How to Pay Only $175/Month for Healthcare in Early Retirement (Legally)

Introduction: Cracking the Code on Affordable Healthcare in Early Retirement

Early retirement healthcare is often one of the biggest challenges people face when planning to leave the workforce before age 65. Without access to Medicare, retirees are left to navigate the expensive world of health insurance.

But what if you could reduce that cost to just $175 a month—without compromising on coverage or resorting to extreme frugality? Believe it or not, it’s not only possible, but completely legal. The key lies in how you withdraw your income in early retirement and what type of account you use.

This article will explore how a taxable brokerage account can help you qualify for valuable ACA (Affordable Care Act) subsidies and significantly lower your healthcare premiums. If you're serious about retiring before Medicare kicks in, understanding this strategy could save you thousands of dollars each year—and make early retirement more attainable than ever before.

The Real Cost of Healthcare Before Medicare

One of the most overlooked hurdles in early retirement is the steep cost of healthcare coverage before age 65, when Medicare eligibility begins. For many, this expense can feel like a brick wall—stopping retirement plans in their tracks. It's not uncommon for a 55-year-old retiree to face health insurance premiums of $1,000 to $1,500 per month or more, depending on location, income, and family size.

These high costs often lead people to delay retirement, stay in jobs longer than they want, or drastically reduce their spending expectations just to afford coverage. Unfortunately, without proper planning, healthcare can consume a significant portion of your retirement income—possibly derailing your financial freedom.

But here’s the good news: The Affordable Care Act (ACA) provides premium subsidies to help make health insurance more affordable. The amount of this subsidy is based primarily on your Modified Adjusted Gross Income (MAGI). That means the less income you report on paper, the more financial assistance you receive—sometimes enough to slash premiums from $1,250 down to just $175 a month.

The challenge lies in how to reduce your MAGI without reducing your lifestyle. And that’s where smart financial planning and account selection come into play.

Meet the Strategy: Controlling Your MAGI to Maximize ACA Subsidies

To understand how to legally shrink your healthcare premiums in early retirement, you first need to understand MAGI—Modified Adjusted Gross Income. MAGI is the key figure the federal government uses to determine your eligibility for subsidies under the Affordable Care Act.

Here’s the secret: the lower your MAGI, the higher your subsidy—and the lower your monthly premiums. But lowering your MAGI doesn’t necessarily mean living on less money. Instead, it’s about where your money comes from.

Most retirees instinctively pull income from traditional IRAs or 401(k)s. The problem? Every dollar withdrawn from these accounts is taxed as ordinary income and fully counts toward your MAGI. That $60,000 a year you need to live on? It could be counted entirely as income on your tax return—potentially disqualifying you from subsidies or greatly reducing them.

This is where strategy comes into play. By using a taxable brokerage account and taking advantage of capital gains tax treatment, you can withdraw the same $60,000 while only reporting a fraction of that as taxable income. That’s the core of this approach: fund your retirement in a way that minimizes what the IRS sees as income, so you can maximize your ACA benefits.

The Power of a Taxable Brokerage Account

When most people think about retirement savings, they picture traditional accounts like IRAs and 401(k)s. While these offer valuable tax-deferred growth, they come with a major limitation: every dollar you withdraw is taxed as ordinary income and increases your MAGI.

A taxable brokerage account, on the other hand, offers unmatched flexibility—especially in early retirement. These accounts don’t have age restrictions, required minimum distributions, or penalties for early withdrawals. Even better, they give you control over how much taxable income you report.

That control comes from how capital gains are realized. When you sell investments from a brokerage account, only the gain—not the entire sale amount—counts as income. And if you plan well, you can sell investments that have appreciated the least (high cost basis), minimizing your taxable gains.

This is the key that unlocks generous ACA subsidies without sacrificing your lifestyle. You can still withdraw what you need, but report far less income—keeping your MAGI in the sweet spot.

Ordinary Income vs. Capital Gains: A Game-Changing Difference

The difference between ordinary income and capital gains is crucial when it comes to early retirement healthcare planning.

Withdrawals from traditional retirement accounts like IRAs and 401(k)s are taxed as ordinary income. This means if you take out $60,000, the entire amount is added to your tax return and fully counted toward your MAGI.

Now, compare that to a taxable brokerage account. If you sell $60,000 worth of investments that you purchased for $50,000, you only have a $10,000 capital gain. That $10,000 is what’s reported as income—potentially a huge difference in your tax return and subsidy calculation.

Even better, if those investments were held for over a year, the $10,000 is taxed at the long-term capital gains rate, which is much lower than ordinary income rates. Depending on your total income, you might even pay 0% in capital gains tax.

In short, brokerage accounts allow you to separate your cash flow from your taxable income—a huge advantage when trying to qualify for ACA subsidies.

How to Reduce Your Reported Income Without Sacrificing Lifestyle

Here’s where the real magic happens. Let’s say you need $60,000 to live on this year. Instead of pulling that from a traditional IRA and adding $60,000 to your MAGI, you sell $60,000 worth of ETF shares from your brokerage account.

