If healthcare in America weren’t so egregiously expensive, more people would retire earlier and live better, happier lives. We’re one of the few countries in the world where affordable healthcare is tied to employment, making financial independence that much harder to achieve.
Given the high cost of coverage, before you decide to retire early by choice, try to negotiate a severance package and use your final year of work to get in the best shape of your life. Think of it as investing in your future health dividends. The stronger and healthier you are, the less likely you’ll need to rely on costly medical care. In addition, the longer you can stretch your freedom dollars.
My Decision To Voluntarily Retire Early While Considering Healthcare Costs
When I voluntarily retired in 2012, one of my biggest concerns was figuring out how to pay for healthcare. For 13 years, my employers had subsidized a portion of my premiums through a group plan. Instead of paying $850 a month for coverage, I was only paying around $375 toward the end.
So when I left work, after my 6 months of 100% subsidies healthcare ran out as part of my severance package, I faced an $850 monthly bill as a healthy 34-year-old who barely used the system. It felt excessive and I needed a plan.
At the time, I asked my 31-year-old wife not to YOLO her career away with me. Instead, I encouraged her to embrace equality and keep working another three years to ensure my risky move wouldn’t put our household in financial jeopardy. Thankfully, she agreed.
During that time, she maintained her employer-sponsored healthcare plan, which also covered me. Many of her colleagues had family coverage anyway, so joining her plan was perfectly normal.
Our Cost For Healthcare Is Expensive
In 2015, at age 34, we finally initiated the process of engineering her own layoff as a high-performer to receive a severance package. We knew we’d lose our healthcare subsidy and have to pay about $1,680 a month, but this was a conscious choice we made in exchange for freedom. It felt wrong to manipulate our income just to qualify for government healthcare subsidies when we could afford to pay full price.
Today, for our household of four, we pay $2,633.59 a month in unsubsidized premiums for a Silver plan, not even a Gold or Platinum plan. $2,633.59 doesn't sound affordable to me, despite the government calling it the “Affordable Care Act.” Next year, our monthly premium is expected to jump to $3,000. But the way the system works is that those who make more than 400% of the Federal Poverty Limit subsidize those who do not.
In essence, we have a high deductible health insurance plan. I'm hoping my new investment in value stock UnitedHealthcare will help us pay for our premiums in the future. UNH certainly makes a fortune from us.
Plenty of Millionaire Early Retirees Get Subsidies
The reality is, plenty of early retirees take advantage of healthcare subsidies—even if they’re millionaires or multi-millionaires. Some even brag about it online. That’s always rubbed me the wrong way, because I doubt the government’s intent was to subsidize the top 6% of wealth holders. Or maybe it was so our politicians are mostly millionaires.
For example, let’s say you have a $2 million portfolio generating $80,000 a year in income. As dual unemployed parents (DUPs) with two children, your household income is around 250% of the Federal Poverty Level (FPL), which qualifies you for heavy healthcare subsidies. Remember, subsidies extend all the way up to 400% of the FPL.
That means a household with a $5 million growth-stock-heavy portfolio earning only a 1.3% dividend yield—roughly $65,000 a year—would sit around 210% of the FPL and qualify for a 90%+ discount on healthcare premiums. Instead of a family of 4 paying $3,000 a month, they’d pay just $300 a month or less. Pretty incredible!
The Debate in Congress Over Extending Healthcare Subsidies
Congress is currently debating whether to extend the enhanced healthcare subsidies for households earning above 400% of the Federal Poverty Level. Democrats want to make the temporary expansion permanent, while Republicans prefer reverting to the original rules.
The American Rescue Plan Act of 2021, under the Democrats, temporarily raised the value of the premium tax credits and expanded eligibility beyond 400% of FPL. These “enhanced” subsidies capped a household’s premium costs at 8.5% of income.
Then, in 2022, the Inflation Reduction Act, under the Democrats, extended those enhanced subsidies through 2025. Now they’re set to expire at the end of 2025 under the Trump administration.
According to the Congressional Budget Office, extending these enhanced subsidies would cost about $350 billion over 10 years, or $35 billion a year. Not great given the size of the existing budget deficit.
Costs Reverting Back To The Old Trajectory
Without the extension, the average 60-year-old couple making $85,000 a year (just over 400% of FPL) would see premiums jump by $1,900 a month, or nearly $23,000 a year in 2026, according to KFF. If true, that is an egregious amount to pay under the “Affordable Care Act.” However, that also means the 60-year-old couple has had at least $91,200 in healthcare subsidies since the American Rescue Plan Act of 2021 passed.
