Coordinating A Couple’s Financial Plan to Meet an Early Retirement Goal
Keen on Retirement listener "Joe" is 51 and his wife is 60. They are thinking about an early retirement before either of them turns 65.
Joe wrote in asking about the best strategy for coordinating Social Security benefits around that retirement goal. Should they take his wife's benefits now? Delay benefits to keep their income low and make Roth conversions?
And since they're both too young to collect Medicare, how will their Social Security benefits affect their Affordable Care Act (ACA) subsidies?
The good news is that Joe and his wife are already thinking about the main topic of today's episode: when you pull one lever on your retirement plan, another piece adjusts.
Working with a professional advisor can help you navigate these interconnected decisions with greater clarity and confidence.
1. Navigating the 10% Penalty
Before Joe and his wife can plan for health care or Social Security, they have to figure out how to fund their daily lives.
Because Joe's wife is 60, she is allowed to withdraw freely from her traditional retirement accounts. The couple will have to pay income taxes on those withdrawals.
But Joe is only 51. Until he reaches age 59 1/2, withdrawing money from his accounts will trigger a 10% early withdrawal penalty, on top of what the couple will owe in income tax.
One possible solution is IRS Rule 72(t). This piece of the tax code allows folks like Joe to take equal periodic payments from traditional retirement accounts before age 59 1/2 without paying the 10% penalty.
The catch is that you have to follow the IRS's formula for determining how much you're allowed to take out, and you have to stick to a withdrawal schedule for the longer of five years or until you reach age 59 1/2.
At 51, Joe would be locked into his withdrawal schedule for over eight years. If Joe needed to pull extra money out of his accounts, due to an emergency or a change in another part of his plan, he'd break his 72(t) schedule and the IRS would retroactively apply the 10% penalty to all previous withdrawals.
It's possible to create an emergency buffer by splitting your IRA into separate accounts in coordination with a 72(t). But you and your advisor would need to make very precise calculations to protect your nest egg from unnecessary penalties while also keeping an eye on your lifetime tax liability.
2. Avoiding the ACA Subsidy "Cliff"
Once Joe and his wife lock down their withdrawal strategy, health care is going to be a major budget item until they're both 65. For a healthy couple in their early 60s, buying insurance out of pocket can easily cost tens of thousands of dollars per year until Medicare eligibility kicks in.
The rules around ACA subsidies recently reverted to their original structure, meaning there's a "cliff." In 2026, a two-person household must have an income below 400% of the federal poverty level, roughly $84,600. If your income is $84,599, you could be eligible for a massive subsidy that saves you thousands of dollars. If your income is $84,601, you receive nothing.
Subsidy eligibility is based on your Modified Adjusted Gross Income (MAGI), which includes income sources that are normally tax-free (such as interest earned on municipal bonds). The adjusted gross income portion of this calculation might also include a large portion of Joe’s wife’s Social Security payments if she does claim them early.
3. Timing Roth Conversions
Since he's aiming to keep his taxable income low enough to maintain ACA subsidy eligibility, Joe is right to be thinking about coordinated Roth conversions.
For many seniors, income in the first few years of retirement is the lowest it's been in decades. And in those lower-earning years, you can often pay lower taxes on a Roth conversion now and pay no taxes when you make withdrawals from that account in the future.
But money Joe and his wife withdraw from traditional accounts to convert to a Roth will count as taxable income.
On top of their Social Security benefits.
On top of the money they need to withdraw to live on.
On top of any other income sources that aren't mentioned in Joe's email, like pensions.
4. Weighing Tradeoffs
So, how can Joe and his wife retire early, claim Social Security, and execute Roth conversions, all while keeping their income below the ACA subsidy cliff?
As I mentioned in a recent series of blogs, financial planning isn't really about coming up with a "perfect" plan. It's about deciding what's most important to you and weighing the tradeoffs you're willing to make to meet your top goals.
And weighing those tradeoffs is often far more emotional than it is mathematical. For example, some seniors want to claim their Social Security benefits as soon as possible because they worry about their health. They'd rather enjoy smaller benefits now than wait for larger benefits they may never be able to enjoy.
Both of those are valid choices grounded in valid feelings. But you have to be prepared for how each individual choice reverberates through the rest of your comprehensive financial plan.
In Joe's case, if early retirement is the main goal, then we'd have to talk through tradeoffs that might not be "perfect" on paper but that might be necessary if Joe and his wife want to start enjoying retirement as soon as possible.
We might recommend holding off on Social Security until Joe's wife is 65, which might tighten their early retirement budget.
Maybe they'll have to miss out on a few years of tax-free Roth growth to fund their lifestyle without jeopardizing their ACA subsidies.
Or, maybe at the end of our discussion, Joe and his wife will decide that working a couple of extra years and padding their nest egg until she’s eligible for Medicare is more important than retiring right now.
These are the kinds of conversations my team facilitates every day at Keen Wealth. You can trust us to be your decision partner as you work through all your options for securing your ideal retirement.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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