How Early Retirees Can Potentially Save Over 30K On Health Care In 2026

Full transcript includes subheadings:​

The #1 Health Insurance Mistake Early Retirees Make

One of the most expensive problems we see with people who are going to be retiring before the age of 65 is paying far too much for their retiree health insurance.

COBRA vs. ACA: Your Options Before Medicare

So we’re going to show you how you can — early retirees can save over $30,000, potentially on health care in 2026. So popular retirement health insurance options for people who are retiring, who do not have retiree health insurance provided to them from a former employer, is either going on COBRA.

The problem with COBRA is it can also be very expensive and it’s a temporary solution. Many people will go on the exchange, also known as ACA insurance, or many states have their own version of ACA insurance. ACA stands for Affordable Care Act insurance. As I had mentioned previously, also known as the exchange, also known as Obamacare. That’s all one and the same thing.

What Affects Your ACA Insurance Cost

Now, if you’re going to be going on Affordable Care Act insurance to get you from retirement to the age of 65, when Medicare kicks in, there’s a number of factors that can influence or affect your insurance cost — of course, your age, where you live, the number of people covered, if you’ve used tobacco in the past, the plan you choose, but more so than anything, tax credit availability.

Now I’m going to use a real simple example to illustrate how expensive this can get very quickly with the cost of your health insurance based on the tax credits you receive to offset the cost of health insurance.

What Is Modified Adjusted Gross Income (MAGI)?

Tax credits are provided to you based on something called modified adjusted gross income, which we’ll get into a little bit more detail on the next slide.

Now I’m using an example of my hometown — Eau Claire County, Wisconsin. There are many states and counties that are more expensive than what I’m sharing with you, and many that are less expensive, but it’s my hometown, so I’m using that because I thought it’d be fairly representative of what many people will be looking at for ACA insurance costs.

Real Cost Example: Married Couple, Age 62, in 2026

And we do meet with people and have clients all over the United States. But just using this example for simplicity — in 2026, for a married couple, 62 years old, both of them 62, on a silver plan in Eau Claire County — if their modified adjusted gross income is very low, only $21,150, you can see their annual premium is also very low.

It’s only $444 for this insurance. In that example, once their income — or their modified adjusted gross income — goes up to $84,600, you can see their premium rises to $8,426, which is a lot more, obviously, but still, depending on how you define affordable — affordable for many people, reasonably sized.

The ACA Cliff: How $1 of Income Can Cost You $30,000

But look what happens once you go $1 over this level, to $84,601.

The cost of the ACA premium jumps by over $30,000 — to $40,265 per year. This is called the cliff. Once you go over that cliff in your state, depending on your circumstances, you’re looking at potentially a significant increase in the premium you have to pay for ACA insurance, because your tax credits are just not there to help offset the cost of that insurance — essentially go away. And so your cost of insurance goes way up.

In order to prevent this problem — for some people with very large net worth, they’re not going to be able to escape this — but many people who have $2 million, $3 million, $4 million, even up to $5 million, can avoid this from happening if they plan in advance.

What Counts Toward Modified Adjusted Gross Income

In order to understand this, it’s important to know what counts towards modified adjusted gross income — any wages, salary, or pay.

That’s all included in modified adjusted gross income. Social Security is included in modified adjusted gross income. Pension income, distributions from IRAs, net business income, municipal bond interest income, dividends, and capital gains that are produced on the non-retirement accounts where you get a 1099 each year on those types of investments — all of that income is also included. So if there are things you can do to delay these different examples of modified adjusted gross income — like potentially delaying Social Security — that can make sense for a lot of people, because number one, it won’t increase modified adjusted gross income.

Strategies to Reduce Your MAGI Before Retirement

Number two, when you do receive it, you’ll receive a higher amount because you delayed it up until the age of 70. Sometimes delaying pension income can make sense. Of course, you have the ability to not take distributions from your IRA, especially if you have sources of income in other places. And of course, minimizing unnecessary taxes on your non-retirement account investments can also help to reduce that modified adjusted gross income.

What Doesn’t Count: Roth IRAs and Non-Qualified Accounts

More importantly than what counts is probably what doesn’t count. So if you have qualified Roth IRA distributions, none of that counts towards modified adjusted gross income. And if you have money in what I call the non-qualified bucket — which would include monies not in retirement accounts — if you take the basis of those investments out, none of that counts towards modified adjusted gross income either.

So essentially, if you have enough money socked away in these non-qualified investments and Roth IRAs, you can use that as a source of income to help get you from retirement to the age of 65, when Medicare kicks in, and hopefully be able to stay below that cliff so that you receive ample tax credits to minimize unnecessary costs associated with retiree health insurance.

Talk to a CFP® at Bernicke Wealth Management

I really hope that all of this made sense today. I know it was a very quick description on how you can potentially avoid over $30,000 a year in unnecessary health insurance costs. If you want to talk to somebody about this, our financial advisors in our office, our certified financial planners — you can set up a 15-minute meeting with them where they can go over this in much more detail.

You can do that by either clicking the link at the bottom of your screen or going to Bernicke.com. I really hope you take advantage of that, and I hope you learned something about how you can provide health insurance for yourself post-retirement, pre-Medicare age of 65, with minimal costs. Thank you very much.