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$2 Million vs. $5 Million: Why 2.5x the Savings Buys Only 1.7x the Income · Align Your Retirement

• 0:00
  SPEAKER_00: Welcome back to Align Your Retirement.
• 0:01
  SPEAKER_00: I'm Hazel Secko.
• 0:03
  SPEAKER_00: Today I want to put two women side by side.
• 0:05
  SPEAKER_00: One has two million, one has five million.
• 0:08
  SPEAKER_00: Everything else about them is identical, and I want to show you three things.
• 0:13
  SPEAKER_00: What actually lends in their bank account each month after tax, what happens to the number when their husband dies, and what's left for their daughters after the IRS takes its share.
• 0:22
  SPEAKER_00: The$5 million answer is not$2.5 times the$2 million answer.
• 0:28
  SPEAKER_00: It isn't close.
• 0:29
  SPEAKER_00: Let's get into it.
• 0:30
  SPEAKER_00: When a woman with$2 million loses her husband, her tax bill goes up a little.
• 0:35
  SPEAKER_00: When a woman with$5 million loses hers, she pays 98% of what the two of them paid for Medicare by herself.
• 0:43
  SPEAKER_00: The only difference between these two women is the size of the account they're managing.
• 0:47
  SPEAKER_00: About 1.8% of American households have$2 million or more in retirement accounts.
• 0:53
  SPEAKER_00: Only 0.8% reached$3 million.
• 0:56
  SPEAKER_00: That's EBRI looking at the Fed Survey of Consumer Finances.
• 1:01
  SPEAKER_00: If you're anywhere near these numbers, you're already in rare company.
• 1:05
  SPEAKER_00: I'm Hazel Secko, certified financial planner, CDFA, and a fee-only fiduciary at Aligned Financial Solutions.
• 1:11
  SPEAKER_00: This is education, not personal advice, so please talk to your own tax and financial professionals before acting on any of it.
• 1:19
  SPEAKER_00: And both couples you're about to meet are hypothetical composites based on situations I see regularly.
• 1:25
  SPEAKER_00: When I ask women in this position how much is enough, most don't name a number.
• 1:29
  SPEAKER_00: They say they would sleep better with a cushion, or that one more year at work would help.
• 1:35
  SPEAKER_00: I want to show you what that cushion means in dollars each month, especially for a woman managing the accounts on her own.
• 1:42
  SPEAKER_00: Paul and Linda,$2 million.
• 1:44
  SPEAKER_00: Paul and Linda are both 68 and retiring this year.
• 1:48
  SPEAKER_00: They have$2 million saved,$1.4 million in a traditional IRA,$400,000 in a jointly owned brokerage account, and$200,000 in a Roth.
• 1:59
  SPEAKER_00: They both claim Social Security now.
• 2:01
  SPEAKER_00: His check is$3,500 a month, and hers is$2,500 a month.
• 2:05
  SPEAKER_00: So$6,000 a month between them.
• 2:08
  SPEAKER_00: In a moment, I'll introduce a second couple with$5 million and I'm keeping every detail about them identical except the size of the portfolio.
• 2:16
  SPEAKER_00: Neither couple pays state income tax.
• 2:19
  SPEAKER_00: For this comparison, I'm going to use a 4.5% withdrawal rate.
• 2:24
  SPEAKER_00: That's$90,000 a year taken proportionally from all three accounts,$63,000 from the IRA,$18,000 from the brokerage account, and$9,000 from the Roth.
• 2:36
  SPEAKER_00: Add$72,000 in Social Security, and they have$162,000 in income.
• 2:43
  SPEAKER_00: But the IRS doesn't see all of it.
• 2:45
  SPEAKER_00: The Roth withdrawal doesn't count at all.
• 2:47
  SPEAKER_00: Half of the brokerage withdrawal is their own original money coming back, so only$9,000 is taxable gain.
• 2:54
  SPEAKER_00: And only part of their Social Security is taxed using a formula that depends on everything else they report.
• 2:59
  SPEAKER_00: For them,$60,400 of the$72,000.
• 3:04
  SPEAKER_00: Their taxable income comes to$84,900.
• 3:08
  SPEAKER_00: That puts them under a line.
• 3:10
  SPEAKER_00: Most retirees have never been shown.
