Why a $4 Million Nest Egg at 70 Really Only Buys $88,000 of Real Annual Spending

$4 million sounds like a lot of money. Stretched over a long retirement, though, that number produces a surprisingly modest annual income.

Consider a married couple, both 70, holding $4 million in retirement assets: $2.6 million in traditional pre-tax accounts, $700,000 in Roth, and $700,000 in a taxable brokerage. They draw $58,000 a year in Social Security and feel as though they have finally turned the corner on a comfortable retirement. They pull a textbook 4% withdrawal, roughly $152,000, expecting that combined with Social Security it will feel like real money. After taxes and Medicare premiums, though, the portfolio funds closer to $88,000 of true discretionary spending, about $7,300 a month.

This is a scenario that comes up repeatedly on retirement planning forums. A couple in their late 60s or early 70s is genuinely surprised to find that a $4 million portfolio does not unlock the spending they imagined.

Walking $152,000 Down to $88,000

Start with the $152,000 gross withdrawal. Most of it comes from the traditional IRA and is taxed as ordinary income. A slice from the taxable brokerage arrives as qualified dividends and long-term gains, which receive the preferential rate. Layer in $58,000 of Social Security, up to 85% of which is taxable, and household taxable income lands comfortably in the 22% federal bracket. For joint filers in 2026, that bracket runs from $100,800 to $211,400 after the $32,200 standard deduction.

One additional factor worth modeling: the One Big Beautiful Bill Act (OBBBA), signed in July 2025, created a new $6,000 deduction for taxpayers aged 65 and older, available through 2028. The benefit phases out above $150,000 of joint MAGI, so higher-income retirees may see only a partial deduction, but it reduces taxable income for couples landing below that threshold.

The deductions stack like this:

1. Federal income tax: A blended bill of roughly $24,000 to $26,000 on the withdrawal, once ordinary income, taxable Social Security, and favorably taxed dividends are netted out.
2. State income tax: Around 5%, or close to $8,000, in a typical middle-tax state. Rates are lower or zero in many states, so geography matters significantly here.
3. Medicare with IRMAA Tier 2: The 2026 standard Part B premium is $202.90 per month, but joint filers with MAGI between $274,000 and $342,000 pay $405.80 per person, plus a Part D surcharge on top. For two spouses, that amount combined with Medigap and a base Part D plan runs $14,000 to $16,000 a year.
4. Out-of-pocket healthcare: Dental, vision, hearing aids, and uncovered prescriptions easily clear $5,000 to $6,000 annually for a couple in their 70s.
5. Long-term care reserve: Self-insuring against a future care event requires earmarking roughly $10,000 a year, whether through a hybrid policy premium or a dedicated fund. Advisers increasingly recommend that retirees have some form of long-term care plan, even if many do not follow through.

Add those up and the $152,000 withdrawal funds about $88,000 of actual spending.

Why the RMD Wave at 73 Makes This Worse

At 73, the IRS forces distributions on the $2.6 million traditional balance whether the couple wants the cash or not. The first RMD will land near $100,000 and grow from there as the account compounds. That pushes MAGI higher, pulls more Social Security into the taxable column, and risks bumping IRMAA from Tier 2 into Tier 3.

That jump carries a real cost. Part B rises to $527.50 per person when joint MAGI climbs into the $342,000 to $410,000 range, adding several thousand dollars annually in healthcare costs that are difficult to reverse once set. Critically, because IRMAA uses a two-year lookback, the income decisions the couple makes today will determine their Medicare premiums in 2028, not this year. That delay makes early planning essential.

Here are two strategies the couple could consider.

Aggressive Roth conversions before 73. The couple has three years to voluntarily move money out of the traditional IRA at the 22% bracket ceiling of $211,400 and into the Roth, where it never triggers an RMD and never lifts IRMAA again. Converting $60,000 to $80,000 a year fills the 22% bracket without spilling into 24%. That does raise the current year’s tax bill and likely the current IRMAA tier. The trade-off is paying a known 22% now to avoid a future blend of 24% ordinary tax plus a permanent IRMAA escalator on a forced distribution stream.

IRMAA calibration. The $274,000 joint MAGI line is the threshold to model carefully. Crossing it by a dollar adds roughly $2,900 a year in combined Part B and Part D surcharges per spouse. Time conversions, capital gains harvesting, and bond interest to land just under the next tier rather than just over it.

Once RMDs begin, qualified charitable distributions become a third lever. A QCD sends up to $111,000 per spouse in 2026 directly from the IRA to an eligible charity, satisfies the RMD, and never appears in MAGI. That limit rose from $108,000 in 2025 and is indexed for inflation going forward. Note that QCDs cannot go to donor-advised funds or private foundations; the recipient must be an operating public charity. For charitably inclined retirees, this remains the single most efficient way to suppress IRMAA after 73, particularly now that the OBBBA’s new 0.5% AGI floor on itemized charitable deductions has reduced the tax value of simply writing a check.

Steps to Take

Pull a one-page projection of taxable income at ages 73, 75, and 80 under a do-nothing path, then compare it against a conversion path that fills the 22% bracket each year through 72. The dollar difference in lifetime IRMAA alone typically justifies the strategy. Waiting until the first RMD year to react is too late: by then the bracket and the surcharge tier are already set, and the three-year conversion window is gone.

With the 10-year Treasury yield above 4.6% and approaching 4.7% in mid-2026, the safe portion of the portfolio is finally generating real income. That makes the conversion math more favorable: pay the tax from taxable brokerage cash, let the Roth compound untouched, and stop letting the IRS take a seat at every future withdrawal.

Editor’s note: The 10-year Treasury yield figure has been updated to reflect its rise above 4.6% toward approximately 4.7% in August 2026, and context about IRMAA’s two-year lookback rule has been added, along with a note clarifying that QCDs cannot be directed to donor-advised funds.

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