Retiring At 62 With $1.8 Million Means Covering A $47,000 Healthcare Gap Before Medicare Kicks In

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Retiring at 62 with $1.8 million puts a couple in genuinely strong financial shape. The problem is the calendar. Medicare eligibility begins at 65, which means the first three years of retirement arrive with a healthcare bill that most people never budgeted for. For a couple who just walked away from employer-sponsored coverage, that gap is a $47,000 unexpected cost sitting between them and a clean retirement start.

This scenario plays out constantly. Early retirees wrestle with how to manage large Roth conversions in the first two years while simultaneously navigating ACA premiums at full price. The math is uncomfortable regardless of how much someone has saved.

Why the Healthcare Gap Hits Harder Than Expected

The average ACA Silver plan for a 62-year-old couple in 2026 costs approximately $1,800 to $2,200 per month before subsidies. At $1.8 million in retirement assets, their Modified Adjusted Gross Income (MAGI) will likely exceed the ACA subsidy cliff — the income threshold above which no premium tax credits are available. For a household of two in 2026, that cliff sits at approximately 400% of the federal poverty level, or roughly $84,000 to $85,000. Withdrawals from a traditional IRA count as ordinary income, and even modest distributions from a $1.8 million portfolio can push a couple over that line fast.

The subsidy cliff is not a gradual phase-out. It is a hard cutoff. One dollar over the threshold eliminates the entire premium tax credit. That policy returned in 2026 after Congress did not extend the enhanced subsidy rules that had temporarily softened the cliff for several years.

• Couple’s age at retirement: 62, with Medicare eligibility at 65
• Coverage gap: 36 months of unsubsidized coverage
• Estimated full-price ACA premium: $1,800 to $2,200/month for a couple
• Net unexpected cost: approximately $47,000 above what was budgeted (assuming $700/month employer-plan equivalent was already planned)
• Portfolio mix: traditional IRA and taxable brokerage accounts

Services inflation compounds the problem. Healthcare and other services have been inflating at 3.26% year-over-year as of February 2026, well above headline PCE inflation of 2.8%. Premiums that cost $2,000 today will not cost $2,000 in year three.

Three Paths Worth Taking Seriously

Option 1: COBRA first, then ACA

COBRA lets departing employees continue their employer plan for up to 18 months, paying the full premium plus a 2% administrative fee. For a couple, that typically runs $1,400 to $1,600 per month — meaningfully cheaper than the full-price ACA rate. COBRA coverage ends after 18 months, forcing a transition to ACA for the remaining months 19 through 36. This approach works best when the employer plan is good and the couple has not yet implemented any income-management strategy.

Option 2: Roth conversion ladder to get under the subsidy cliff

This is the most powerful long-term strategy. The idea is to convert traditional IRA funds to a Roth IRA in the years leading up to retirement, paying taxes on those conversions while still working. Once retired, a couple with a large Roth balance and modest taxable income can keep their MAGI below the approximately $83,120 subsidy threshold and qualify for meaningful premium tax credits. A couple receiving $30,000 to $40,000 in ACA subsidies over 36 months could recover most of the gap entirely. The catch: Roth conversions done during high-income working years trigger taxes at a higher marginal rate, so the math needs careful modeling.

Option 3: One spouse works part-time with benefits through 65

This is the simplest path and often underrated. Many employers offer health benefits to part-time workers. If one spouse can secure 20 to 25 hours per week at a company that provides coverage, the couple eliminates the healthcare gap entirely. The working spouse also continues contributing to retirement savings, reduces portfolio withdrawal pressure during critical early years, and sidesteps sequence-of-returns risk (the danger that a market downturn in the first few years of retirement permanently impairs a portfolio. The 10-year Treasury yield currently sits near 4.30%, which supports reasonable returns from a bond-heavy bridge allocation, but equity markets remain unpredictable. Keeping one income stream active for three years is real insurance against a bad sequence.

The Decisions That Must Happen Before Retirement Day

The worst outcome is retiring at 62 without a healthcare plan and discovering the cost in January of year one. That is not a planning failure — it is a sequencing failure. The decision needs to happen before the retirement date, not after.

1. If you are within three years of a 62 retirement: Model a Roth conversion strategy now. The window to convert at favorable rates while still working is closing. Even partial conversions can reduce future IRA distributions enough to keep MAGI below the subsidy cliff.
2. If you are retiring soon with no Roth balance: Use COBRA for the first 18 months. It is almost always cheaper than full-price ACA for a couple at this age.
3. If one spouse is open to continued work: Part-time employment with benefits is the cleanest solution. It solves the coverage gap, reduces withdrawal pressure, and keeps the portfolio intact during its most vulnerable early years.

Healthcare is now the second-largest spending category in the U.S. economy, trailing only housing. Healthcare accounts for 17.2% of total personal consumption expenditures as of February 2026, and that share has risen every month for over a year. For a couple retiring at 62, this is not a line item to estimate loosely. It is the single biggest variable standing between a retirement that works and one that quietly erodes.

If your retirement plan does not have a specific answer to the question of how you will cover health insurance from 62 to 65, that is the first thing to fix.

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