Budgeting for health insurance in early retirement

By Tom, CPA · Updated October 25, 2026

TL;DR: A realistic FIRE health budget has four lines: premiums after the premium tax credit, expected out-of-pocket costs, a reserve up to the out-of-pocket maximum ($10,600 individual or $21,200 family on 2026 marketplace plans), and dental and vision. Grow it faster than general inflation.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Add a line item called health care and multiply by humility. For many early retirees, health care is the largest uncertain expense between the last paycheck and Medicare. It depends on income (because of subsidies), age, location, plan choice and luck. A single number in a spreadsheet hides all of that.

This guide builds the budget piece by piece, using official 2026 figures, and ends with sample budgets for a few common early retiree households.

CPA Warning Label: The most dangerous number in an early retirement spreadsheet is a health care line someone typed in at 11 p.m. and never checked.

Premium estimates (sourced)

Your net premium equals the plan's price minus your premium tax credit. The credit equals the benchmark silver premium minus your expected contribution, which is a percentage of MAGI set by the IRS. For 2026 coverage (Revenue Procedure 2025-25), that percentage runs from 2.10% for incomes under 133% of the poverty line to 9.96% from 300% to 400%. Above 400% of FPL ($62,600 for one, $84,600 for two), there's no credit as of Oct 2026.

So the key budget fact: if you're subsidy-eligible and choose the benchmark silver plan, your premium is roughly your expected contribution, regardless of age. At $60,000 MAGI for a couple, that's about $5,678 a year. Choose bronze and you may pay less; choose gold and you'll pay more.

If you're above the cliff, your premium is the full price, which depends heavily on age and location. Get real quotes by previewing plans on HealthCare.gov or your state marketplace with your ZIP code and ages. Use those numbers, not national averages.

Out-of-pocket max

Premiums are only half of it. Deductibles, copays and coinsurance can add thousands. For 2026, marketplace plans cap in-network out-of-pocket costs at $10,600 for an individual and $21,200 for a family. Your plan's limit may be lower, especially with cost-sharing reductions on silver plans.

Budget two ways:

• Expected: your typical yearly use (prescriptions, visits, tests).
• Worst case: the plan's out-of-pocket maximum. Hold this amount in cash or near-cash, or in an HSA, as a reserve rather than as yearly spending.

Dental and vision

Adult dental and vision aren't essential health benefits on marketplace plans, so many plans don't include them for adults. Budget separately, either for standalone plans or for self-paying. HealthCare.gov notes you generally can't buy a marketplace dental plan without also having a health plan through the marketplace, and that standalone dental plans may have waiting periods. See dental and vision for early retirees.

Inflation assumptions

CMS projects national health spending growth averaging 5.4% a year from 2025 to 2034, ahead of GDP growth. In a real-dollar plan, many early retirees grow health costs 1 to 3 points faster than general inflation. Before 65, unsubsidized households also face age-rating increases each year. See health care cost inflation for modeling ideas.

Sample budgets

Illustration 1: subsidized couple, both 58, MAGI $60,000. Expected contribution about $5,678. They choose a bronze plan; assume it costs $2,500 after credit. HSA contributions of up to $10,750 (family limit plus two catch-ups) lower MAGI and raise their credit.

Illustration 2: single, 45, MAGI $45,000. Expected contribution about $4,312 for the benchmark silver. Assume a silver plan at that price, $1,000 expected out-of-pocket and $700 for dental and vision: about $6,000 a year, with a reserve up to $10,600.

Illustration 3: couple, 62 and 63, MAGI $110,000, above the cliff. Assume full-price silver of $26,000 a year for two people in their 60s (get your own quote), $3,000 expected out-of-pocket and $2,000 dental and vision: about $31,000 a year. If they could bring MAGI to $84,000, their expected contribution would be about $8,366 (9.96%), and with a $26,000 benchmark their credit would be about $17,634. The cliff is worth about $17,600 a year here.

After 65

At 65, the budget switches to Medicare: Part B ($202.90 a month in 2026 for most), plus Medigap or Medicare Advantage premiums, Part D, and out-of-pocket costs. Higher-income retirees add IRMAA. Model this as a separate phase. See Medicare Advantage vs Medigap and Part B premiums and IRMAA.

Building the budget step by step

1. Estimate MAGI for each pre-Medicare year.
2. Get benchmark and plan prices for your ZIP and ages.
3. Compute expected contribution and net premiums.
4. Add expected out-of-pocket costs from your real history.
5. Add dental and vision.
6. Set aside an out-of-pocket maximum reserve.
7. Choose an inflation spread and age-rating assumption.
8. Rerun every fall during open enrollment.

Common budgeting mistakes

• Using today's employer premium share instead of the full marketplace price.
• Ignoring the out-of-pocket maximum.
• Assuming subsidies regardless of MAGI.
• Forgetting that MAGI decisions, like Roth conversions, change premiums.
• Leaving dental out because "teeth are optional." They aren't.

The MAGI-premium feedback loop

Before 65, health insurance is the one budget line that depends on how you fund the rest of your budget. Withdrawals from a traditional IRA raise MAGI; withdrawals from cash, Roth contributions or high-basis taxable shares mostly don't. So the same $60,000 of spending can produce very different premiums depending on its source.

Illustration: a couple spends $70,000. If it all comes from IRA withdrawals, MAGI is about $70,000 (about 331% of FPL), their expected contribution is 9.96% or about $6,972, and their credit against an $18,000 benchmark is about $11,028. If instead $30,000 comes from cash and Roth contributions and $40,000 from IRA withdrawals, MAGI is about $40,000 (about 189% of FPL), the expected contribution is about $2,430, and the credit is about $15,570. Same spending, about $4,500 a year difference in premiums. That's why health budgeting and withdrawal ordering belong in the same spreadsheet. See ACA MAGI management.

Year-by-year view to 65

Lay out each year from retirement to Medicare in a simple table: age, planned MAGI, benchmark premium (it rises with age), expected contribution, credit, chosen plan's net premium, expected out-of-pocket costs, dental and vision. The table reveals patterns a single average hides: credits that grow as you age, years with planned conversions where premiums jump, and the final partial year before Medicare when one spouse moves to Medicare and the other stays on the marketplace. Couples with an age gap can face several years of mixed coverage; budget each person separately in those years.

Where to keep the health reserve

The out-of-pocket reserve should be accessible quickly but doesn't need to sit idle. Options include a high-yield savings account, a short-term Treasury ladder, or an HSA invested conservatively for the reserve portion. Paying a large bill from an HSA avoids raising MAGI, which keeps premiums from rising in the same year you're paying medical bills, a small but welcome mercy. Avoid funding big bills with IRA withdrawals near the cliff. See emergency funds in early retirement.

A note on precision

None of these numbers need to be perfect. A health budget that's within 10% and revisited every fall is far more useful than a precise figure that's never checked. The goal is to avoid the big misses: the cliff, the uncovered bad year and the forgotten dental bill. Put a reminder on the calendar for November 1, when open enrollment starts, and update the budget with the new year's actual prices.