Retirement Healthcare: How You Could Get an ACA Subsidy

Hypothetical Case Study: Shows $96,880 in total Affordable Health Care Act Premiums (Even with $2,500,000 in Retirement Portfolio Assets!)

If you’re thinking about retiring before age 65, one of the biggest wildcards you might be worried about is health insurance. I talk to people all the time who are financially independent — they’ve saved $2 million, $3 million, sometimes more — but they’re still unsure about pulling the plug on work because they don’t know what their health coverage will cost.

Here’s the good news: You might qualify for a subsidy under the Affordable Care Act (ACA) — even if you’ve already accumulated substantial retirement savings.

In this article, I’ll walk you through how ACA premium subsidies work, show you how we use planning software to model it, and share a hypothetical case study where a couple with over $2.5 million in savings qualified for $96,880 in premium subsidies over just a few years — simply by planning their income the right way.

Let’s break this down.

ACA Premiums Can Be Shockingly High

According to the Kaiser Family Foundation, the average monthly premium in 2025 for a 60-year-old on a Silver-level ACA plan is $1,072 per month — that’s $12,864 per year.

For a couple, simply double that: $25,728 annually, or $128,640 over 5 years — and that doesn’t even factor in future inflation increases.

So if you’re retiring early (before age 65 when Medicare kicks in), you could be facing a serious health insurance expense unless you qualify for a subsidy.

How ACA Subsidies Work in 2025 (and the Cliff Coming in 2026) 

Thanks to the temporary expansion of ACA subsidies, your premiums are currently capped, thanks to pandemic-era legislation, based on your Modified Adjusted Gross Income (MAGI).

Here’s how it works in 2025:

• You pay no more than 8.5% of your MAGI toward health insurance premiums — even if your income is well above prior limits
• This expansion is set to expire in 2026, when we go back to the 400% of Federal Poverty Level (FPL) rules — and that’s where things get tricky

400% FPL Limits for 2026

Beginning in 2026, your MAGI needs to be under 400% of the FPL, If your MAGI exceeds that limit, you’re cut off — even if its only by $1 — from receiving any subsidy under the current rules for 2026 and beyond.

Here’s where that cutoff lands in 2025:

• Single filer:
  • 100% FPL = $15,650
  • 400% FPL = $62,600
• Married couple (household of 2):
  • 100% FPL = $21,150
  • 400% FPL = $84,600

So the goal here would be to keep your MAGI below $84,600 for a couple, or below $62,600 for an individual.

The Big Savings Potential

If your income is right at the 400% FPL, you’d pay just 8.5% of your income in premiums. For a couple:

• Before subsidy: $25,728/year
• After subsidy: $7,024/year
• Annual savings: $18,704

Over 5 years (before Medicare starts at age 65), that’s $93,520 in savings. With inflation factored in, it can easily exceed $96,880 — which is the number we highlighted in our case study.

What Could You Save?

Let’s look at what this means in real dollars.

Let’s say you’re a married couple right at that $84,600 income level.

Here’s the math:

• ACA premium (no subsidy): $25,728/year
• ACA premium (subsidized): at 400% of FPL = $7,024/year
• Annual savings: $18,704

Over 5 years, that adds up to $93,520 — and if premiums increase (which they likely will), that number can easily cross the $96,880 mark.

Hypothetical Case Study: Tim & Jill Mitchell

Let me walk you through a hypothetical example I recently modeled in our planning software. This scenario is based on a lot of common situations I see with real clients.

The Setup

Tim (60) and Jill (58) were planning to retire at 65, but both ended up leaving work early — a forced retirement situation that’s not uncommon. Between IRAs, 401(k)s, and a brokerage account, they’ve built up over $2.5 million in retirement assets.

But when we ran their plan, we saw some issues:

• Higher withdrawals in the early years led to low plan confidence
• Large future Required Minimum Distributions (RMDs) could push them into high tax brackets later
• Health insurance was going to eat up a big chunk of their income before Medicare

Our Goal

We wanted to:

• Reduce their taxable income
• Increase plan confidence
• Take advantage of ACA premium subsidies

So we got to work.

3 Planning Strategies to Lower MAGI

1. Downsizing the Home

Tim and Jill had a $1.1 million home. By downsizing to a $750,000 home, they were able to:

• Eliminate their mortgage
• Free up cash from the equity to fund retirement (without triggering taxable income)
• Avoid large withdrawals from retirement accounts

This single move gave them a lot more flexibility.

2. Using Non-Retirement Assets

Because most of their money was in IRAs, taking withdrawals would count toward MAGI. But they also had:

• Cash in the bank
• A brokerage account with low capital gains
• Some inherited stock with a step-up in basis

By drawing from these non-retirement sources, they could generate income for living expenses without raising their taxable income.

We even structured capital gains harvesting to stay under the 0% long-term capital gains bracket — which goes up to $96,800 for a married couple in 2025.

