Retirement Planning Case Study | Retiring Together Before Medicare on $1.1 Million and No Pensions

Case Study: Retiring Together Before Medicare on $1.1 Million - and No Pensions

Background

"Jack" is 61 and works as a senior manager at a lumber company in Oregon, pulling in $145,000 per year in gross income. "Jane" is also 61 and has spent her career at a non-profit organization, earning $85,000 per year. She recently decided to retire, partly because the timing felt right, and they knew she could jump onto Jack's employer health insurance.

Then, shortly after Jane's retirement, something unexpected (yet entirely predictable) happened: Jack caught the itch to retire, too.

They started imagining a retirement that looked less like a finish line and more like a new, exciting chapter: watching - ha! - spoiling -  the grandkids during the school year, traveling with the family in the summer, and letting go of the 50-hour weeks and the commute. The dream was there. The plan...had some gaps.

Together, they had built:

• Approximately $1.1 million in retirement savings, almost entirely in pre-tax accounts
  • his 401(k), a rollover IRA from a previous employer, and her 403(b)
• About $150,000 in savings and CDs
• A mortgage with roughly 24–36 months remaining until payoff, depending on how much they wanted to 'throw at it'
• No pensions

They knew the accounts were still positioned for growth and that it was probably time to dial back the risk. Beyond that, the path forward was unclear.

What Kept Them Up at Night

Their concerns were practical and honest:

• Could they both realistically retire before Medicare age, or was that wishful thinking?
• Jane's instinct was to turn on Social Security at 62 and leave the 403(b) alone, but was that actually the right move?
• Should Jack claim Social Security early too, or wait?
• How much cash should they actually keep in savings?
• Was $7,500 per month really what they needed, or was that number wrong?

They weren't overthinking it. They just wanted to know if the life they were imagining was actually within reach.

The Hidden Trade-Offs

It all seemed pretty clear, aside from the parts that weren't.

Almost every dollar they had saved was sitting in pre-tax accounts. That created a not-yet-noticed but significant problem: every withdrawal in retirement would be fully taxable. RMDs could eventually force large taxable distributions whether they needed the money or not, and the tax bill in their 70s and 80s could be substantially larger than they were even aware of.

Meanwhile, the decision to claim Social Security at 62, which felt like the practical, "get it while we can" move, carried real long-term consequences for survivor income and lifetime benefit totals.

And the $7,500 per month spending figure? It turned out to be inaccurate. Meaningfully.

Jack and Jane didn't need to be sold a magic pill product. They needed a complete picture.

How We Were Able to Help

When we asked Jack and Jane what they needed per month in retirement, they said $7,500, based on what was left in their checking account after everything came out of their paychecks.

The problem: their paychecks were already net of health insurance premiums, retirement contributions; they had a mortgage payment with less than three years left.

Retirement contributions would go away. Their tax bill could be lower. Health insurance was still an undetermined cost, but since it would be sans tax savings, it'd likely be more than what they paid through the employer. The mortgage was temporary, though taxes and insurance (currently escrowed) would not be temporary.

None of these costs were showing up correctly in their mental math. 

After adjusting:

Health insurance would need to be replaced until Medicare (ages 61–65)
Retirement contributions would stop when Jack retired, and the mortgage payments would too, within the first few years (or all at once, depending on how they chose to use their cash/CDs)

Their actual spending target, when accounting for leisure plans and reducing the cost of gas for the work commute, was closer to $8,500 per month in the early years, stepping down nearly $1,000 once the mortgage was paid. Getting this number right was the foundation everything else was built on. Their assumption as accurate in a few years, but not if Jack retired immediately.

2) Pre-Medicare Healthcare: The Cost That Almost Stopped Them

The pre-Medicare years were their biggest fear. With Jack on employer coverage now, Jane was covered. But once Jack retired, they would both need to find coverage for up to four years. When Jack found pricing, he almost caused himself a visit to the ER, and it was the crux of their monthly spending estimate:

$1,900 per month to replace the coverage they had through his employer. Versus paying even more to retain COBRA coverage for up to 18 months. Jack wanted to retire, but maybe not that badly. Yikes.

The good news? It was workable, with the right income strategy.

