Two Retirees, Same Savings, Very Different Retirements
By Josh Wolberg, CFP®, RICP®, MBA
Two couples can retire the same year with the same account balance and end up living very differently. One takes the trip to Norway, helps with a grandchild’s tuition, and replaces the deck without agonizing over it. The other couple watches the balance and hesitates on every large purchase, getting less spendable income out of the same money. That gap usually comes down to tax-efficient retirement planning rather than investment returns.
People close to retirement ask me some version of the same question:
How does my number compare to my neighbor’s?
It’s a natural thing to wonder about. It’s also close to useless as a measure of how your retirement is going to feel.
The Balance Is the Wrong Scoreboard
It’s easy to compare account balances because you’ve got one big number on your monthly statement. But your retirement doesn’t actually run on a balance, it runs on something much harder to see: reliable, after-tax income arriving every single month.
Here’s an illustration, hypothetical, to show the mechanics. It isn’t drawn from any client situation.
Two couples each retire with $2 million. The first couple built almost all of it inside a traditional 401(k). Every dollar they withdraw counts as ordinary income, and once required minimum distributions begin, the size of those withdrawals is set by IRS tables instead of by the couple. Those withdrawals can push more of their Social Security into the taxable range and can raise what they pay for Medicare along the way.
The second couple has the same $2 million split across a traditional IRA, a Roth IRA, and a taxable brokerage account. Each year they get to decide which account the money comes from. In a low-income year, they might convert part of the IRA to Roth. In a year with a big expense, they might pull from the brokerage account and pay capital gains rates instead of ordinary income rates.
Both couples started with the exact same balance. But the income those accounts produce is completely different, and over a 30-year retirement, that gap just keeps compounding.
The Difference Usually Comes From Taxes
Three decisions tend to change lifetime taxes more than a slightly larger balance ever could.
Withdrawal order. Traditional IRAs and 401(k)s are taxed as ordinary income. Roth accounts are generally tax-free. Brokerage accounts sit in between, taxed on gains and dividends. Which account you draw from in a given year sets your taxable income for that year, and that number ripples out to how much of your Social Security gets taxed and what you pay for Medicare.
Asset location. Your mix of stocks and bonds can stay exactly the same while you change which account each holding sits in. Placing tax-inefficient holdings inside tax-deferred accounts and letting high-growth holdings sit in a Roth can improve after-tax results over time without changing your risk.
Partial Roth conversions. Converting portions of a traditional IRA during lower-income years, often the time between retiring and starting Social Security, can reduce required minimum distributions later and build a pool of tax-free income to draw on.
How much of your Social Security gets taxed depends on your combined income for the year, which the Social Security Administration figures from your other income, plus half of your benefits. Minnesota applies its own rules on top of the federal ones, so the answer differs household by household.
We say this to clients often enough that it ended up on our website: pay your taxes, but don’t leave a tip. None of this involves dodging what you legally owe; it’s the order and the timing, both of which you have some say over.
The Habit That Holds Good Savers Back
The people we work with are careful with money. They’ve saved consistently for decades and built real wealth entirely on their own. Those habits got them where they are.
But retirement requires the exact opposite skill set. After years of watching your balance climb, you suddenly have to watch the growth slow on purpose. That feels wrong in your gut, even when the numbers say you’re completely fine.
What helps in that moment is the objective confidence you get from the numbers. When a plan is built to hold up under pressure, it gives you the reassurance you need to actually enjoy what you built, and comparing yourself to the neighbors stops mattering.
Your Neighbor’s Number Isn’t Yours
Whatever your neighbor has saved reflects their income, their timeline, whether they have a pension, and how long they plan to keep working. None of that correlates to your household.
A smaller portfolio drawn down wisely can fund a better retirement than a larger one losing ground to taxes and avoidable mistakes.
Have you been running your own numbers and want a second set of eyes on the tax side? A 15-minute intro call takes no prep and comes with no obligation. Great River Financial can talk through where you are, whether that leads to working together or not.
To schedule a meeting or a call, get in touch by calling (763) 231-7581 or emailing info@greatriverfinancial.com.
Frequently Asked Questions
Why do two retirees with the same savings end up with different retirement incomes?
Account structure matters more than account size. Two retirees with identical balances can produce very different spendable income depending on:
- Which accounts they draw from each year
- Where their stocks and bonds are held
- When they claim Social Security
- The fees they pay along the way
Each of those shifts after-tax income without changing the balance.
In what order should I withdraw from my retirement accounts to pay less in taxes?
There’s no universal order. A common starting sequence is taxable accounts first, then tax-deferred, then Roth, revisited each year to manage your bracket. At Great River Financial, our planning team builds withdrawal sequencing into every retirement income plan and coordinates it with Social Security timing and partial Roth conversions.
Does a bigger retirement account balance always mean a better retirement?
No. A larger balance held entirely in tax-deferred accounts can deliver less spendable income than a smaller one spread across taxable, tax-deferred, and Roth accounts. The number that counts is after-tax monthly income, so start with your own numbers instead of comparing balances with the neighbors.
About Josh
Josh Wolberg, CFP®, RICP®, MBA, is president and lead financial planner at Great River Financial, a fee-only financial planning firm based in Plymouth, Minnesota, proudly serving clients across Minnesota and nationwide. He began working as an advisor in 2007 to help pre-retirees turn what they’ve saved into a tax-efficient retirement income they can spend with confidence. Josh explains retirement, investments, and taxes through analogies and visuals instead of jargon.