3. Strategic Roth Conversions (Later On)

Once ACA subsidies expire in 2026, we can potentially use those years to:

• Convert IRA money to Roth IRAs at lower tax brackets
• Reduce the impact of future RMDs
• Smooth out their lifetime tax liability

It’s all about timing — taking advantage of the subsidy window while it’s available, and then an asset shifting strategy once it’s gone.

Planning in Action

After explaining how ACA subsidies are calculated and showing how the Modified Adjusted Gross Income (MAGI) impacts eligibility, I walked through a detailed hypothetical case study using our planning software, eMoney.

Here’s what we modeled step-by-step:

• Projected MAGI for each year between retirement and Medicare age (62–65):
  We looked at how portfolio withdrawals, Roth conversions, and capital gains would affect MAGI in each year — especially in relation to the 400% FPL cliff for a two-person household.
• Simulated alternative tax scenarios:
  I showed how different planning moves — like doing larger Roth conversions early vs. deferring them — could impact taxes and subsidy eligibility.
• Forecasted ACA premium costs with and without subsidies:
  This included modeling both the premium credits Tim and Jill would qualify for if they stayed under the subsidy threshold, and how quickly those premiums would spike if they crossed the line even slightly.
• Measured impact on long-term plan success:
  We looked at their Monte Carlo probability of success — comparing a baseline plan with no tax strategy to a revised plan where they strategically pulled from taxable accounts and carefully timed Roth conversions.

💡 Results From the Strategy

Because Tim and Jill structured their withdrawals to keep MAGI below the ACA cliff for five years, they potentially saved $96,880 in cumulative health insurance premiums — without delaying their Roth conversions entirely.

They still got assets into Roth accounts while keeping subsidy eligibility during early retirement.

This dual-benefit strategy (tax efficiency and healthcare subsidy retention) improved their overall plan confidence and allowed them to retire with greater confidence.

🏥 What About Medicare?

As part of the retirement plan we mapped out for Tim and Jill, we also needed to consider how things would shift once Tim turns 65 in 2031 and becomes eligible for Medicare.

That transition doesn’t automatically solve all their healthcare planning needs. Jill is two years younger than Tim, so she’ll still need to remain on an ACA health plan for at least a couple of years beyond his Medicare enrollment.

So, how did we structure the plan to keep things efficient for both of them?

👇 The Strategy to Maintain ACA Subsidy Eligibility for Jill

Once Tim enrolls in Medicare, he’ll no longer count toward the household size for ACA subsidy eligibility. That means Jill’s ACA subsidy calculation will shift to a single-person household, and she’ll be subject to different Federal Poverty Level thresholds.

Specifically, the 400% of FPL limit for a single person in 2025 is $58,320 (this number is subject to inflation each year). That becomes the new income threshold Jill must stay under to continue receiving premium subsidies.

To help her stay eligible, we did the following:

• Prioritized withdrawals from taxable brokerage accounts and cash reserves:
  These assets can be tapped with little or no MAGI impact — particularly if there are no realized capital gains. It buys us flexibility.
• Minimized distributions from traditional retirement accounts:
  We scheduled only just enough distributions from pre-tax accounts (like IRAs and 401(k)s) to satisfy other needs or strategic Roth conversions — but made sure they wouldn’t push her MAGI above the ACA cliff.
• Modeled year-by-year MAGI to anticipate future subsidy phaseouts:
  We ran several scenarios in our planning software to ensure Jill’s income wouldn’t spike unexpectedly as she aged into Medicare herself.

💡 Why This Matters

It’s a common blind spot — many couples assume once one spouse qualifies for Medicare, they’re in the clear. But the younger spouse still needs coverage, and missteps in withdrawal strategy could result in losing thousands in ACA subsidies each year.

By coordinating withdrawals and keeping Jill’s income strategically below the 400% FPL threshold for a single filer, we ensured she could keep her subsidy intact until she reached Medicare age, closing the healthcare gap in the most tax-efficient way possible.

Final Thoughts

Even if you never qualify for an ACA subsidy, this type of planning — thinking through where your income comes from, how to structure withdrawals, and how to take advantage of tax rules — can make a huge difference in your retirement.

And if you’re in that window between retirement and Medicare, now’s the time to act. With the expanded subsidies set to expire after 2025, there’s a closing window of opportunity to optimize your plan.

If you want to see what’s possible in your situation, check out our Retirement Time Machine program. We’ll help you build a custom roadmap using professional planning tools and guide you through strategies like the ones I’ve outlined here.

👉 Learn more at RetirementTimeMachine.com

🎥 Want to see how we modeled this step-by-step?

You can watch the full video walkthrough here where I show the entire plan in action using our planning software — including MAGI projections, Roth conversion timing, and how we calculated the premium savings across multiple years.

Disclosure: This is a hypothetical example and is not representative of any specific investment. Your results may vary. Money Evolution and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.