takes over and the cliff no longer applies.

That's not a rule, it's an arithmetic question — but it's one almost nobody runs, and getting it backwards is expensive.

Your three options before 65

COBRA. You can usually continue your employer plan for 18 months, but you pay the full premium plus a small administrative charge — typically far more than you were paying, since your employer was covering most of it. It's often the most expensive option, and it's temporary. Worth it when you're mid-treatment and don't want to change doctors, or when the plan is unusually good.

The marketplace. Buy your own plan. Costs vary enormously with income because of the credit, which is why the number above matters so much. Check whether your doctors are in network — marketplace networks are often narrower than employer plans.

A spouse's plan. If your spouse is still working, this is usually the cheapest path by a wide margin. Leaving a job triggers a special enrollment period, so you don't have to wait for open enrollment.

If you're already 65

Different set of problems, and one of them is permanent.

Enroll on time. Your initial window runs from three months before the month you turn 65 through three months after. Miss it without qualifying coverage from a current employer and the Part B penalty is 10% for every twelve months you were eligible and didn't enroll — added to your premium for the rest of your life. Not a one-time charge. Forever.

The exception is if you're still working and covered by an employer plan with 20 or more employees. Then you can delay without penalty. Retiree coverage and COBRA do not count for this, and that misunderstanding is expensive.

The Advantage versus Supplement decision is not as reversible as it looks.

When you first enroll in Part B, you have a six-month window during which you can buy any Medigap supplement policy sold in your state regardless of your health. No questions, no exclusions.

After that window closes, in most states, insurers can medically underwrite you — and decline you.

Which means: if you choose Medicare Advantage at 65 and five years later you're sick and want to switch to Original Medicare with a supplement, you may find you can't get the supplement. You can switch to Original Medicare, but without a supplement you're exposed to costs with no annual out-of-pocket cap.

A handful of states require guaranteed issue on an ongoing basis. Most don't. Find out which kind of state you live in before you choose, because that fact should probably drive the decision.

I'm not going to tell you which is better — that depends on your doctors, your prescriptions, whether you travel, and your appetite for network restrictions. But treat it as a decision that's much harder to reverse than the marketing suggests.

Watch your income for a different reason. Once you're on Medicare, high income triggers a premium surcharge, based on your tax return from two years earlier. The first threshold is well above what most households reach, but if you're near it, a large conversion or a property sale can quietly raise your premiums two years later. September is about that.

What May is for

If you're under 65: find out where the 400% line is for your household, and how close you are to it. If you're on a marketplace plan, that number should govern every withdrawal decision you make this year.

If you're 65 or older: confirm you enrolled on time, and understand that the supplement decision has a window that closes.

Health coverage doesn't get talked about as a financial planning topic. For anyone thinking about retiring before 65, it's frequently the whole decision.