By managing their taxable income carefully in the early retirement years - drawing from their IRA to the standard deduction amount, and then drawing from savings and CDs, and delaying Roth conversions that we'd lightly discussed until age 65 - they could potentially qualify for ACA marketplace subsidies and significantly reduce their out-of-pocket premium costs.

They were shocked. They told me there was no way.

The pre-Medicare window was not a wall. It was a planning problem with a real solution. In my mind: if there's almost no healthcare cost, then we reduce the needed monthly income by up to $1,900.

3) Social Security at 62: Jane's Instinct Was Understandable, but Costly

Jane's plan to claim at 62 made emotional sense. Get the income flowing, reduce the pressure on savings.

When we modeled the numbers across three scenarios, claiming at 62, at full retirement age (FRA), and at 70, a clearer picture emerged:

Claiming at 62 locked in a permanent reduction of over 30% compared to her full retirement age benefit

Jack's higher lifetime earnings meant his benefit carried more weight - especially for survivor income

• An improved strategy: Jane files near her full retirement age (66), Jack delays to 68 or later.

This approach increased their guaranteed household income in the second half of retirement and provided meaningful protection for whichever spouse outlives the other. For a couple with no pension income, that guaranteed floor matters immensely.

Once they saw the lifetime projections side by side, the early-claim instinct faded quickly.

4) The 100% Pre-Tax Problem, and a Roth Conversion Strategy

Having nearly all of their savings in pre-tax accounts is not unusual. It is, however, expensive if left unaddressed.

Once RMDs begin at age 75, they would be required to withdraw a growing percentage of those accounts each year - fully taxable, regardless of whether they needed the money. Based on projected account growth, their combined RMDs in their late 70s and 80s were on track to push them into higher tax brackets and trigger IRMAA surcharges on Medicare premiums.

Here is where the plan took an unexpected turn.

Jack felt good about the overall direction. But when he sat with it, he decided he wasn't quite ready to walk out the door. Not out of fear - out of clarity. Sixteen more months. He'd retire at 63.

That decision changed the math in ways nobody had anticipated coming into the meeting.

Working 16 more months did three things at once:

First, it extended their cash and savings runway, giving them more non-portfolio income to draw on in the early retirement years and reducing pressure on the investment accounts.

Second (and this is the part that surprised them) it opened a Roth conversion opportunity right now, while Jack is still the only earner in the household. With Jane already retired, their combined income had dropped. Converting roughly $60,000 this year pushed them just to the top of the 22% Federal bracket. Not the cheapest conversion they'd ever do, but the timing made it worthwhile: they're still years away from Medicare, so IRMAA is irrelevant. There's no subsidy to protect yet. And the converted dollars immediately become tax-free Roth money they can draw on in the pre-65 gap without adding a single dollar to their AGI.

Third, stopping retirement contributions in year two and redirecting that cash to the mortgage meant they could make a final lump payoff, roughly $20,000, the month Jack retired, walking out of the office with no mortgage payment and no debt.

At retirement, their assets had grown at a healthy rate, to approximately $1.35 million in retirement accounts, plus remaining savings. Their monthly income need had dropped to $5,700: the mortgage payment was gone and the ACA subsidy covering most of their healthcare premium was, well, amazing.

Here is what the drawdown actually looked like, in three phases:

Phase 1 - Retirement to Jane's Social Security (ages 63 to 66, roughly 3 years): With a monthly need of $5,700, effective Federal tax around 18%, and Oregon at 8.5%, their gross distribution need from the portfolio was manageable. The drawdown rate on $1.35 million was approximately 6.9%. Still higher than the old 4% rule of thumb, but sustainable across a defined window - especially with savings and Roth dollars available to mix in and manage the tax exposure.

Phase 2 - Jane's Social Security to Jack's (ages 66 to 68, roughly 2 years): Jane files at her full retirement age and begins receiving $3,300 per month. That income immediately reduces their portfolio dependence. By this point the portfolio had drawn down to roughly $1 million, accounting for distributions and continued Roth conversions between 65 and 68. The drawdown rate on remaining portfolio assets drops to approximately 5.4%.

Phase 3 - Jack's Social Security at 68: Jack files at 68 and begins receiving $3,900 per month. Combined with Jane's $3,300, their Social Security income covers their full monthly need.

