The 4% Rule Was Never Designed for FIRE’s Healthcare Reality

Summary of The 4% Rule Was Never Designed for FIRE’s Healthcare Reality

by BiggerPockets

57m•January 30, 2026
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Overview of The 4% Rule Was Never Designed for FIRE’s Healthcare Reality

This BiggerPockets Money episode (hosts Scott Trench and Mindy Jensen) explains why the conventional 4% withdrawal-rule for retirement isn’t sufficient for many early retirees unless healthcare is modeled separately. Scott lays out a “healthcare hump” problem: Affordable Care Act (ACA) premiums and age-rating create a predictable, large rise in health costs from roughly your 30s/40s through age 65 — then costs drop sharply once you hit Medicare. He quantifies the risk, gives state examples, and walks through mitigations and realistic planning steps for different FIRE cohorts.

Key takeaways

  • The 4% rule assumes a steady spending pattern and historical market returns; it does not account for a structural, age-driven rise in ACA premiums and personal healthcare spending in early retirement.
  • ACA premiums rise with age (age-rating), creating a multi-decade “healthcare hump” from about 35→65; once on Medicare at 65, premiums/out-of-pocket costs typically fall substantially.
  • ACA subsidies materially reduce costs for many, but planning on subsidies as a foundational, 30-year assumption is a risky political bet.
  • For unsubsidized scenarios, a healthy, family-of-four’s bronze ACA premiums at age 35 vary widely by state:
    • Connecticut: ~$24k–$28k/year (unsubsidized)
    • New Hampshire: ~$10k–$12k/year (unsubsidized)
    • Colorado: ~$13k–$16k/year (unsubsidized)
  • Projected example: Scott’s household could see total health spending rise from ~$18k/yr at 35 to ~$35–39k/yr by the 50s–60s. Cumulative excess cost (area under the hump) could be on the order of hundreds of thousands — Scott estimates ~$378k gross, reducible to ~$250k if invested and spread over time.
  • Impact by FIRE style:
    • Lean FIRE (e.g., $1M target): health cost escalation is a significant threat; may need ~25% more savings or dependence on subsidies/other mitigation.
    • Chubby/Fat FIRE: less likely to be a deal-breaker.
  • Alternatives and mitigations include ACA subsidies (if eligible), geographic arbitrage, part-time work/side income, international care/medical travel, direct primary care (DPC), health shares, partial self-insurance plus catastrophic liability coverage, and niche policies for activity risks.

Why this matters (the mechanics)

  • ACA age-rating: insurers can charge older enrollees more, so premiums rise even if national healthcare inflation = CPI. This is a structural, predictable rise.
  • Out-of-pocket costs tend to increase with age (age is the strongest correlate of health spend).
  • Two states (Vermont and New York) ban age-based premium increases — but they start with much higher baseline premiums for younger people.
  • Substantial mid-career/late-career premium increases can materially change how much capital you need to retire early without further earned income.

Notable quotes / insights

  • “Healthcare costs are a wild card for financial independence.”
  • “This is a structural guarantee that my premiums will rise every single year until I reach age 65 and go on Medicare.”
  • “Treat ACA subsidies as a pleasant offset, not a base-case assumption for a 30-year early retirement.”
  • “The 4% rule does not cover a known cost escalation well in excess of inflation for a material part of your spending.”

Practical recommendations (how to plan)

  1. Model healthcare separately from your 4% analysis. Don’t assume flat healthcare costs.
  2. Run local ACA quotes (or use the KFF Health Insurance Marketplace Calculator) to get current premium ranges for your household and ZIP code.
  3. Project premiums by age (apply age-rating) and add reasonable out-of-pocket assumptions; compute the cumulative extra dollars needed during the 35→65 “hump.”
  4. Convert that cumulative need into a funded buffer that can be invested (Scott’s rough working buffer: ~$250k on top of a 4%-rule portfolio for his case). You’ll likely need less than a raw sum because the buffer can grow before use.
  5. Choose conservative assumptions for planning (e.g., assume no ACA subsidies long-term). Treat subsidies as upside, not core.
  6. Evaluate mitigations:
    • Move to lower-cost states (geographic arbitrage).
    • Plan part-time/consulting income during the bridge years.
    • Use direct primary care (DPC) + high-deductible catastrophic coverage for routine care + insurance for tail events.
    • Consider health-share programs (non-insurance) only after careful research — they can be cheaper but have claim risks.
    • Explore catastrophic medical liability policies (wrap-around liability insurance for very large claims).
    • Use short-term or activity-specific insurers (e.g., Blister-type products) for particular risks.
    • Consider extended foreign residency / medical tourism for elective/costly procedures if feasible.
  7. Maintain fallback options (ability to earn, partial re-entry to workforce) as part of the plan.

Tools & resources mentioned

  • KFF Health Insurance Marketplace Calculator (quick local ACA quotes)
  • Scott’s detailed post on BiggerPocketsMoney: “Why Health Care Costs Rise Sharply with Age in Early Retirement and why early retirees need a bigger buffer than the 4% rule”
  • BiggerPocketsMoney’s upcoming “healthcare expected value calculator” (in beta)

Quick planning checklist for listeners

  • Get ACA premium quotes for your household and ZIP code today.
  • Build an age-progressed premium + out-of-pocket projection to 65.
  • Decide whether to assume ACA subsidies (and if so, for how long).
  • Quantify the cumulative “hump” and convert to a lump-sum buffer (or annual savings target).
  • Identify two mitigations you could realistically use (location change, part-time income, DPC, health share, catastrophic wrap).
  • Reassess annually as premiums, laws, and your health status change.

Caveats & context

  • This analysis mainly applies to healthy, able-bodied early retirees without chronic conditions. Chronic care changes the calculus significantly; those retirees may need more conservative planning.
  • The biggest tail-cost risks (e.g., NICU, catastrophic illness) are rare but expensive; many suggested mitigations (self-insure + catastrophic liability, health-share, international care) involve trade-offs and moral/political questions.
  • Political risk: subsidy eligibility and the ACA structure are subject to legislative/political changes — another reason to avoid counting subsidies as guaranteed for multi-decade early retirement planning.

Bottom line

Healthcare costs in early retirement create a predictable, multi-decade “hump” under ACA age-rating that the 4% rule wasn’t built to handle. Treat ACA subsidies as helpful but not guaranteed, model the hump separately, and build a targeted buffer or mitigation strategy (geography, part-time income, DPC, health-share, or catastrophic liability products). For lean FIRE households, this can materially increase your required savings or the need for other offsets; for chubbier/fatter FIRE plans it’s less likely to derail retirement but still worth modeling.