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Retirement Planning

$1M vs $5M vs $10M Retirement: What Actually Changes?

Written by Dan Pascone

TL;DR

As a portfolio grows from $1M to $5M to $10M, the planning question changes from "will it last?" to "how do we spend it without overpaying the IRS?" to "what is this money for, and who is it for?"

  • At $1M, a $200,000 a year lifestyle is a 20% withdrawal rate, so the plan centers on longevity, protecting the next few years of income, and often working part-time through a Hybrid Retirement.

  • At $5M, the gap years between retiring and required minimum distributions (RMDs) may open a window for deliberate Roth conversions, sized around Medicare surcharges and the 3.8% net investment income tax.

  • At $10M, the focus shifts to concentrated company stock, charitable giving, and state estate tax, which in Connecticut starts at $15M per person with a 12% rate above it.

In the video above, we run 1 experiment: the same couple, the same lifestyle, and 3 different portfolios. Below is what changes in the mechanics of the plan at each level.

Meet Tom and Kate: Same Lifestyle, 3 Different Portfolios

Tom and Kate are hypothetical, but if you're a corporate executive in your 40s or 50s, think of them as a preview of you at 60. Tom spent 15 years as a VP at a public company. Kate built her own solopreneur business and is ready to step back too. They're both 60, the house is paid off, and they want to spend about $200,000 a year after tax.
They live in Connecticut, so we'll flag where state rules come into play. Every state is different, so check the thresholds where you live. We hold their lifestyle constant and change only the size and mix of the portfolio. The mix matters almost as much as the total, because what your money is made of shapes which strategies are even available.

At $1M: Will the Money Last?

Version 1 of Tom and Kate has $750K in 401(k)s and IRAs, $150K in a taxable brokerage account, and the rest in a small Roth and some cash. Spending $200,000 a year is 20% of that portfolio. Even with Social Security, the math is unlikely to hold for 30 years.
So at $1M, the plan has 1 job: make sure the money lasts. That drives almost every decision.

  • Social Security: It becomes a longevity decision. Many high earners in this spot consider delaying to 70, because that check can be the best inflation-adjusted lifetime income they'll ever own.

  • Investments: The goal is protecting the next few years of income from a down market so you're never forced to sell at the bottom. We organize that with what we call the Four Liquidity Bands: money for 0–2 years, 3–5 years, 6–10 years, and 10+ years out.

  • Time: The biggest lever is usually not a tax strategy. It's time.

This is where Hybrid Retirement adds the most value. We define it as a structured plan to step back gradually, so work becomes optional, income stays flexible, and purpose stays intact. If Tom consults part-time for 5–10 more years, at least a portion of the portfolio keeps compounding instead of being drawn down aggressively, and the whole plan changes. We walk through how that looks in our video on retiring gradually instead of all at once.

At $5M: How Do We Spend It Without Overpaying the IRS?

At $1M, the plan's job is to make the lifestyle fit the math. At $5M, it's the other way around. Version 2 has about $2.5M in an IRA, $2M in a taxable brokerage account, $300K in Roth, and about $200K in cash. That's a fairly typical mix for the executives we work with. Spending $200,000 a year is about 4% of the portfolio, and Social Security can cover a real chunk starting at 70. Running out of money is no longer the main concern.

The bigger issue is a window many people don't know they're in. In his last working years, Tom earned about $800K a year in taxable income. For a married couple filing jointly, the 37% bracket starts at $768,700 this year, so every dollar he put into his 401(k) saved tax at the top rate.

Then he retires at 60. For the next 10 years, until Social Security at 70 and RMDs at 75, their taxable income could be close to nothing. They live off the brokerage account, and the tax return shows maybe $40,000–$50,000 of income. These can be the lowest tax years they'll have as adults.

Here's the pattern we see often: a couple retires, lives off the taxable account, and their CPA calls it a great tax year. But that low-tax year can be a missed opportunity, because the IRA doesn't sit still. Even at a modest growth rate, a $2.5M IRA could be around $4.5M by 75 (an illustrative assumption, not a projection). The first RMD would then land somewhere around $180,000–$200,000. Stack that on Social Security and portfolio income and you're back in the 24% bracket or higher, and deep into Medicare surcharges for life.
And if 1 spouse passes away, the survivor files as a single taxpayer. Same RMDs, roughly half the bracket space. That's the widow's penalty, and it's among the most expensive surprises in retirement planning.

The gap-year Roth conversion

Instead, we look at converting part of the IRA to Roth each year in those gap years, deliberately filling the lower tax brackets. For Tom and Kate, filling the 22% bracket, which tops out at just over $211,000 of taxable income this year, means converting roughly $230,000 a year. Over 10 years, that's more than $2M moved into Roth. Money deducted at 37% going in gets taxed at 22% coming out, and instead of $4.5M, the IRA is closer to $1M by 75.

RMDs get small, the widow's penalty shrinks, and the Roth can grow tax-free for them and their kids. The brokerage account funds both their spending and the conversion taxes during those years. That's the idea behind what we call Life Driven Investing: each bucket of money has a job, and the order you use the buckets in is a big part of the strategy. Conversions are taxable in the year you do them and generally can't be undone, so they aren't right for everyone. We cover how to find your own window in When Does a Roth Conversion Actually Make Sense?

2 mechanics that make or break the plan

1. The Medicare surcharge (IRMAA) looks back 2 years.

  • Conversions at 60, 61, and 62 don't touch Medicare premiums, so that's when you may convert the most. From 63 on, every conversion is also a Medicare decision. Sometimes we land in the first or second surcharge tier on purpose. For a couple, the second tier is roughly $5,800 a year in extra premiums. Paying that for a few years to avoid decades of larger RMDs can be a worthwhile trade. The brackets are laid out in this IRMAA overview from NerdWallet. Before 65, health coverage is another variable, since conversion income can also affect marketplace premium credits.

2. The 3.8% net investment income tax.

  • Once income crosses $250,000 (married filing jointly), the tax starts hitting dividends and gains, and conversions can push you over that line. So conversions have to be sized with the brokerage account in mind, not in isolation.

That's why at $5M the tax return becomes the most important document in the plan. Not just to file it, but to design it year by year.

At $10M: What Is This Money For, and Who Is It For?

Version 3 has about $3.5M in pre-tax accounts, $500K each in Roth and cash, and $5.5M in a taxable account. But $4M of that taxable account sits in 1 stock: Tom's company stock, years of RSUs he never sold, with a cost basis of just over $600,000. That's 40% of their net worth tied to 1 company. If you've spent 15 or 20 years at 1 employer, you know how common this is.
Spending $200,000 a year is only 2% of the portfolio. Unless something goes badly wrong, it could keep growing through their whole retirement. In the video's illustration, it could reasonably reach $15M–$20M in today's dollars by their late 80s. So the question changes again. It's not "will it last," and it's not just "how do we minimize tax." It's what and who this money is for. The first thing standing in the way is the company stock.

The concentrated stock problem

Selling $4M of stock all at once would realize about $3.4M in capital gains, roughly $800,000 in federal tax alone before the state takes its share. Holding it ties the family's future to 1 company's next few years. The approach we see work is rarely 1 move. It's usually 3 working together:

1. Build a custom index.

  • Instead of owning a fund, you own individual stocks, which lets us sell the losers through the year to capture tax losses. Those losses offset the gains when we sell company stock, so the position can be reduced year after year without 1 big tax bill. We can also build the index to leave out Tom's company and its closest competitors, so we aren't buying the same risk back through the side door.

2. Give the lowest-basis shares to charity through a donor-advised fund.

  • Tom and Kate already gave each year. Giving shares instead of cash means the embedded gain is never taxed, and they may deduct the full market value. The best timing is a high-income year, like Tom's final working year, when the deduction is worth the most. A donor-advised fund also lets them grant money out over time, which is where the kids can start getting involved.

3. Keep some of the lowest-basis shares on purpose.

  • Size the position so that if the stock dropped by half, the plan still works. When you pass away, your heirs generally receive a step-up in basis, and the embedded gain disappears for them. The stock that would cost the most to sell today can be the smartest asset to leave behind.

The state estate tax

This is where the plan becomes state specific. Connecticut, like many states, has its own estate tax: a $15M per person exemption this year and a 12% tax on anything above it. At the federal level, a surviving spouse can generally pick up the deceased spouse's unused exemption. Connecticut doesn't allow that.

So if Tom and Kate simply leave everything to each other and the estate grows toward $20M, the first spouse's Connecticut exemption can be wasted, and the kids pay 12% on the difference. The fix is usually structural, often a trust set up at the first death, and it has to be in place before anyone needs it. Other states have different thresholds, and some have none, so confirm with your attorney wherever you live.
Even Roth conversions change purpose at this level. Converting at 32% or 35% can make sense, not necessarily for Tom and Kate, but because it leaves the kids tax-free money instead of an IRA they'd have to empty within 10 years, likely during their own peak earning years.

How the Advice Flips as the Number Grows

The same couple, the same lifestyle, and 3 very different plans. Some of the advice doesn't just change. It reverses.

Core question:

At $1M, will it last? At $5M, how do we spend it without overpaying the IRS? At $10M, what is it for, and who is it for?