• 3:12
  SPEAKER_00: In 2026, a married couple can have up to$98,900 of taxable income and owe nothing at all on long-term capital gain.
• 3:22
  SPEAKER_00: The$9,000 gained they realized this year cost them nothing.
• 3:26
  SPEAKER_00: Their federal tax is$8,612.
• 3:30
  SPEAKER_00: Their Medicare Part B premiums are$4,870.
• 3:34
  SPEAKER_00: That leaves about$148,500 a year.
• 3:38
  SPEAKER_00: $12,377 a month with a federal government taking roughly$0.00 on the dollar.
• 3:46
  SPEAKER_00: That's a comfortable life by most measures.
• 3:48
  SPEAKER_00: Richard and Susan,$5 million.
• 3:51
  SPEAKER_00: Richard and Susan have$5 million in the same proportions.
• 3:55
  SPEAKER_00: $3.5 million in the IRA,$1 million in the brokerage account,$500,000 in Roth.
• 4:02
  SPEAKER_00: They use the same withdrawal rate and get the same Social Security.
• 4:06
  SPEAKER_00: 4.5% of$5 million is$225,000 a year.
• 4:11
  SPEAKER_00: $157,500 from the IRA,$45,000 from the brokerage account, half of it taxable gain,$22,500 from the Roth.
• 4:22
  SPEAKER_00: Add Social Security and they have$297,000 in gross income.
• 4:27
  SPEAKER_00: 2.5 times the portfolio doesn't mean$2.5 times the tax.
• 4:31
  SPEAKER_00: At their income, the maximum 85% of their social security is taxable.
• 4:37
  SPEAKER_00: Their adjusted gross income is$241,200, and that crosses line.
• 4:43
  SPEAKER_00: Paul and Linda never come near.
• 4:45
  SPEAKER_00: The first line takes away a deduction.
• 4:47
  SPEAKER_00: There is a senior deduction worth$6,000 per person, age 65 and up.
• 4:52
  SPEAKER_00: For a married couple, it starts phasing out at$150,000 of income.
• 4:57
  SPEAKER_00: Richard and Susan are$91,200 over of the$12,000 they would otherwise get.
• 5:04
  SPEAKER_00: They keep$1,056.
• 5:07
  SPEAKER_00: They did nothing to cause it except earn more.
• 5:10
  SPEAKER_00: The second line is 0% ceiling,$98,900.
• 5:15
  SPEAKER_00: They're more than double it, so their$22,500 gain is taxed at 15%.
• 5:24
  SPEAKER_00: Both couples sold investments this year and both had a gain.
• 5:28
  SPEAKER_00: Paul and Linda paid nothing on theirs.
• 5:30
  SPEAKER_00: Richard and Susan paid$3,375.
• 5:34
  SPEAKER_00: The difference came from the size of the account.
• 5:37
  SPEAKER_00: The third line is Medicare.
• 5:39
  SPEAKER_00: There's a surcharge on Part B and Part D premiums called Irma.
• 5:43
  SPEAKER_00: It uses a two-year look back, so what you report now said your premium two years from now.
• 5:48
  SPEAKER_00: I'm going to use the 2026 threshold here so the comparison stays clean.
• 5:53
  SPEAKER_00: For married couples, the first surcharge kicks in once your income reaches$218,000.
• 5:59
  SPEAKER_00: Go even a dollar over that line and you get the entire surcharge for the year.
• 6:04
  SPEAKER_00: There's no gradual phase in.
• 6:05
  SPEAKER_00: It all hits at once.
• 6:07
  SPEAKER_00: Richard and Susan are$23,000 over.
• 6:10
  SPEAKER_00: Each of their Part B premiums rises from$202.90 a month to$284.10 with another$14.50 on part T.
• 6:22
  SPEAKER_00: About$2,300 a year extra.
• 6:25
  SPEAKER_00: Their federal tax is$32,871.
• 6:29
  SPEAKER_00: Their Part B premiums and surcharges come to$7,166.
• 6:34
  SPEAKER_00: That leaves about$257,000.
• 6:38
  SPEAKER_00: $21,414 a month.
• 6:41
  SPEAKER_00: Side by side.
• 6:42
  SPEAKER_00: Paul and Linda,$12,377 a month.
