There’s 1 number that controls your health costs in early retirement, and no more Medicare fears once you understand it. Do you?

However, unless you have a specific disability, Medicare eligibility doesn’t start until age 65. In other words, many retirees face a few years of potentially steep health care insurance premiums.

If you retire earlier than most or were forced to quit due to layoffs, you face a potentially longer gap. For someone in their early 60s, the monthly costs of health insurance could be between $1,072 and $1,120, according to the Kaiser Family Foundation. (2)

This additional monthly cost can cause significant anxiety for retirees. However, that anxiety can be eased if you control your modified adjusted gross income (MAGI).

Here’s why your MAGI number can make or break your health care costs in early retirement.

MAGI: the leverage point

For early retirees concerned about health care insurance premiums, MAGI is a key lever. That’s because it’s the basis for the premium tax credit (PTC).

Under the Affordable Care Act, also known as Obamacare, the PTC is a tax credit that helps people cover the cost of health insurance plans purchased through the health insurance marketplace. A tax credit is money that you can subtract from the income taxes you owe.

Traditionally, your household’s MAGI needs to be under 400% of the federal poverty line to qualify for the PTC. However, there is a temporary and more complex way to calculate PTC eligibility income between 2021 and 2025.

The Internal Revenue Service (IRS) has an online tool to help you determine eligibility within 15 minutes. As a general rule of thumb, the lower your MAGI, the higher your chances of qualifying for this tax credit and offsetting a significant portion of your health care premiums.

Fortunately, there are strategic ways to reduce your MAGI while living on a relatively comfortable retirement income.

Breaking it down

To understand how controlling MAGI could help older adults offset the cost of their health insurance, let’s look at an example of a married couple, aged 60, who file their taxes jointly.

In 2025, this couple expected to have an income of $80,000. However, $25,000 of that money was strategically pulled from sources that do not count toward MAGI. According to Healthcare.gov (3), these sources could include cash savings, gifts, Supplemental Security Income (SSI) or even proceeds from loans.

This allows the couple to reduce their MAGI to $55,000, which is roughly 260% of the poverty level for a two-person household, according to the Kaiser Family Foundation’s online calculator.

This means the couple could qualify for PTCs through the health insurance marketplace that offset a large chunk of the cost of a Silver plan and potentially all of the costs of a bronze plan.