Health insurance if you retire at 55 on $40k a year

The gap between retiring and Medicare is the part of early retirement most plans get wrong. From 55 to 65 there is no employer plan and no Medicare, so cover is bought on the marketplace at full price and then reduced by the premium tax credit.

The credit is what makes this hard to answer with a rule of thumb. It is assessed on modified adjusted gross income, and in retirement your income is whatever you choose to withdraw. Drawing $40,000 from a pre-tax account and drawing it from a taxable one produce very different MAGI, and therefore very different premiums, from the same lifestyle. This projection draws in Rightmont's default order and reports what that actually costs.

Across the 10 years to Medicare this household is modelled to face $277,343 of gross premiums, receive $159,392 in credits, and pay $117,951 of its own money. That is 57.47% of the cost covered by the credit.

One limit worth knowing. The full-price premium here comes from a single marketplace assumption rather than an age-rated quote, so it does not rise with age the way real ACA pricing does, where an older applicant can pay up to three times a younger one. If you are retiring in your late fifties or sixties, treat the gross premium as a floor and get a real quote for your state and age. The subsidy mechanics, the income test and the cliff are modelled properly; it is the starting price that is simplified.