• 6:46
  SPEAKER_00: Richard and Susan,$21,414.
• 6:50
  SPEAKER_00: That's 2.5 times the money for$1.7 times the income.
• 6:55
  SPEAKER_00: Break it down one more way.
• 6:57
  SPEAKER_00: The first$2 million, together with Social Security, produces$12,377 a month.
• 7:04
  SPEAKER_00: The next$3 million on top of it produces$9,037.
• 7:10
  SPEAKER_00: The second chunk is 50% bigger and it brings in less.
• 7:14
  SPEAKER_00: Part of that is Social Security, which is fixed.
• 7:16
  SPEAKER_00: $72,000 a year belongs to the household, not the portfolio.
• 7:20
  SPEAKER_00: For Paul and Linda, it's nearly half of what they receive.
• 7:24
  SPEAKER_00: For Richard and Susan, under a quarter.
• 7:26
  SPEAKER_00: Tax also climbs faster than income.
• 7:29
  SPEAKER_00: Richard and Susan receive$135,000 more than Paul and Linda.
• 7:34
  SPEAKER_00: And on that extra income, they pay about$26,500 more in tax and Medicare.
• 7:39
  SPEAKER_00: Around a fifth of every additional dollar never reaches them.
• 7:43
  SPEAKER_00: Their effective federal rate is 11.1%.
• 7:48
  SPEAKER_00: Paul and Linda's is 5.3%.
• 7:51
  SPEAKER_00: Spending doesn't keep rising.
• 7:52
  SPEAKER_00: Both couples already cover every regular expense.
• 7:56
  SPEAKER_00: The extra$9,000 a month improves the life they have, but does not create a new one.
• 8:01
  SPEAKER_00: The research suggests most people at this level don't spend it anyway.
• 8:05
  SPEAKER_00: More than 20 years into retirement, the typical high asset household still had about 58% of its savings outside the house.
• 8:12
  SPEAKER_00: That's from the Employee Benefit Research Institute published this spring, tracking retired households for more than two decades.
• 8:19
  SPEAKER_00: That lines up with what I see almost every week.
• 8:22
  SPEAKER_00: If it isn't being spent, somebody ends up holding it.
• 8:25
  SPEAKER_00: Then he dies.
• 8:26
  SPEAKER_00: Most comparisons like this one stop with both people still alive, but a 60-year-old woman married to a 62-year-old man has about a 63% chance of outliving him.
• 8:38
  SPEAKER_00: And if she does, she can expect about 12.5 years on her own.
• 8:42
  SPEAKER_00: That's from the National Bureau of Economic Research using 2010 mortality data.
• 8:47
  SPEAKER_00: Let's run it again.
• 8:48
  SPEAKER_00: Paul dies, Richard dies.
• 8:50
  SPEAKER_00: In the year of death, a surviving spouse can generally still file jointly, but from the following year, Linda and Susan each file as single.
• 8:59
  SPEAKER_00: Each keeps the larger Social Security check,$3,500 a month, and the smaller one stops.
• 9:05
  SPEAKER_00: Each keeps withdrawing exactly what she did before, so we're isolating the change in filing status.
• 9:11
  SPEAKER_00: One thing here actually works in her favor.
• 9:13
  SPEAKER_00: After a husband passes away, the half of jointly owned brokerage account that belonged to him usually gets his cost basis reset to whatever it was worth on the day he died.
• 9:24
  SPEAKER_00: This step erases the capital gain on that portion.
• 9:27
  SPEAKER_00: As a result, both widows now face a lower taxable gain than they did as a couple.
• 9:33
  SPEAKER_00: It still isn't enough.
• 9:34
  SPEAKER_00: Linda with$2 million.
• 9:36
  SPEAKER_00: Her gross income falls by the$30,000 of lost Social Security.
• 9:41
  SPEAKER_00: Her federal tax goes up anyway from$8,612 to$12,160.
• 9:48
  SPEAKER_00: As a couple, her capital gain was entirely tax-free.
• 9:51
  SPEAKER_00: As a single filer, that 0% ceiling is$49,450.
• 9:57
  SPEAKER_00: And she's passed it.
• 9:59
  SPEAKER_00: Even after the new basis cut her gain in half, what's left cost her$675.
• 10:05
  SPEAKER_00: Her senior deduction,$12,000 as a couple, is now$4,308.
