A 74-year-old retiree pulled up his brokerage statement this spring and felt his stomach drop. His traditional IRA, drawn from since required minimum distributions (RMDs) kicked in, was down sharply after the March 2026 volatility spike that pushed the VIX index, the stock market’s fear gauge, to concerning levels. Even with the S&P 500 recovering to a roughly 9% year-to-date gain, the experience rattled him. He has seen drawdowns before, but in retirement they feel different.
On financial forums, versions of this worry appear almost weekly: a retiree asking whether a market drop means he should change his withdrawal strategy or whether he is forced to sell at the worst time. The fear is real. But for someone already taking RMDs, there is a counterintuitive silver lining buried inside the fear, and it touches Social Security directly.
The Subtle Mechanics of Next Year’s RMD
A required minimum distribution is calculated from the account balance on the prior December 31, divided by an IRS life-expectancy divisor from the Uniform Lifetime Table. The IRS focuses on the year-end balance, ignoring any peak or average reached during the year.
If the portfolio finishes this year lower than it finished last year, next year’s RMD will be smaller. A retiree whose IRA closes the year at $600,000 instead of $700,000 will be required to pull out meaningfully less in the following calendar year. The withdrawal still must happen, and skipping it triggers a stiff penalty, but the dollar amount the IRS forces out shrinks alongside the balance.
That smaller forced withdrawal is where Social Security enters the picture.
Why a Smaller RMD Cools the Tax Torpedo
Social Security benefits are taxed based on provisional income, which adds adjusted gross income (AGI), tax-exempt interest, and half of Social Security benefits. Cross certain thresholds and a larger share of the benefit gets pulled into taxable income, up to 85% of it. Retirees call this the tax torpedo because the next dollar of ordinary income can drag a previously untaxed Social Security dollar into the tax base.
A traditional IRA distribution counts as ordinary income. When next year’s RMD is smaller, provisional income is lower, and less of the Social Security check gets taxed. The benefit itself does not change. What changes is how much of it survives the 1040. Combine that with the 2.8% cost-of-living adjustment (COLA) for 2026, and a retiree can find that a volatile market year actually leaves more of each Social Security dollar in his pocket the following year.
The Medicare Angle Two Years Out
Medicare’s Income-Related Monthly Adjustment Amount, known as IRMAA, surcharges Part B and Part D premiums based on modified adjusted gross income (MAGI) from two years earlier. A smaller RMD means lower MAGI, which can keep a retiree under an IRMAA tier or drop him a tier when premiums get set two years down the road. For a single filer near a threshold, that can mean a difference of roughly $70 to $400 or more per month in Medicare premiums.
A market decline in 2026 affects the 2027 RMD, which affects 2027 income, which shapes 2029 Medicare premiums. Patience is part of the payoff.
What to Hold Onto
None of this means a bear market is good news. The portfolio is genuinely worth less, and the RMD still must be taken regardless of how investments inside the account perform. The silver lining is relative.
Two things are worth thinking through before reacting to a statement that looks worse than it did six months ago:
- The RMD is mechanical and required. It has to come out, but which assets fund it is a choice. Pulling from cash or bonds inside the IRA, rather than selling depressed equities, preserves the chance to participate in a recovery while satisfying the IRS.
- The tax relief on Social Security and the IRMAA relief on Medicare both arrive on a delay. Planning the next year or two of withdrawals around a lower starting balance can compound the benefit, especially for retirees sitting just above a provisional income threshold or an IRMAA tier.
Every retiree’s mix of accounts, income sources, and filing status shifts these levers differently. The mechanism is consistent, but the dollars depend on the details, and a conversation with a tax preparer before year-end is usually worth the time it takes.
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