A 62-Year-Old Couple With $1.3 Million Just Realized They Had Their Retirement Plan Exactly Backwards
Their instinct to defer looked disciplined on paper, but a quiet sequence error is quietly funneling six figures straight to the IRS across their retirement. The window to fix it closes at 70, and most couples never see it coming.
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A couple posted a familiar plan to a Bogleheads thread this summer: both 62, roughly $1.3 million in traditional 401(k)s, planning to keep working two more years, delay Social Security until 70, and leave the retirement accounts untouched as long as possible so compounding could do its job. On paper it looks disciplined. In practice, they had the sequence exactly backwards, and the tax code is the reason.
The mistake lies in what happens to a fully pre-tax portfolio when both spouses are drawing maximum Social Security, both are on Medicare, and the IRS starts forcing withdrawals. Every dollar of that $1.3 million is taxable when it leaves the account, and by their mid-70s the withdrawals stack on top of two Social Security checks that will already be inflated by years of cost-of-living adjustments. The 2027 COLA is currently tracking at 3.3%, and that compounding runs alongside the portfolio.
Low-Bracket Years Are the Asset, Not the Balance
Between age 62 and 70, this couple has something they will never have again: earned income they can control and a joint standard deduction that lets them fill the 12% bracket up to $96,950 and the 22% bracket up to $206,700 before jumping to 24%. Once Social Security turns on at 70 and RMDs begin at 75, roughly $60,000 to $90,000 of that low-bracket space is already spoken for by taxable benefits alone.
A $1.3 million balance compounding at 6% for 13 years lands north of $2.7 million by age 75. The first-year RMD on that is roughly $110,000, and it lands on top of two Social Security checks. That pushes the couple deep into the 24% federal bracket, makes 85% of their benefits taxable, and crosses the $218,000 joint IRMAA threshold, where Medicare Part B climbs above the $202.90 standard 2026 premium and Part D surcharges kick in on top. The effective marginal rate on the last dollar of that RMD approaches 40% once you count the benefit haircut and the premium jump.
Backwards Fix: Draw Down Early
Reversing the plan means using ages 62 to 70 to intentionally realize traditional-401(k) income at the 12% and low-22% brackets, either through Roth conversions or by living off the 401(k) while Social Security keeps growing at roughly 8% a year of deferral credits. Converting $80,000 to $100,000 annually into a Roth while working part-time, or after retirement but before claiming Social Security, permanently moves that money out of the RMD base at today’s rates (we sized up this exact window between the last paycheck and the first RMD in a free Roth guide here: The Roth Window).
Two 2026 rules matter here. Workers ages 60 to 63 can put in a $11,250 super catch-up on top of the $24,500 standard limit, for a $35,750 total. And if either spouse earned more than $150,000 in 2025, the catch-up must go into a Roth 401(k), not pretax. That works in this couple’s favor: the plan already needs more Roth exposure and less traditional.
What This Couple Should Do Next
- Model a conversion ladder that fills the 22% bracket every year from now through age 73, using the $206,700 top of the 22% bracket as the ceiling and adjusting for any wages. The goal is a traditional balance small enough at 75 that the RMD does not cross the $218,000 joint IRMAA line.
- Direct any 2026 catch-up dollars into the Roth 401(k) deliberately, not because the rule forces it. At a 10-year Treasury yield near 5%, safe income is finally competitive, so the Roth bucket does not have to sit entirely in equities to grow usefully.
- Coordinate the Social Security claim with the conversion window. Filing at 70 while converting hard from 62 to 69 is the cleanest sequence; filing at 66 while still converting is where the IRMAA trap catches most couples off guard, because Medicare uses a two-year lookback on modified adjusted gross income.
The couple’s instinct to defer was right about compounding and wrong about taxes. A $78,535 average annual household spend is easily covered by $1.3 million. Keeping the IRS from taking an extra six figures over retirement is the harder problem, and it is solved in the years before 70, not after.
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Jake has been been working in financial media for almost 15 years. He focuses on all things personal finance for 24/7 Wall St. with high hopes to educate and entertain. Most recently, Jake spent 12 years working various roles at The Motley Fool. He started copy editing fool.com content, worked on premium and marketing campaigns, and helped launch The Ascent, a personal finance brand.
His work has been featured on platforms like MSN, Yahoo Finance, USA Today, and more. He's written about credit cards, social security, ETFs, savings accounts, and just about anything else you can imagine when thinking about money. Jake love to cook, play golf, and tell people he's never had a cavity. (It's true!)