• 10:11
  SPEAKER_00: But her Medicare premiums are cut in half because there's now one person paying instead of two.
• 10:17
  SPEAKER_00: They drop from$4,870 to$2,435.
• 10:23
  SPEAKER_00: Add it all up, and widowhood costs Linda about$1,100 a year in extra tax and Medicare on top of the lost check.
• 10:31
  SPEAKER_00: Susan with$5 million.
• 10:33
  SPEAKER_00: Her gross income falls by the same$30,000.
• 10:37
  SPEAKER_00: Her federal tax goes from$32,871 to$36,467.
• 10:46
  SPEAKER_00: Her senior deduction disappears entirely.
• 10:48
  SPEAKER_00: Her income also crosses a line she and Richard never reached.
• 10:53
  SPEAKER_00: The net investment income tax, an extra 3.8%, starts at$250,000 for a married couple and$200,000 for a single filer.
• 11:03
  SPEAKER_00: As a couple, they were comfortably under.
• 11:06
  SPEAKER_00: Alone, she's over.
• 11:07
  SPEAKER_00: It's a small bill this year, but it's a new one.
• 11:10
  SPEAKER_00: And then Medicare.
• 11:11
  SPEAKER_00: As a couple, Richard and Susan were in the first surcharge tier.
• 11:15
  SPEAKER_00: As a single filer, the tiers are roughly half as wide, and Susan lands two tiers higher in the third.
• 11:22
  SPEAKER_00: Her Part B premium goes to$527.50 a month plus$60.40 on part D.
• 11:31
  SPEAKER_00: That's about$7,055 a year for one person.
• 11:36
  SPEAKER_00: As a couple, the two of them paid$7,166.
• 11:40
  SPEAKER_00: Linda's Medicare premium was cut in half when the household went from two people to one.
• 11:46
  SPEAKER_00: Susan's premium changed very little.
• 11:48
  SPEAKER_00: She's now paying 98% of what two people paid on her own.
• 11:52
  SPEAKER_00: All in, widowhood costs Susan about$3,500 a year in extra tax on Medicare, on top of the lost Social Security check that is about three times what it costs Linda for the same$30,000 drop in income.
• 12:06
  SPEAKER_00: Pause for a moment and consider your own plan.
• 12:10
  SPEAKER_00: Has anyone ever run your plan as the survivor filing alone?
• 12:13
  SPEAKER_00: My experience, this is rarely part of the plan.
• 12:16
  SPEAKER_00: What the extra$3 million actually buys her.
• 12:19
  SPEAKER_00: If I had to pick, I'd still rather have the$5 million.
• 12:24
  SPEAKER_00: It does work out better, though the main upsides aren't always what people expect.
• 12:28
  SPEAKER_00: Go back to the more realistic version where Richard and Susan are living the same life as Paul and Linda on$90,000 a year.
• 12:37
  SPEAKER_00: Because that's what the research says most people at their level.
• 12:40
  SPEAKER_00: To fund that life, Paul and Linda withdraw 4.5% of everything they own.
• 12:46
  SPEAKER_00: Richard and Susan withdraw 1.8%.
• 12:49
  SPEAKER_00: The extra$3 million allows them to withdraw a smaller percentage each year to fund the same life.
• 12:56
  SPEAKER_00: For a woman, that lighter draw is especially important.
• 13:00
  SPEAKER_00: Consider a difficult year early in retirement.
• 13:03
  SPEAKER_00: The market falls 30% in the first year,$2 million becomes$1.4 million, and a$90,000 withdrawal becomes 6.4% of the new balance.
• 13:15
  SPEAKER_00: That's where plans often need to be reworked because you're selling at a loss to cover expenses.
• 13:21
  SPEAKER_00: The same drop takes$5 million to a$3.5 million, and the withdrawal rises to 2.6%.
• 13:29
  SPEAKER_00: For the smaller household, this can mean changing the plan.
• 13:32
  SPEAKER_00: For the larger one, it is a setback but not a crisis.
• 13:36
  SPEAKER_00: Then there's long-term care, and this one is hers more than anyone's.
• 13:40
  SPEAKER_00: According to the Department of Health and Human Services, women average about 3.6 years of severe long-term care need after 65, compared with 2.5 years for men.
• 13:52
  SPEAKER_00: More than one in four women will need that level of care for five years or longer.
• 13:57
  SPEAKER_00: And the woman who needs it is more likely to be the one already on her own because she's the one who outlived him.
• 14:04
  SPEAKER_00: The 2025 Care Scout Cost of Care Survey puts the national median for a private nursing homeroom at about$130,000 a year.
• 14:13
  SPEAKER_00: Four years in a private room comes to roughly$518,000 in today's money.
• 14:19
  SPEAKER_00: For Susan, about 10% of her portfolio.
• 14:22
  SPEAKER_00: For Linda, about 26%.
• 14:24
  SPEAKER_00: It is the same care and the same bill.
• 14:27
  SPEAKER_00: For Susan, it's a line item.
• 14:29
  SPEAKER_00: For Linda, it is a quarter of her portfolio.
• 14:32
  SPEAKER_00: A larger balance gives you more room for mistakes.
• 14:35
  SPEAKER_00: That could be living to 100, a decision that doesn't work out, a child who needs help you didn't plan for.
• 14:42
  SPEAKER_00: With$5 million, you can absorb an error.
• 14:45
  SPEAKER_00: With$2 million, an error has a bigger impact.
• 14:49
  SPEAKER_00: Emily.
• 14:50
  SPEAKER_00: But if she doesn't spend it, much of it goes to her children.
• 14:53
  SPEAKER_00: Susan has a daughter, Emily.
• 14:55
  SPEAKER_00: She's 46 and a director at a software company.
• 14:58
  SPEAKER_00: She and her husband file jointly on$215,000 of household income.
• 15:04
  SPEAKER_00: Linda has a daughter too.
• 15:06
  SPEAKER_00: Same age, same job, same income, kept identical on purpose so we can see what the inheritance itself does.
• 15:12
  SPEAKER_00: Most adult children who inherit an IRA have 10 years to empty it.
• 15:17
  SPEAKER_00: And because their mothers had already started required distributions, they also have to take something out every single year along the way.
• 15:25
  SPEAKER_00: Those rules were finalized in 2024 and took effect in 2025.
• 15:30
  SPEAKER_00: There are exceptions, a surviving spouse, a child of the person who died but only until 21, someone disabled or chronically ill, or someone no more than 10 years younger.
• 15:41
  SPEAKER_00: To keep this simple, I'll assume the account doesn't grow and Emily takes it out in 10 equal pieces, with today's tax rules held constant.
• 15:50
  SPEAKER_00: If she inherits Susan's$3.5 million IRA, that's about$350,000 a year landing on top of her household income.
• 15:58
  SPEAKER_00: It pushes her into the 35% bracket.
• 16:02
  SPEAKER_00: The federal tax on the inherited money alone is about$94,000 a year.
• 16:07
  SPEAKER_00: Over 10 years, roughly$944,000 before her state takes anything.
• 16:13
  SPEAKER_00: Linda's daughter inherits$1.4 million, about$140,000 a year, topping out in the 24% bracket, approximately$33,000 a year or$330,000 over the decade.
• 16:28
  SPEAKER_00: Susan's daughter receives$2.1 million more, and about$613,000 of that goes to the IRS.
• 16:36
  SPEAKER_00: The timing makes it worse.
• 16:38
  SPEAKER_00: Emily's 46 in the highest earning year she will likely have.
• 16:42
  SPEAKER_00: This is close to the worst possible moment to receive a large amount of ordinary income, and the rule gives her no choice about when to take it.
• 16:52
  SPEAKER_00: I have a full episode on exactly how that rule works and what it costs a family.
• 16:56
  SPEAKER_00: It's in the show notes.
• 16:58
  SPEAKER_00: Everything that would have changed this, the sequencing, the buckets, the window is written up in my free guide, the Executive Women's Text Playbook.
• 17:06
  SPEAKER_00: It's in the show notes.
• 17:07
  SPEAKER_00: Grab it now, it'll be there when you finish.
• 17:09
  SPEAKER_00: The fix and why timing is everything.
• 17:12
  SPEAKER_00: Most of the tax problems here come from where the savings sit.
• 17:16
  SPEAKER_00: Too much of Susan's money is in the pre-tax account.
• 17:19
  SPEAKER_00: The tax code has lines and crossing them costs you money.
• 17:23
  SPEAKER_00: Every retirement has a window that opens when you stop working and closes when required distributions begin.
• 17:29
  SPEAKER_00: Richard and Susan were born in 1958, so their required distributions start at 73.
• 17:35
  SPEAKER_00: At that point, the IRS divides the IRA balance by 26.5 and tells them what to take up on$3.5 million, that's about$132,000, whether they need it or not.
• 17:48
  SPEAKER_00: Until then, the window is open.
• 17:50
  SPEAKER_00: Your income is as low as it'll ever be, and you have unusual control over what lands on your tax return.
• 17:57
  SPEAKER_00: That is when you move money out of the pre-tax account on your own terms.
• 18:02
  SPEAKER_00: If Richard and Susan are living on$90,000 a year, their income is about$132,400.
• 18:09
  SPEAKER_00: The married Medicare line is$218,000.
• 18:13
  SPEAKER_00: That gives them roughly$85,000 of room each year to convert money to Roth without triggering a surcharge.
• 18:21
  SPEAKER_00: Run that same life after Richard is gone with the same spending, the same portfolio, and one Social Security check.
• 18:29
  SPEAKER_00: Susan's income is about$103,000.
• 18:33
  SPEAKER_00: The single filer line is$109,000.
• 18:36
  SPEAKER_00: She has about$5,800 of room.
• 18:39
  SPEAKER_00: As a couple, it was around$85,000.
• 18:42
  SPEAKER_00: On her own, it's under$6,000.
• 18:45
  SPEAKER_00: She's the same woman with the same money, spending the same amount, and most of the room to fix this disappears the year she starts filing alone.
• 18:54
  SPEAKER_00: This is why the most efficient conversion work usually belongs in the years when you're both still here and the wider married threshold apply.
• 19:02
  SPEAKER_00: Every dollar you move in those years is a dollar you may not have to pull through the narrower single filer line.
• 19:08
  SPEAKER_00: And a dollar your daughter may not have to pull through hers.
• 19:11
  SPEAKER_00: For most couples, the window doesn't really close when required distributions begin.
• 19:16
  SPEAKER_00: It narrows sharply the year one of them is gone.
• 19:19
  SPEAKER_00: And statistically, the one still here is usually her.
• 19:22
  SPEAKER_00: $2 million nets Paul and Linda,$12,377 a month, and$5 million nets Richard and Susan,$21,414.
• 19:34
  SPEAKER_00: That's 2.5 times the portfolio for$1.7 times the income.
• 19:38
  SPEAKER_00: What the extra money really buys is a lighter withdrawal rate and the protection that comes with it.
• 19:43
  SPEAKER_00: For a woman, most of that protection is for the years she'll likely spend on her own.
• 19:48
  SPEAKER_00: Before you start plugging in your own numbers, just keep in mind that things can look a lot tougher if most of your savings are in pretest accounts.
• 19:57
  SPEAKER_00: The tax bill tends to climb faster in that case than in these examples.
• 20:01
  SPEAKER_00: Also, if your state has its own income tax, you'll need to adjust these numbers down even farther.
• 20:07
  SPEAKER_00: Here are three questions to answer this week.
• 20:10
  SPEAKER_00: Start with your actual monthly number after tax, the figure that lands in your account, not the balance on the statement.
• 20:16
  SPEAKER_00: If you're married, what does that number become when one of you is gone?
• 20:21
  SPEAKER_00: Run it as a single filer because that's the version your plan needs to hold up under.
• 20:25
  SPEAKER_00: And how many years are left in your window and are you using them while the wider lines still apply?
• 20:31
  SPEAKER_00: If you don't have answers to the first two, you have a balance.
• 20:35
  SPEAKER_00: The next step is to build a plan.
• 20:37
  SPEAKER_00: The sequencing behind all of this is in the Executive Women's Text playbook and it's in the show notes.
• 20:43
  SPEAKER_00: And if you want your own numbers, your accounts, your social security, your version of the year after, there is a link there to book a short call with me, 15 minutes.
• 20:53
  SPEAKER_00: You'll leave knowing what your window looks like, whether or not we ever work together.
• 20:57
  SPEAKER_00: I'll see you in the next episode.