A $2 million IRA isn't the golden ticket retirees expect

· The Fresno Bee

A $2 million traditional Individual Retirement Account (IRA) may seem more than enough to cover retirement expenses.

The widely cited 4% withdrawal rule produces $80,000 per year, and, paired with above-average Social Security of roughly $40,000, the total comes to $120,000.

Northwestern Mutual’s 2026 Planning & Progress Study pegs the average American’s ‘magic number’ for a comfortable retirement at $1.46 million, which puts a $2 million balance well above the perceived finish line most savers are racing toward.

The projection shrinks once the amounts claimed under the federal tax code, mandatory withdrawal schedules, and healthcare pricing rules are subtracted.

Fewer than half of workers have calculated how much they will need to cover health expenses in retirement, and only four in 10 have estimated long-term care costs, the Employee Benefit Research Institute’s 2025 Retirement Confidence Survey found.

Morningstar’s 3.9% rate drops total retirement income below what most savers project

Morningstar’s State of Retirement Income report places the safe starting withdrawal rate at 3.9%, below the 4% benchmark most savers have relied on for decades.

At 3.9%, a $2 million portfolio generates $78,000 per year, a $2,000 annual cut from the $80,000 the traditional rule produced.

Paired with the same Social Security estimate, gross retirement income under the revised rate totals about $118,000, already below the $120,000 projection.

Christine Benz, director of personal finance and retirement planning at Morningstar, addressed the finding on “The Long View” podcast, saying the percentage rate works as a planning floor because strategies tied to market performance can raise the safe rate over time.

Don't just take that 3.9% and run with it. You probably can and should enlarge your spending if you are willing to be flexible.

The firm built its estimate around a balanced portfolio of 30% to 50% equities, a 30-year timeline, and a 90% success probability, the report noted.

Flexibility on withdrawal timing requires guaranteed income to cover essential costs, and every traditional IRA dollar faces ordinary income tax rates before reaching a bank account.

Federal and state taxes on the combined total reduce usable retirement income well below the six-figure headline number most savers pictured.

Required distributions at 73 override the withdrawal rate a retiree chose

The 4% rule assumes a retiree controls how much is withdrawn from the portfolio each year, but the Internal Revenue Service (IRS) imposes its schedule starting at age 73.

Under the SECURE 2.0 Act, traditional IRA holders born between 1951 and 1959 must begin taking required minimum distributions once they turn 73, while those born in 1960 or later can wait until 75.

More Retirement:

The IRS divides the prior year-end account balance by a life expectancy factor, producing a mandatory minimum that rises with each birthday.

At age 73, the IRS divisor is 26.5, which means a $2 million balance forces an annual withdrawal of roughly $75,472, all taxed as ordinary income.

A retiree who planned to draw $78,000 under the 3.9% rate discovers the IRS is demanding nearly the same amount on its timeline.

By age 80, the IRS divisor drops to roughly 20.2, pushing the forced withdrawal on a $2 million balance past $99,000 annually. The mandatory income arrives whether the retiree needs the cash or not, and every dollar adds to Social Security as taxable income.

When combined with Social Security, RMDs can push a household’s total income into higher federal tax brackets and Medicare surcharge thresholds.

The 4% rule never modeled this collision because it assumes the retiree controls the drawdown pace, an assumption the IRS overrides at 73.

Liubomyr Vorona / Getty Images

Medicare’s IRMAA surcharges punish retirees who cross income thresholds by even one dollar

Medicare Part B and Part D premiums are not flat for every beneficiary, and higher-income retirees pay surcharges based on income from two years earlier.

The surcharge, called the Income-Related Monthly Adjustment Amount (IRMAA), uses a cliff-based structure tied to modified adjusted gross income (MAGI) from two years prior.

For 2026, the first cliff activates at $109,000 for single filers and $218,000 for joint filers, the Centers for Medicare & Medicaid Services (CMS) confirmed.

Crossing a threshold by even one dollar triggers the full surcharge for that tier, and the penalty resets every year based on the two-year lookback.

At the first tier, monthly Part B premiums rise from $202.90 to $284.10 per person, and beneficiaries pay an additional $14.50 per month on top of their existing Part D plan premium, the agency reported.

A single retiree with a $75,472 RMD and $40,000 in Social Security lands close to the $109,000 single-filer threshold once the taxable portion of Social Security is added.

Crossing that first tier triggers roughly $1,150 in extra annual Medicare costs above the standard premium. The cost doubles to about $2,300 for a married couple in which both spouses are enrolled, and the household income exceeds the $218,000 joint threshold.

What $2 million delivers after taxes, distributions, and surcharges

Morningstar’s research frames the safe withdrawal rate as a planning baseline that depends on individual expenses, tax exposure, and guaranteed income sources.

Benz and her co-authors have urged retirees to model post-tax income against specific costs before relying on a single portfolio number.

At the first IRMAA tier, federal taxes on the RMD and taxable Social Security reduce gross income by roughly $15,000 to $18,000.

Adding about $1,150 in Medicare surcharges leaves the single filer with approximately $95,000 to $100,000 in spendable income. That gap is the number that determines whether the balance is enough for a household’s target lifestyle.

Related: Retirees with $500K IRAs face a tax trap at age 73

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This story was originally published September 25, 2026 at 8:03 AM.