If that $91,200 in healthcare subsidies was saved or invested since 2021, as all renters say they do to justify not buying a primary residence, they have enough to pay for the next four years of higher healthcare premiums. At least, that's how personal finance enthusiasts think.
Fighting to Keep Subsidies for Early Retiree Millionaires Feels Off
But doesn't arguing for more healthcare subsidies for millionaires feel a little off to you? If you make $85,000 a year as a retired couple, that means your pension or investments are worth $2,125,000 at a 4% safe withdrawal rate! Most people would argue you'll be alright, especially if you have no debt. And if you're an early retiree with that type of net worth, then receiving subsidies seems completely strange.
CNBC recently profiled a “early retiree” couple, Bill (61) and Shelly (59), who will earn $127,000 a year in pension income in 2026—above the 400% FPL threshold. Their premiums would rise from $442 a month to $1,700, which sounds more realistic than KFF's above estimate. That’s painful, but they’ve also enjoyed roughly $70,000 in enhanced premium tax credits since 2021.
Still, a $127,000 pension is worth roughly $3.2 million in annuity value at a 4% rate of return. Should the ACA really be subsidizing retirees with multimillion-dollar pensions and portfolios? Resources should focus on those without six-figure pensions or significant savings. You know, the ~85% of Americans who don't have lifetime pensions.
No one in America should have to suffer through a health crisis simply because they can’t afford care. Healthcare is a basic right, not a privilege. Therefore, redirecting healthcare subsidies toward the lower middle class and poor makes far more logical sense.
Capitalize The Value Of Your Pension And Investment Income
Now I’m starting to wonder — do the average American, financial reporter, or politician not know how to capitalize the value of an income stream to determine its true worth? We do this all the time in finance, and on Financial Samurai. Simply take a reasonable rate of return or withdrawal rate—say 4% or 5%—and divide your pension or investment income by that number.
Let’s find out the capitalized value of a pension based on various Federal Poverty Level (FPL) income limits for a family of four:
- $31,200 (100% of FPL): $624,000 – $780,000 pension value. You’ll likely qualify for 100% subsidies and pay 0% of your income toward healthcare premiums.
- $43,056 (138% of FPL): $861,120 – $1,076,400 pension value. You’ll likely pay 0–2% of income toward premiums after subsidies — roughly $0 to $50/month for a Silver plan in many states.
- $46,800 (150% of FPL): $936,000 – $1,170,000 pension value. You’ll likely pay 1–2% of income, or about $0 to $80/month for a Silver plan.
- $62,400 (200% of FPL): $1,248,000 – $1,560,000 pension value. Expect to pay 2–2.5% of income, roughly $50 to $100/month.
- $78,000 (250% of FPL): $1,560,000 – $1,950,000 pension value. You’ll likely pay around 4% of income, or $180–$220/month.
- $93,600 (300% of FPL): $1,872,000 – $2,340,000 pension value. You’ll likely pay about 6% of income, or $300–$350/month for a Silver plan.
- $124,800 (400% of FPL): $2,496,000 – $3,120,000 pension value. You’ll likely pay up to 8.5% of income, or roughly $450–$550/month for a Silver plan.
If you have a lifetime pension or passive investment income that generates $31,200 a year or more (100% of FPL), you're doing pretty well compared to the average worker or retiree. Hence, to pay little-to-nothing towards the healthcare system seems off.
Adapting to the System Of Embracing The Wealthy
That said, we should look at this debate as a reflection of the times and adapt accordingly. Just as we practice identity diversification depending on who’s in power, we can lean into our wealth when the government decides to subsidize the wealthy.
If the government wants to hand out healthcare subsidies to six-figure pensioners and multi-millionaires, then the rational economist says: take the free money. After all, most politicians are over 40 and already wealthy, so it’s only natural they design policies that benefit their own demographic.
However, political winds always shift. When they do, and policymakers refocus on helping the true middle class and poor, it’ll once again be time for the wealthy to pay full freight.
Will Continue To Pay Full Freight To Help America
With our current level of passive income, we’ll never qualify for healthcare subsidies. Our household expenses are also too high to purposefully lower our income at the moment. And that’s probably how it should be. For the greater good of society!
In the meantime, I’ll keep doing my best to stay in shape so I can subsidize and make room for those who can’t or won’t. Just as it’s a privilege to pay taxes to support those who pay less or none at all, it’s also a privilege to be healthy enough to help offset the costs for those who aren’t.