If you’re strategic about it, you can sell shares with the highest cost basis—those that appreciated the least. For example, if those shares originally cost $50,000, only $10,000 counts as taxable capital gain. That’s all that gets added to your MAGI, not the full $60,000.

This keeps your reported income low, your taxes down, and your ACA subsidy high. You get the same lifestyle, but you pay a fraction of the healthcare costs.

By controlling which shares you sell and when you sell them, you take command of your retirement tax picture—something that’s simply not possible with most tax-deferred accounts.

Understanding Capital Gains Tax Brackets for 2025

To truly leverage a taxable brokerage account in early retirement, you need to understand how capital gains are taxed—because it can mean the difference between paying thousands or nothing at all.

There are two types of capital gains: short-term and long-term. Short-term gains are from investments held for one year or less and are taxed at ordinary income rates. Long-term capital gains, from investments held more than one year, are taxed at much lower rates.

For 2025, if you're married filing jointly and your taxable income is under $96,700, you could pay 0% on your long-term capital gains. That’s right—zero. This is where the magic happens.

By staying under certain income thresholds, you can not only keep your reported income low for ACA subsidies but also potentially avoid paying any capital gains tax at all. It’s a win-win that rewards both smart investing and smart planning

Case Study: How John Slashed His Premiums by $12,900 a Year

Let’s take a look at a real-world example. Meet John, an early retiree who needs $60,000 a year to maintain his lifestyle. Before planning, he was withdrawing from his 401(k), which added the full $60,000 to his MAGI. His healthcare premium? $1,250/month.

After implementing a better strategy, John started withdrawing the same $60,000 from his taxable brokerage account. He sold ETF shares he had purchased for $50,000 and held for over a year. His taxable income? Just the $10,000 gain.

Now that only $10,000 was counted toward his MAGI, John qualified for a massive ACA subsidy. His new premium? Just $175/month. That’s a $12,900 annual savings—simply by changing the type of account he pulled income from.

This example shows how powerful strategic withdrawals can be in early retirement—and why a brokerage account can be your financial secret weapon.

Why Account Selection Matters in Early Retirement

All retirement accounts are not created equal—especially when it comes to healthcare planning. The accounts you choose to withdraw from can either help or hurt your subsidy eligibility, tax bill, and overall flexibility.

Traditional IRAs and 401(k)s are great for tax-deferred growth, but they lack flexibility. Every dollar withdrawn is counted as income. Roth IRAs offer tax-free withdrawals, but they often don’t have large enough balances to fund several years of early retirement, and accessing earnings before age 59½ can trigger penalties.

Taxable brokerage accounts, on the other hand, give you control. No age restrictions. and you decide which investments to sell, which shares to sell, and when to sell them. This gives you the power to manage how much income appears on your tax return—and that means more subsidy, lower premiums, and a smoother early retirement journey.

Roth IRAs: Great But Not Always Enough

Roth IRAs are often hailed as a retirement planning hero—and for good reason. Qualified withdrawals are entirely tax-free and don’t count toward your MAGI, which makes them extremely useful for ACA subsidy planning.

However, Roth accounts come with limitations that make them less than ideal as a sole source of early retirement income. First, annual contribution limits are relatively low—$7,000 in 2025 if you're under 50, and $8,000 if you're 50 or older. That means it takes a long time to build up a large balance.

Second, there are income limits. High earners may be phased out of contributing directly to a Roth IRA altogether. And while you can always withdraw your contributions at any time, accessing your earnings before age 59½ could result in taxes and penalties unless certain exceptions apply (such as first-time home purchase, disablity or death). And you must also have held the Roth for 5 years before you can withdraw any earnings (contributions you have made to a Roth you are always able to withdraw without any of these restrictions).

Bottom line: Roth IRAs are excellent tools, but many early retirees simply don’t have enough saved in them to fund multiple years of retirement before Medicare kicks in. That’s why a taxable brokerage account is a critical piece of the puzzle—it fills the gap with flexibility and tax-efficient access to your money.

The Hidden Danger of Too Little Income: The Coverage Gap

While lowering your MAGI is the key to unlocking massive healthcare subsidies, going too low can backfire—especially if you live in a non-Medicaid expansion state.

If your income falls below 100% of the federal poverty level, you may actually lose access to ACA subsidies entirely. In expansion states, you’d typically be enrolled in Medicaid, which offers low or no-cost coverage. But in non-expansion states like Texas, Florida, Georgia, and South Carolina, the rules are different.

You could fall into what’s known as the “coverage gap.” That means you earn too little to qualify for ACA subsidies but don’t meet the stricter income requirements for Medicaid either. The result? You’re stuck without any affordable health insurance option.

This is why income planning is so crucial in early retirement. It’s not just about keeping your income low—it’s about keeping it in the right range.

Avoiding the Coverage Gap: Income Planning Tips

To avoid the dreaded coverage gap, especially if you live in a non-expansion state, it’s essential to keep your MAGI above 100% of the federal poverty level. In 2025, that means a minimum income of roughly $15,000 for an individual and $20,000 for a couple.

