The Healthcare Bridge Strategy a 62 Year Old Couple Used to Cover Five Years to Medicare on $42,000 a Year

Retiring at 62 with a paid-off house and $1.5 million in invested assets sounds comfortable on paper. The catch is health insurance. Medicare does not start until age 65, leaving a couple about three years to self-fund coverage before the federal program picks up the bill. That gap is where most early retirement plans break.

The 62-to-65 Coverage Gap

The scenario is familiar on the Bogleheads and r/Fire forums: both spouses turn 62, healthy, wanting to stop working, and neither wants to spend $2,000 a month on an unsubsidized marketplace plan that eats their withdrawal rate alive.

Anchor numbers for this couple:

• Ages 62 and 62, both retiring this year
• Portfolio: $1.5 million, mostly in traditional IRA, Roth IRA, and taxable brokerage accounts
• Target annual spending: $42,000, a 2.8% withdrawal rate
• Bridge length: 3 years for the older spouse, 5 years for the younger

At a 2.8% draw, the portfolio math works. Healthcare is where the plan lives or dies.

MAGI Management Is the Deciding Factor

Modified adjusted gross income (MAGI) determines whether this couple pays $300 a month or $2,400 a month for insurance. Affordable Care Act (ACA) premium tax credits in 2026 are tied to the federal poverty level (FPL). Enhanced subsidies that softened rules through 2025 have expired. The subsidy cliff at 400% of FPL is back, roughly $80,160 for a couple in 2026. One dollar of MAGI above that line wipes out the credit entirely.

The lever is from which accounts you spend. Roth IRA distributions do not count toward MAGI. Return-of-basis withdrawals from taxable brokerage do not count. HSA distributions for qualified medical expenses do not count. Traditional IRA withdrawals, capital gains, and dividends all count.

A couple drawing about $60,000 in reportable MAGI (roughly 300% of FPL) plus the rest from Roth and basis can hit a premium contribution near $300 a month. Add realistic out-of-pocket costs of $4,000 to $6,000 annually for a healthy couple, and total healthcare lands around $8,400 to $9,600. With $32,000 in living expenses, the total annual draw is $42,000. The $32,200 standard deduction for married couples filing jointly in 2026 means a meaningful slice of that MAGI is offset on the federal return.

Three Paths That Work

1. Subsidized marketplace coverage with strict MAGI control. Spend Roth first, taxable basis second, and only enough from the traditional IRA to fill the lower brackets. Skip large Roth conversions during bridge years. A conversion pushing MAGI over $80,160 costs more in lost subsidies than it saves in future taxes. This works best for healthy couples with mixed account types.
2. HSA stockpile drawdown. Couples who maxed an HSA during working years can reimburse medical receipts tax-free from that balance, keeping reportable income lower. Money grows tax-free, comes out tax-free for qualified medical expenses, and never hits the MAGI calculation.
3. Spouse staggering at 65. When the older spouse rolls onto Medicare, the household shifts to a single-person marketplace plan for the remaining bridge years. Single-person FPL thresholds are lower, tightening the MAGI ceiling. Plan the conversion runway around that transition.

What to Get Right This Year

Build a written withdrawal sequence before the first marketplace enrollment. Know which dollar comes from which account, in what order, for every month of the bridge. With the 10-year Treasury near 4.6% and the fed funds rate at 3.8%, parking two years of bridge expenses in Treasuries or a high-yield account removes sequence-of-returns risk.

The common mistake is the surprise capital gain. A mutual fund distribution in December, a forgotten 1099-DIV, or an overzealous Roth conversion can blow past the cliff and convert a $3,600 premium into a $24,000 one. Check the projected MAGI quarterly. The five-year bridge is a tax planning project, and the household that treats it that way keeps the 2.8% withdrawal rate intact all the way to Medicare.