Readers, do you think the government should be fighting to provide healthcare subsidies for the wealthy? Or is it irresponsible to extend these enhanced tax credits given our massive budget deficit? Where should we draw the line when it comes to offering healthcare subsidies?
Recommendation To Protect Your Loved Ones
Besides regularly working out and eating healthy to extend your life, you should also get an affordable term life insurance policy to protect your loved ones.
Both my wife and I got matching 20-year term policies through Policygenius. Simply input your information and you’ll receive real quotes from vetted life insurance carriers within minutes. If you have debt and dependents, getting life insurance is one of the most responsible things you can do.
Subscribe To Financial Samurai
Pick up a copy of my USA TODAY national bestseller, Millionaire Milestones: Simple Steps to Seven Figures. I’ve distilled over 30 years of financial experience to help you build more wealth than 94% of the population and break free sooner. As you can tell from my post, the government loves millionaires by showering them with healthcare subsidies.
Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Your shares, ratings, and reviews are appreciated.
To expedite your journey to financial freedom, join over 60,000 others and subscribe to the free Financial Samurai newsletter. You can also get my posts in your e-mail inbox as soon as they come out by signing up here.
Financial Samurai is among the largest independently-owned personal finance websites, established in 2009. Everything is written based on firsthand experience and expertise.
Great discussion!
Hey – how much deduction from Fed & state taxes do you get for all your healthcare costs (including premiums)
I’m close to early retirement, so the Health care expense is a bit scary. Wondering if the deductibility softens the blow.
The deduction is based on your marginal tax rate. So it’s better than nothing!
I am amazed that neither you Sam nor any of the commenters here even approach the neighborhood of the true problem, if you think high health care costs for non-W2 corporate wage earners are a problem: in the US, MDs, nurses, and hospital employees make integer multiples of those professions anywhere else in the world. And I’ll wager good money no one here knows that Congress sets the number of residency spots available across all accredited US med schools and they haven’t raised the limit for a couple decades. Healthcare costs are fundamentally dictated by the AMA cartel.
After the UH CEO was gunned down David Brooks on PBS Newshour went totally ballistic that Friday, noting that the vast majority have no clue that UH runs a 6% operating margin . As he pointed out then, the real cost drivers are doctors and hospitals. We’re fortunate the fruits of our pharma and biotech research hit our shelves first. And insurance companies have by far been the major beneficiaries of ACA.
So for the socialists here who want a European system you better start working on a grass roots movement to legislate a 50% reduction in doctor and nurse compensation and hospital prices.
Healthcare in America is not a right enumerated in the BOR – it’s a financial responsibility in the American Emersonian system. If you want cheaper healthcare , go get a job . Our friend just “retired” selling their Los Gatos house and moving full time to their Newport Beach bungalow, and instead of relying on subsidies until 65 quickly landed a job at a local school that at 30 hours-/week provides full CA teacher health benefits. She said after 5 years vesting she’ll even get a $500/mo pension, and it’s a mile walk down the beach from her pad to the school.
I’ll work until 65 solely to get cheap 1st class healthcare with HSA (HDHP PPO), plus I’m in the middle of the AI software revolution so things are very interesting and lucrative right now.
Amazing isn’t it? More power to you for willing to work until 65. I would simply rather invest in AI and do other things than work until that late.
In fact, I’m on the golf course right now! Just did another three put to my dismay. Otherwise, I would be paring the last three holes.
You “wrote the book”. My insurance is really good and unavailable in ACA, so as a private consumer it would cost me $50K/yr for me and my wife. Tech sales work is fun and great $/hour worked compared to FSI so I’ll continue until I’m no longer wanted.
Tech sales might definitely pay more than writing on FS / hour. Then again, maybe not. It is definitely a blessing to enjoy what you do.
Is there a network target you’re shooting for before retiring or doing something else?
I just got back from playing 27 holes of golf. First time ever. I don’t recommend it! So tired and need to soak in the hot tub.
All the frontline workers (health care providers) don’t think they are overpaid. On the other hand, they feel they are underpaid for the amount of work they do. the type of training they have to go through and all the hoops they have to jump to keep themselves credentialed, licensed, etc. and so burned out. UH operating at 6% margins is not really the doctors’ problems, either, it is the whole intricacies of malpractice and over regulations and so many middle layers of admin crap. The legislators always take one case to the extremes and make some new laws and then more and more and more and now even the simplest thing could not be done without layers of crap. Everybody is running around like crazy and busy as hell in US health care and the output is pathetic. People’s health does not get better by interacting with health care systems or and insurance companies, it gets worse because it is so complicated and makes people so angry. Even those early retirees with millions, they are still average people and I don’t see a problem giving them subsidies. Really it is the top 0.1% vs. the 99.9%, or top 0.01% vs. 99.99%.