You can do this by carefully managing your withdrawals. Even if you’re primarily using a brokerage account for its tax benefits, you might consider withdrawing a small amount from a traditional IRA or taking capital gains to ensure your reported income stays above the minimum threshold.

The goal is to land in the “Goldilocks zone”—not too high, and not too low. Just enough income to qualify for substantial ACA subsidies, but not so much that you lose them.

With smart, proactive planning, you can ensure continuous healthcare coverage at a low cost while maintaining full control over your finances in early retirement.

How to Open and Fund a Taxable Brokerage Account

Setting up a taxable brokerage account is simpler than you might think—and it's one of the most powerful steps you can take to secure affordable healthcare in early retirement.

You can open an account with major brokerage firms like Vanguard, Fidelity, Charles Schwab, or E*TRADE. These platforms offer user-friendly interfaces, low trading costs, and access to a wide range of low-cost index funds and ETFs ideal for long-term investing.

You don’t need a massive lump sum to get started. In fact, funding your brokerage account gradually is a smart strategy—especially once you’ve already maxed out tax-advantaged accounts like your 401(k), IRA, Roth IRA, and HSA. Any additional savings can then be directed into your brokerage account, creating a flexible reserve for early retirement income.

The earlier you start building this account, the more powerful it becomes as a tool to control your taxable income and secure valuable healthcare subsidies.

The ACA Caveat: What Happens If It Changes?

As powerful as this strategy is, it hinges on one key assumption: the continued existence of the Affordable Care Act and its subsidy framework. And while the ACA has been in place for over a decade, political winds can shift.

President Trump and other political leaders have repeatedly called for repealing or replacing the ACA. While no concrete replacement plan has been approved or enacted, the possibility of change remains. If the ACA were to be repealed or significantly altered, subsidy eligibility could be affected, which may impact this entire strategy.

In addition, it’s important to note that the enhanced ACA subsidies introduced under the American Rescue Plan Act (ARPA) and extended through the Inflation Reduction Act are only guaranteed through the end of 2025. Unless Congress acts to extend or make these subsidies permanent, they could revert to pre-ARPA levels, resulting in smaller premium tax credits and higher out-of-pocket costs for early retirees.

That said, it's worth noting that the ACA has grown in popularity and now supports millions of Americans. A major repeal would likely be politically risky and highly controversial. Still, as with any financial plan, you should consider your personal risk tolerance and have a backup plan in case future legislation reshapes the healthcare landscape.

Some options? Consider budgeting for private insurance without subsidies, exploring healthcare ministries, or even relocating to a state with better coverage options or expanded Medicaid.

Conclusion: Smart Withdrawal = Healthier Retirement Budget

Early retirement doesn’t have to mean sky-high healthcare premiums. With the right strategy—namely using a taxable brokerage account to manage your MAGI—you can unlock significant ACA subsidies and cut your insurance premiums dramatically.

It’s not about living on less; it’s about showing less taxable income on paper. That distinction is the key to turning a potential $1,250 monthly premium into a manageable $175, saving you thousands each year while preserving your lifestyle.

By understanding how account types affect your taxes, and by planning your withdrawals with care, you’ll gain the flexibility and financial control needed to retire confidently and comfortably before Medicare begins. And if you're not already doing it, now’s the time to start building and funding your brokerage account. Your future self will thank you.

1. What is MAGI and how is it calculated?
MAGI stands for Modified Adjusted Gross Income. It includes your adjusted gross income (AGI) plus certain deductions like tax-exempt interest and non-taxable Social Security. For ACA purposes, MAGI is crucial because it determines your eligibility for health insurance subsidies. Managing which accounts you draw from in retirement can significantly affect your MAGI.

2. Can I use both Roth and taxable brokerage accounts to lower my MAGI?
Yes! Roth withdrawals do not count toward MAGI, and neither do the cost basis portions of brokerage account sales—only the gains do. Combining both allows for even more flexibility in keeping your MAGI low while maintaining your desired lifestyle.

3. What happens to my ACA subsidy if the law changes after 2025?
The enhanced subsidies under the ARPA and Inflation Reduction Act are set to expire at the end of 2025. If Congress doesn’t extend them, you may face higher premiums or reduced subsidies.

4. Is early retirement without employer-sponsored health insurance really feasible?
Absolutely. With careful planning—especially by leveraging a taxable brokerage account to control your MAGI—many early retirees not only make it work but thrive. The key is tax efficiency and understanding how different account withdrawals affect your healthcare costs.

5. How much should I save in a taxable brokerage account for early retirement?
The amount depends on your annual spending needs and how long you’ll need coverage before Medicare. A good rule of thumb is to have enough to cover 5–10 years of expenses, particularly if you plan to delay using traditional retirement accounts or if you're retiring well before 65. The earlier you start funding it, the more tax-efficient your withdrawals can be.

Watch my video on this topic and it's follow-up where I demo, using the actual ACA estimator, the amazing savings in health insurance premiums, out-of-pocket max and deductibles, all by strategically funding retirement income and controlling reported MAGI: