What the headlines don’t tell you about today’s retirement numbers.
By Michael Testa | July 31, 2025
Published on July 31, 2025 | 8-minute read
If you've managed to accumulate $2 million for retirement, you're among the most successful savers in America. You've done what financial experts have told you to do for decades. You've maxed out your 401(k), built a diversified portfolio, and reached that magical seven-figure milestone.
But here's an uncomfortable truth that most financial advisors won't tell you: the traditional 4% withdrawal rule that everyone recommends could actually destroy your wealth.
The famous 4% rule emerged from William Bengen's 1994 study of historical market returns. His research suggested that retirees could safely withdraw 4% of their portfolio in the first year of retirement, then adjust that amount annually for inflation, with minimal risk of running out of money over a 30-year retirement.
For a $2 million portfolio, that translates to $80,000 in year one.
The problem? Bengen's study was designed for middle-class retirees with modest expenses and simple tax situations. It never accounted for the unique challenges facing high-net-worth individuals.
That $80,000 withdrawal isn't $80,000 in your pocket. If your retirement savings are primarily in traditional 401(k)s and IRAs (as most are), you'll owe ordinary income tax on every dollar withdrawn.
The math is sobering:
Federal tax (24% bracket): $19,200
State tax (varies): $4,000-8,000
IRMAA Medicare surcharges: $2,000-6,000
Net income: $50,000-55,000
If you were accustomed to a $150,000+ lifestyle during your working years, this represents a dramatic reduction in living standards.
This is perhaps the most dangerous risk facing affluent retirees, yet it's rarely discussed in mainstream retirement planning.
Sequence of returns risk occurs when poor market performance happens early in retirement, forcing you to sell investments at depressed prices to fund withdrawals. Even if markets recover later, the damage to your portfolio can be irreversible.
Consider this real-world scenario:
Two identical retirees, both with $2 million portfolios, both following the 4% rule, both earning identical average returns over 20 years. The only difference? Their retirement timing.
Retiree A retires in 2000 (before dot-com crash and 2008 crisis)
Retiree B retires in 2009 (as markets begin recovering)
After 15 years:
Retiree B has $1.8 million remaining
Retiree A has just $600,000 left
Same strategy. Same average returns. Completely different outcomes.
The 4% rule assumes you'll be satisfied maintaining the same purchasing power throughout retirement. But high-net-worth individuals often face unique challenges:
Healthcare inflation that exceeds general inflation
Desire to travel extensively in early retirement years
Family obligations including supporting adult children or grandchildren's education
Maintenance costs for multiple properties or luxury assets
Traditional retirement advice suggests a simple 60/40 stock/bond allocation. But when you have $2 million or more, you gain access to sophisticated strategies unavailable to smaller investors.
Instead of managing one large portfolio, consider organizing assets into three distinct buckets:
Purpose: Fund immediate needs and provide sequence risk protection
Assets: High-yield savings, CDs, short-term Treasury bonds
Target: 5 years of expenses
Purpose: Generate income while preserving capital
Assets: Dividend growth stocks, REITs, intermediate-term bonds
Target: Moderate growth with current income
Purpose: Build wealth for later retirement years and legacy
Assets: Growth stocks, international equities, alternative investments
Target: Maximum long-term appreciation
With $2 million+, you may qualify for investments typically reserved for institutional investors:
Private REITs for enhanced real estate exposure
Business Development Companies (BDCs) for higher yields
Dividend aristocrats for tax-efficient income growth
International dividend stocks for geographic diversification
Wondering if your investments are working as hard as you are?
Modern portfolio theory is powerful in theory—but retirement is real life. Let’s see how your portfolio stacks up in today's environment.
The period between early retirement and required minimum distributions (RMDs) at age 73 presents unique tax planning opportunities:
Roth Conversion Ladders Systematically convert traditional IRA assets to Roth IRAs during lower-income years. This strategy can:
Reduce future RMDs
Create tax-free growth for heirs
Provide tax diversification in later years
Tax-Loss Harvesting In taxable accounts, strategically realize losses to offset gains and reduce tax liability.
Asset Location Optimization Place tax-inefficient investments in tax-advantaged accounts and tax-efficient investments in taxable accounts.
Income-Related Monthly Adjustment Amounts (IRMAA) can add thousands to annual Medicare premiums. Strategic withdrawal planning can help you stay below critical thresholds:
2024 IRMAA thresholds begin at $103,000 (individual) / $206,000 (married)
Surcharges range from $69-383 monthly per person
Rather than rigidly following the 4% rule, consider a flexible approach:
Begin with a more conservative 3.5% withdrawal rate, providing additional buffer against sequence risk.
Strong market years: Increase withdrawals up to 4.5%
Poor market years: Reduce withdrawals to 2.5-3%
Neutral years: Maintain baseline 3.5%
Establish minimum and maximum annual withdrawal amounts:
Floor: Never withdraw less than $60,000 (essential expenses)
Ceiling: Never withdraw more than $120,000 (lifestyle maximum)
Before relying heavily on portfolio withdrawals, optimize these often-overlooked income sources:
Delay benefits until age 70 for 8% annual increases
Coordinate spousal claiming strategies
Consider tax implications of different claiming approaches
Evaluate lump-sum vs. annuity options
Consider tax implications and survivor benefits
Factor in company's financial stability
Many affluent retirees can generate $30,000-50,000 annually through:
Consulting in their former field
Part-time professional work
Investment property management
Board positions or advisory roles
Let's get specific about what different withdrawal strategies mean for your lifestyle:
Gross withdrawal: $80,000
After taxes: $50,000-55,000
Monthly budget: $4,200-4,600
Gross withdrawal: $70,000
Strategic tax planning: $60,000-65,000
Monthly budget: $5,000-5,400
Portfolio withdrawal: $50,000
Part-time income: $30,000
Social Security (delayed): $35,000
Total after-tax income: $95,000-100,000
Monthly budget: $7,900-8,300
Done right, a Roth conversion can help you reduce future taxes and create more flexibility in retirement. Our free guide walks you through what to consider before making the move.
Review the tax treatment of your retirement assets:
What percentage is in traditional tax-deferred accounts?
How much is in tax-free Roth accounts?
What assets are in taxable accounts for flexibility?
Target allocation: 40% traditional, 30% Roth, 30% taxable
Use retirement planning software to test various withdrawal rates against different market conditions. Pay particular attention to:
Worst-case sequence of returns scenarios
Impact of early large expenses (travel, healthcare, home repairs)
Longevity risk (plan for age 95+)
Move beyond simple stock/bond allocations:
Consider your risk capacity vs. risk tolerance
Evaluate alternative investments for yield and diversification
Implement the bucket strategy for systematic rebalancing
Create a systematic approach for which accounts to tap first:
Years 62-70: Focus on taxable accounts and Roth conversions
Years 70-73: Balance traditional and Roth withdrawals
Years 73+: Coordinate with RMDs for tax efficiency
Assemble a team of fee-only professionals:
Fee-only financial planner for comprehensive planning
Tax professional specializing in retirement tax strategies
Estate attorney for legacy planning
Insurance specialist for long-term care and liability coverage
With proper planning, $2 million can indeed provide a comfortable retirement. But it requires abandoning outdated rules of thumb and embracing sophisticated strategies designed for your wealth level.
The key is understanding that traditional retirement advice was built for average savers with average goals. As a high-net-worth individual, you face unique challenges but also have access to unique solutions.
Remember: The 4% rule isn't a law of nature. It's simply one approach that worked for one set of circumstances. Your retirement deserves a customized strategy built for your specific situation, goals, and risk tolerance.
Disclaimer: This article is for educational purposes only and should not be considered personalized investment advice. Consult with qualified financial professionals before making retirement planning decisions.
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