How to save Thousands on Healthcare before Retirement Even Begins

One of the biggest questions we hear from clients considering early retirement is:

"How am I supposed to afford healthcare if I retire before Medicare kicks in?"

It’s a fair concern—and one that holds many people back from leaving the workforce when they’d otherwise be financially ready. But here’s what most people don’t realize:

With the right strategy, your healthcare costs between retirement and age 65 can be manageable—even surprisingly low.

At Clover Leaf Financial, we help clients navigate this exact challenge every day. This post breaks down smart strategies to reduce your out-of-pocket healthcare costs and prepare for a confident early retirement.

The Healthcare Gap: Why It Matters

Medicare eligibility begins at age 65. If you’re planning to retire at 60 (or earlier), you’ll need to bridge that 5-year gap with another form of health insurance.

Many assume this means paying $1,000 or more per month in premiums. But in reality, some retirees pay less than $200/month—thanks to income-based subsidies offered through the Affordable Care Act (ACA).

The key is how your income is reported on paper—and which accounts you use to generate retirement income.

Strategy #1: Use a Brokerage Account to Control Your Taxable Income

Most retirement savings are in pre-tax accounts like 401(k)s and IRAs. But withdrawals from these accounts count as ordinary income, which can inflate your taxable income and disqualify you from health insurance subsidies.

That’s where a brokerage (taxable) account becomes your secret weapon.

Here’s why:

• When you sell investments in a brokerage account, you only pay taxes on capital gains, not the full withdrawal.

• If your income is low enough, your long-term capital gains rate may be 0%.

• Keeping your Modified Adjusted Gross Income (MAGI) under certain limits (about $58,000 for a married couple in 2025) can qualify you for substantial ACA subsidies.

📌 Example:

A client retiring at 60 needed $60,000/year to support their lifestyle. If they withdrew entirely from their IRA, they would have needed to take out over $75,000 (after taxes), pushing them above the ACA subsidy threshold.

Instead, we used their brokerage account to draw $60,000 in income—with only $20,000 in taxable gains. Their reported income was low enough to qualify for over $10,000/year in subsidies, cutting their premium from $1,250/month to just $175/month.

Strategy #2: Sequence Your Income Sources

Early retirees with multiple account types—like Roth IRAs, IRAs, and brokerage accounts—can sequence withdrawals to optimize both taxes and healthcare subsidies.

Here’s one approach we often use:

1. Age 60–62: Prioritize income from brokerage accounts to qualify for ACA subsidies.

2. Age 63–65: Begin Roth conversions to reduce future required minimum distributions (RMDs) before Medicare premiums are income-tested.

3. After 65: Use a mix of accounts to support income in a tax-efficient way.

   
   

This approach allows you to take advantage of low income years to both save on healthcare premiums and strategically convert pre-tax dollars into Roth accounts—potentially saving thousands in future taxes.

Strategy #3: Avoid the ACA “Subsidy Cliff”

Subsidy eligibility doesn’t phase out gradually—it drops off a cliff once your MAGI exceeds 400% of the federal poverty level.

That means:

• Earning even $1 over the limit can eliminate thousands of dollars in premium assistance.

• Smart tax planning is critical to avoid accidentally crossing that threshold.

Working with a financial advisor helps you navigate this line carefully, ensuring you stay eligible for benefits without sacrificing your broader financial goals.

Strategy #4: Keep Cash and Flexibility in Your Plan

Having cash reserves or low-gain assets available can help you stay under income limits in years when you're optimizing for subsidies. It also gives you more options if you're considering:

• Travel or home upgrades

• Helping adult children

• Giving generously or supporting causes

When we build a retirement plan at Clover Leaf Financial, we look beyond just what’s “tax-efficient.” We help clients create a lifestyle-driven plan that reflects their goals and values—with healthcare costs thoughtfully integrated.

Plan Ahead Now to Gain Freedom Later

Healthcare doesn’t have to be the reason you keep working longer than you’d like. With smart planning, the years between retirement and Medicare can become an opportunity—not a financial burden.

The right mix of account types, withdrawal strategy, and tax planning can help you:

✅ Retire with confidence

✅ Reduce unnecessary healthcare costs

✅ Maximize your lifetime savings

Ready to Explore Early Retirement? Let’s Talk.

If you’re within 5–10 years of retirement and wondering how to make it all work—we can help. At Clover Leaf Financial LLC, we specialize in retirement income planning, healthcare strategy, and tax-efficient withdrawal design to make your next chapter as smooth (and affordable) as possible.

📞 Schedule a complimentary consultation to explore how we can help you retire on your terms—without letting healthcare get in the way.