Picture a 68-year-old who retired last year with roughly $1 million in a traditional, pre-tax 401(k). He listens to Dave Ramsey, sleeps better for it, and follows the host’s well-known math: pull 8% a year, or about $80,000, and let the rest keep compounding. His Social Security check arrives on the third Wednesday of every month. On paper, the plan looks airtight.
The appeal is easy to understand. On The Ramsey Show episode You Can’t Win With Money if You Don’t Know Where Your Money Is (Nov. 2, 2023), Ramsey put it plainly: “If you make 12 and you need to leave 4% in there for inflation… that leaves you 8. So I’m perfectly comfortable drawing 8.”
In the next breath, he offered a softer version: “But if you want to be a little bit conservative. Seven.” He was openly rejecting the 3% and 4% to 5% camps, the more cautious withdrawal-rate schools of thought.
On the April 12, 2023 episode ‘The Tenants Pay My Mortgage’ Is Bullcrap! (Hour 2), he framed the dollar figure: “If you’ve got a million dollars and you’re pulling off 8%, that’s 80,000 bucks a year.” He even concedes the draw “might or might not have kept up with inflation.” On No One Accidentally Wanders Into the Land of Success (June 25, 2024), the image sticks: “The goose just keeps laying the eggs.”
That formula tries to account for returns and inflation. It leaves out taxes. For a retiree whose savings sit in a pre-tax account, that omission has a specific name: the Social Security tax torpedo.
The piece of the math Ramsey skips
Every dollar pulled from a traditional 401(k) lands on the tax return as ordinary income. That matters because of how Social Security gets taxed. The IRS uses provisional income: adjusted gross income (AGI), plus tax-exempt interest, plus half of your Social Security benefit.
For a single filer, once provisional income crosses $25,000, up to 50% of benefits become taxable. Above $34,000, up to 85% of benefits become taxable. The $25,000 threshold has been frozen since 1984; the $34,000 threshold has been frozen since 1993, when Congress expanded benefit taxation. Neither has ever been indexed to inflation, so almost any retiree taking an $80,000 pre-tax withdrawal sails past both. The 85% figure is the share of the benefit pulled into taxable income, not the tax rate applied to it.
One important 2025 wrinkle: the One Big Beautiful Bill Act (OBBBA) created a new $6,000 deduction for taxpayers age 65 and older, available for tax years 2025 through 2028 and stackable on top of the standard deduction. For a single retiree at 68, that is a meaningful reduction in taxable income. The catch is that the deduction runs after the provisional income formula has already been applied. It lowers your final tax bill but does nothing to shrink how much of your Social Security gets pulled into the taxable column. Our 68-year-old drawing $80,000 from a pre-tax 401(k) triggers the full 85% exposure before the $6,000 deduction enters the picture.
The second hit arrives two years later in the Medicare mailbox. IRMAA, the income-related surcharge on Medicare Part B and Part D, kicks in once modified adjusted gross income (MAGI) tops $109,000 for a single filer or $218,000 for a couple in 2026, up from $106,000 and $212,000 respectively in 2025. Crucially, 2026 premiums are based on the 2024 tax return. A large withdrawal today can quietly raise the Medicare premium two years out. The standard Part B premium is already $202.90 per month in 2026; crossing the IRMAA threshold adds at least $81.20 per month on top of that, with surcharges climbing in steps above each bracket boundary.
The same $80,000 pulled from a Roth instead produces none of these outcomes. Roth dollars do not count as taxable income, do not feed provisional income, and do not push MAGI toward an IRMAA bracket.
How the pieces actually fit together
Ramsey’s underlying point deserves credit. Running out of money is a real risk, and a 3% draw on a million dollars is often too cautious for a healthy 68-year-old. Sequence-of-returns risk, the danger of a bad market in the first few retirement years, is the bigger early threat. But none of that erases the tax bill on a pre-tax-only strategy.
The smarter version blends three buckets: pre-tax (401(k), traditional IRA), Roth, and taxable brokerage. Pulling from each lets a retiree manage provisional income and MAGI year by year. Roth conversions done in lower-income years, often the window between retirement and the age when required minimum distributions begin at 73 (or 75 for those born in 1960 or later), can shrink the pre-tax balance before it becomes a forced taxable event. The 2.8% Social Security cost-of-living adjustment for 2026 helps with prices, but it also nudges more retirees past those frozen thresholds every year. The OBBBA senior deduction softens the final tax bill for many, but it does not defuse the torpedo itself.
Plug in your own benefit and withdrawal to see how much of the check the IRS would claim back.
What to take from this
Two points are worth sitting with before following any 8% rule of thumb:
- The withdrawal rate overstates after-tax income. An $80,000 pull from a pre-tax 401(k) lands on the return as $80,000 of ordinary income, which can drag up to 85% of your Social Security into the taxable column and bump your Medicare premium two years out. Run the number after taxes before you build a budget around it.
- The hardest mistake to undo is account mix. If everything is pre-tax at 68, every withdrawal pulls the tax torpedo lever. Partial Roth conversions in your 60s, done deliberately and modestly, give you tax-free dollars to blend in later. That flexibility is worth more than chasing an extra percentage point of withdrawal rate.
Ramsey is right that the goose can keep laying eggs. The quieter truth is that the IRS shows up for breakfast, and a tax professional who can model the after-tax draw is usually worth the fee. Your numbers, your benefit, and your state tax rules will shift the picture, sometimes by more than you expect.
Editor’s note: This article was updated to add that the One Big Beautiful Bill Act (signed July 4, 2025) created a new $6,000 per-person deduction for seniors age 65 and older for tax years 2025-2028, with the important caveat that it does not affect the provisional income formula and therefore does not reduce Social Security taxability exposure. The 2026 IRMAA entry threshold was updated to $109,000 for single filers (up from $106,000 in 2025), and the standard Medicare Part B premium of $202.90 per month was added. The article also clarifies that the $25,000 provisional income threshold has been frozen since 1984, while the $34,000 threshold has been frozen since 1993.
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