Plan focus:

  • At $1M, longevity, protecting withdrawals, and working a little longer. At $5M, the gap years, Roth conversions, and Medicare surcharges. At $10M, concentration, charitable giving, and legacy.

Guaranteed income:

  • At $1M, it can make sense to cover the basics. At $5M, it's case by case. At $10M, it often just adds cost.

Long-term care insurance:

  • At $1M, often a must. At $5M, a real decision. At $10M, the portfolio may be able to self-insure.

Delaying Social Security to 70:

  • At $1M, often a lifeline. At $5M and $10M, a tax timing decision.

What Most People Miss

Most people treat retirement planning as 1 problem that gets easier as the balance grows. It doesn't. The problems change shape, and the advice that fits at 1 level can be the wrong move at the next. The second thing people miss is that the account mix is as important as the total. Tom and Kate at $5M with everything in a taxable account and a large IRA face a different tax story than the same $5M held across pre-tax, Roth, and taxable buckets.
The third, and the one that matters most if you're in your 40s or 50s: which of these 3 retirements you end up with isn't only about how much you save. It's about decisions you're making right now. What you do with your equity compensation. How much you let 1 stock grow into. Whether all your savings are growing pre-tax or you're building flexibility across account types. Those decisions determine which problems you'll be solving at 60. For the RSU and option side, that's what our Equity Compensation Playbook is built to handle.

Key Takeaways

  • Same lifestyle, different portfolio: the question you're answering changes from "will it last?" to "how do we spend it tax-efficiently?" to "what is this for, and who is it for?"

  • At $5M, the gap years between retiring and RMDs may be the most valuable tax planning window. Size Roth conversions around IRMAA (2-year lookback) and the 3.8% net investment income tax.

  • At $10M, a concentrated stock position, charitable giving, and state estate tax rules tend to matter more than investment selection.

  • Decisions in your 40s and 50s about equity compensation, concentration, and account types shape which version you face at 60.

Who This Is For

This is for corporate executives and senior leaders in their 40s and 50s with $500K+ in household income and equity compensation like RSUs or options, often after 15 or 20 years at the same employer and a growing concentration in its stock. If you're thinking about stepping back at some point and want to know which version of Tom and Kate looks most like your future, this is written for you.

Frequently asked questions

Is $1 million enough to retire at 60 on $200,000 a year?

On its own, probably not. $200,000 a year is a 20% withdrawal rate on $1M, which is far above the range most planners consider sustainable over a 30-year retirement. The levers that tend to matter most are time and flexibility: working part-time for several more years, delaying Social Security, or lowering spending. Every situation is different, and this is general education rather than individualized advice.

What is the widow's penalty in retirement?

When 1 spouse passes away, the survivor files as a single taxpayer. Required minimum distributions and income often stay about the same, but the tax brackets are roughly half as wide, so the same income is taxed at higher rates. Filling the lower brackets with Roth conversions while both spouses are alive is 1 way planners try to shrink the problem.

How do Roth conversions affect Medicare premiums?

Medicare's income-related surcharge (IRMAA) is based on your tax return from 2 years earlier. That means conversions done at 60, 61, and 62 generally don't affect premiums, while conversions from 63 on can. Some people accept a higher surcharge tier for a few years if it avoids larger RMDs later, but the trade-off depends on your numbers.

How do you reduce taxes on a large company stock position without selling it all at once?

Often it takes several moves working together: a custom index that harvests tax losses to offset gains, gifting low-basis shares to a donor-advised fund, and deliberately holding some of the lowest-basis shares for heirs, who generally receive a step-up in basis. At Tailored Wealth, we build these into a multi-year diversification schedule, because selling everything at once can mean roughly $800,000 of federal tax on a $4M position with a $600,000 basis.

Does my state have an estate tax, and do I need a trust?

Many states do, and the exemptions vary widely. Connecticut, for example, has a $15M per person exemption with a 12% rate above it and no portability, so leaving everything to a spouse can waste the first spouse's exemption. A trust set up at the first death is often the fix, and it has to be in place beforehand. Our Modern Trust Playbook for High Earners covers when a trust earns its cost, and an estate attorney in your state should confirm the details.

Want to See Which Version of Tom and Kate Looks Like You?

If you're not sure which of these plans could look like yours, or what you should be doing now to shape it, let's talk. It's a low-pressure conversation about your equity, your taxes, and your timeline, and what your version of retirement actually needs.
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Disclosure

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon.

No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

All investments include a risk of loss that clients should be prepared to bear. The principal risks of Tailored Wealth’s strategies are disclosed in the publicly available Form ADV Part 2A.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Tailored Wealth and its advisors do not provide legal, accounting, or tax advice. Consult your attorney or tax professional.