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Retiring at 62 with a $1.8M portfolio triggers a tough ACA subsidy cliff at roughly $83,120 MAGI, which means full-price premiums of $1,800 to $2,200/month for 36 months earlier than Medicare kicks in at 65 — an sudden $47,000 hole that almost all retirees by no means finances for.
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Earlier than retiring at 62, lock in a healthcare technique utilizing one among three levers: execute Roth conversions whereas nonetheless working to maintain retirement MAGI beneath the subsidy threshold, use COBRA for the primary 18 months, or have one partner work part-time with employer advantages by way of 65 — ready till retirement day to unravel this downside is a sequencing failure that may erode your portfolio.
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Retiring at 62 with $1.8 million places a pair in genuinely robust monetary form. The issue is the calendar. Medicare eligibility begins at 65, which implies the primary three years of retirement arrive with a healthcare invoice that most individuals by no means budgeted for. For a pair who simply walked away from employer-sponsored protection, that hole is a $47,000 sudden price sitting between them and a clear retirement begin.
This state of affairs performs out always. Early retirees wrestle with how one can handle massive Roth conversions within the first two years whereas concurrently navigating ACA premiums at full value. The maths is uncomfortable no matter how a lot somebody has saved.
The typical ACA Silver plan for a 62-year-old couple in 2026 prices roughly $1,800 to $2,200 per thirty days earlier than subsidies. At $1.8 million in retirement property, their Modified Adjusted Gross Earnings (MAGI) will probably exceed the ACA subsidy cliff — the earnings threshold above which no premium tax credit can be found. For a family of two in 2026, that cliff sits at roughly 400% of the federal poverty stage, or roughly $84,000 to $85,000. Withdrawals from a standard IRA rely as odd earnings, and even modest distributions from a $1.8 million portfolio can push a pair over that line quick.
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The subsidy cliff just isn’t a gradual phase-out. It’s a arduous cutoff. One greenback over the edge eliminates all the premium tax credit score. That coverage returned in 2026 after Congress didn’t prolong the improved subsidy guidelines that had briefly softened the cliff for a number of years.
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Couple’s age at retirement: 62, with Medicare eligibility at 65
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Protection hole: 36 months of unsubsidized protection
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Estimated full-price ACA premium: $1,800 to $2,200/month for a pair
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Internet sudden price: roughly $47,000 above what was budgeted (assuming $700/month employer-plan equal was already deliberate)
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Portfolio combine: conventional IRA and taxable brokerage accounts
Companies inflation compounds the issue. Healthcare and different providers have been inflating at 3.26% year-over-year as of February 2026, nicely above headline PCE inflation of two.8%. Premiums that price $2,000 at the moment is not going to price $2,000 in yr three.
Possibility 1: COBRA first, then ACA
COBRA lets departing workers proceed their employer plan for as much as 18 months, paying the complete premium plus a 2% administrative charge. For a pair, that sometimes runs $1,400 to $1,600 per thirty days — meaningfully cheaper than the full-price ACA charge. COBRA protection ends after 18 months, forcing a transition to ACA for the remaining months 19 by way of 36. This method works greatest when the employer plan is nice and the couple has not but applied any income-management technique.
Possibility 2: Roth conversion ladder to get below the subsidy cliff
That is essentially the most highly effective long-term technique. The thought is to transform conventional IRA funds to a Roth IRA within the years main as much as retirement, paying taxes on these conversions whereas nonetheless working. As soon as retired, a pair with a big Roth stability and modest taxable earnings can maintain their MAGI beneath the roughly $83,120 subsidy threshold and qualify for significant premium tax credit. A pair receiving $30,000 to $40,000 in ACA subsidies over 36 months may get better many of the hole solely. The catch: Roth conversions achieved throughout high-income working years set off taxes at the next marginal charge, so the mathematics wants cautious modeling.
Possibility 3: One partner works part-time with advantages by way of 65
That is the only path and sometimes underrated. Many employers provide well being advantages to part-time employees. If one partner can safe 20 to 25 hours per week at an organization that gives protection, the couple eliminates the healthcare hole solely. The working partner additionally continues contributing to retirement financial savings, reduces portfolio withdrawal strain throughout vital early years, and sidesteps sequence-of-returns danger (the hazard {that a} market downturn within the first few years of retirement completely impairs a portfolio. The ten-year Treasury yield at present sits close to 4.30%, which helps cheap returns from a bond-heavy bridge allocation, however fairness markets stay unpredictable. Conserving one earnings stream lively for 3 years is actual insurance coverage in opposition to a nasty sequence.
The worst consequence is retiring at 62 with no healthcare plan and discovering the associated fee in January of yr one. That’s not a planning failure — it’s a sequencing failure. The choice must occur earlier than the retirement date, not after.
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In case you are inside three years of a 62 retirement: Mannequin a Roth conversion technique now. The window to transform at favorable charges whereas nonetheless working is closing. Even partial conversions can cut back future IRA distributions sufficient to maintain MAGI beneath the subsidy cliff.
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In case you are retiring quickly with no Roth stability: Use COBRA for the primary 18 months. It’s nearly at all times cheaper than full-price ACA for a pair at this age.
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If one partner is open to continued work: Half-time employment with advantages is the cleanest answer. It solves the protection hole, reduces withdrawal strain, and retains the portfolio intact throughout its most weak early years.
Healthcare is now the second-largest spending class within the U.S. financial system, trailing solely housing. Healthcare accounts for 17.2% of complete private consumption expenditures as of February 2026, and that share has risen each month for over a yr. For a pair retiring at 62, this isn’t a line merchandise to estimate loosely. It’s the single largest variable standing between a retirement that works and one which quietly erodes.
In case your retirement plan doesn’t have a particular reply to the query of how you’ll cowl medical insurance from 62 to 65, that’s the very first thing to repair.
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