A $2.5 Million Nest Egg at 62 Only Buys $46,000 of Real Spending

A married couple, both 62, sits on $2.5 million spread across $1.6 million in traditional IRAs, $500,000 in Roth, and $400,000 in a taxable brokerage. They want to retire now, three years before Medicare and five years before full Social Security. Using a 3.8% gross withdrawal rate, they plan to pull $95,000 from the portfolio in year one. On paper, that looks like a comfortable middle-class income. In practice, it funds roughly $3,800 a month of actual spending. That gap between the gross withdrawal and what actually lands in the checking account can come as a surprise.

Start with the $95,000 withdrawal. Assume most comes from the traditional IRA, which makes it ordinary income. After the 2026 standard deduction of $32,200 for married filing jointly, taxable income lands around $63,000. That sits inside the 12% bracket, which runs from $24,800 to $100,800 for joint filers in 2026. Federal tax comes in near $7,000. A typical state income tax of roughly 5% takes another $4,000 to $5,000 off the top.

Now the part most people underestimate: health insurance before Medicare. A 62-year-old couple shopping the ACA marketplace at an unsubsidized rate routinely faces premiums of $20,000 to $25,000 a year, plus deductibles. Even with partial subsidies, $15,000 in combined premiums and out-of-pocket medical costs is realistic. Medicare Part B, which kicks in at 65, runs $202.90 a month in 2026 with a $283 deductible, so the squeeze eases later, but not for these three years.

ACA premium tax credits phase out based on modified adjusted gross income. Pull one extra dollar from the traditional IRA, and a couple sitting near the subsidy threshold can lose thousands in credits overnight. A $5,000 traditional IRA distribution that pushes MAGI over the line can easily cost $8,000 to $12,000 in lost subsidies.

The last cut is inflation. Strip out taxes, healthcare, and the real-dollar haircut, and the $95,000 withdrawal supports roughly $46,000 of genuine discretionary spending. For context, average annual household expenditures hit $78,535 in 2024.

Two Moves to Change the Math

1. Fund spending from the Roth and the taxable brokerage first. Roth withdrawals do not count toward MAGI. Brokerage withdrawals only generate income on the gain portion, and long-term capital gains are taxed at preferential rates. A couple drawing $40,000 from the brokerage and $30,000 from the Roth can keep reported MAGI low enough to preserve ACA subsidies, while the $1.6 million traditional balance keeps compounding tax-deferred until Medicare arrives at 65.
2. Delay Social Security toward 70. Benefits rise about 8% for each year claiming is delayed past full retirement age, up to age 70, and benefits are reduced by up to 30% if claimed at 62. The 2026 COLA of 2.8% is then applied to a permanently larger base.

The case for grabbing Social Security at 62 mostly comes down to fear that the program will change or that the retiree dies early. For a couple with $2.5 million and average health, that fear is the wrong driver.

Build the withdrawal plan around MAGI, not account balances. Map out exactly which dollars come from which account each year between 62 and 65, then stress-test the resulting MAGI against the current ACA subsidy schedule.

Also, write down the $46,000 real-spending number and budget against it, not the $95,000 gross. The gross number doesn’t reflect what you’ll actually have to spend.

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