I see a huge problem: I don’t want to pay for their subsidies. And you can’t deny medical professionals here are wildly overpaid COMPARED to any other developed country. The “reasons” are why healthcare is so expensive . Cartels are virtually unbreakable so don’t expect any big change unless Congress grows some balls and installs price controls on all medical services.But it would be nice if the media was honest and discussed the role of healthcare compensation as a major driver of costs.
Thanks for the extensive details and examples. I sure hope they can come to a consensus soon so we can move forward. The overall healthcare system in the US is so inherently flawed and won’t be fixed this year. Gosh I don’t even know if it could be fixed in five or ten years. But we definitely need positive change. Healthcare expenses are a top 3 expense in retirement and it takes a lot of planning and saving to afford care. What an unfortunate reality we have to budget for, not only for ourselves but often for our aging parents as well.
It’s interesting that we argue over who should and shouldn’t get subsidies but completely miss the larger issue. Congress is doing NOTHING to lower the cost of healthcare. Why do they continue to allow pharmaceutical companies to gouge the American public with skyrocketing prices for drugs that have been in the market for decades….. insulin and Humira, I’m looking at you.
While I’m not supporter of a wealth tax for various sorts of reasons, an income taxation system and or subsidies based on income is inherently problematic. When we evaluate companies we never look at just income statement, the balance sheet is equally important. Not sure what the solution is, maybe we just have to accept this as part of the unavoidable leakage.
An asset test would be sensible, similar to what’s in place for other needs-based programs like Medicaid and food stamps.
That being said, millionaires feeling bad about taking subsidies really comes down to your view on the purpose of government. Is the government there just for things like national defense, foreign relations and (maybe) some basic safety net? Or is it there for the broader advancement of the welfare of a society (all people)? I’m closer to the latter than the former.
As you’ve pointed out yourself (often taking a lot of criticism from online trolls), being a millionaire doesn’t always mean you can afford the type of lifestyle that’s historically been associated with that in people’s minds.
This article underscores the shame and insanity that the wealthiest country in world history does not have universal healthcare. We seem to accept this passively like sheep or fools. Vote out those politicians who are against universal healthcare!
Yes, it’s a great idea until you figure out how to pay for it. This will get worse with time as demographics change and fewer young people are around to subsidize it with their (usually) good health. Americans not taking care of themselves also becomes as issue as that is increasing with time as well. So good luck with that.
They need to bring back catastrophic plans. Most of us early retirees can cover the daily/yearly stuff. It’s just the unknown cancer/heart attack that would be nice to have covered…..even if we had to pay the first 25-50k.
I totally agree. Catastrophy insurance is what we really need to prevent bankruptcy. B/c goodness knows the cost of major surgery and other procedures could cost enormous fortunes.
The Bronze plans under the ACA basically are catastrophic plans. The problem is, they are still very expensive without subsidies. My bronze plan for my wife and I, which has a $15,000 family deductible and $20,000 out of pocket maximum, will be going from (before any subsidies) $1633/mo to $2331/mo per the letter I received yesterday from the insurer. That’s about a 43% increase. I am no fan of the ACA, but there aren’t many alternatives for early retirees. It wasn’t my decision to make healthcare subsidies part of the income tax system, but since it is, as a CPA you can bet I’m not going to think twice about optimizing my cost. That said, I’m not in favor of extending the enhanced subsidies. But if Congress is dumb enough to extend them I’m sure going to take them.
I agree that facilitating early retirement isn’t the best rallying cry to justify financial sacrifice for our country. What about the people that do not have healthcare through their work and are generating their income through earned income and not through passive income? Do we want to take away their subsidies? Perhaps we do, but let’s not pretend that the debate is only related to early retirees.
Would you propose subsidies have wealth limitations and not just income limitations? Wealth limitations are definitely a bit trickier to implement.
In the back of my mind, I’ve always wondered if the “promise” of ROTH accounts would ever be somehow changed/compromised. I wouldn’t be surprised if one day ROTH distributions are still counted as income for certain calculations (subsidies, SSI tax calculations), even if the withdrawals themselves still aren’t taxed as income.
Interesting take and definitely something many early retirees struggle with. What’s your take on the various ACA plan options available?