Portfolio drawdown rate: 0%.

They stop pulling from investments entirely at 68. The traditional IRA, sitting at roughly $800,000, continues growing toward their looming RMD age, but now with $160,000 to $200,000 in Roth alongside it and $75,000 to $80,000 in savings. The Roth conversions done between 65 and 68, during the low-income years before Social Security, created a tax-diversified balance sheet that gives the surviving spouse real flexibility later in life.

The gap between retirement and the start of Social Security and RMDs is one of the most valuable Roth conversion windows most people will ever have. For Jack and Jane, they started building that window 16 months before they even retired.

5) What to Do With $150,000 in Savings and CDs

Jack and Jane had been disciplined savers. But "how much cash do we keep?" had never been a question they'd actually answered.

With the mortgage paid off at retirement and the monthly need down to $5,700, the savings picture became cleaner. The strategy:

• Direct the redirected retirement contributions in year two toward the mortgage, finishing it off with a final $20,000 payment the month Jack retires
• Retain enough savings to serve as a cash buffer and AGI management tool in the early retirement years - drawing from savings rather than the IRA keeps their reported income low and the ACA subsidy intact, and paying taxes at least partially from savings preserved a larger portion of Roth conversions within the Roth IRA
• Use the Roth balance, built from the current-year conversion and ongoing conversions after 65, as a tax-free income source that doesn't count toward AGI or affect subsidy eligibility
• At retirement, their remaining savings would be lower than the $150,000 they started with, but the mortgage would be gone, the monthly overhead would be reduced, and every dollar of savings would be doing a specific job in the income plan.

Having the right amount in cash, not too much and not too little, is one of the most underrated pieces of a retirement income plan.

6) Reducing Portfolio Risk Without Killing Long-Term Growth

They were right that it was time to reconsider the risk level in their accounts. But "reduce risk" does not mean "go conservative across the board."

With no pension income and a time horizon of 25-30 years, their portfolio still needed to grow. What made more sense:

• A bucketed structure: near-term income needs covered by cash and short-term fixed income, longer-term growth from a diversified equity allocation
• Guardrail-based withdrawal rules that allow for temporary spending reductions if markets decline significantly, without panic-selling at the wrong time
• A risk level calibrated to their actual time horizon, not just their comfort level with a bad headline

7) The Case for a Guaranteed Income Floor

With no pensions, every dollar of retirement income beyond Social Security would come from accounts that move with the market. For many people, that is workable. For others, it can shape every spending decision they make in retirement: the trips they skip, the help they don't hire, the second-guessing during a down year.

We introduced the option of allocating a portion of their retirement assets to a fixed income annuity. Not as a primary strategy, but as a floor. A modest guaranteed income stream, layered on top of an optimized Social Security plan, could:

• Cover essential monthly expenses regardless of market conditions
• Reduce the pressure on portfolio withdrawals during volatile stretches
• Allow the remaining portfolio to stay invested at a higher equity allocation for longer

This is not the right move for every client. But for a couple with no pension, a long time horizon, and a real sensitivity to market uncertainty, a guaranteed floor can be the difference between a plan they follow and a plan they slowly abandon.

Not on the Radar - Surprising Findings

When Jack and Jane came in, several issues had simply never come up:

Their spending number was off by $1,000 per month. The paycheck subtraction method is common and almost always wrong.

IRMAA had never crossed their minds. The idea that Medicare premiums could increase substantially based on retirement income, and that their growing pre-tax accounts could trigger those surcharges in their late 70s and 80s, was news to them.

The 100% pre-tax account structure was a future tax problem hiding in plain sight. Not a crisis, but a known issue with a clear and time-limited window to address it.

A Roth conversion right now, before retirement, made more sense than waiting. With Jane already retired and Jack as the only earner, their combined income had dropped enough to make a $60,000 conversion this year (getting to the top of the 22% bracket) a smart move. No IRMAA risk. No subsidy to protect. Just tax-free dollars being built before they needed them.

Working 16 more months was a planning asset, not just a delay. The extra time extended their cash runway, enabled the current-year Roth conversion, and gave them enough time to redirect retirement contributions to the mortgage and pay it off entirely the month Jack retired.

Estate planning had not been started. No wills, no powers of attorney, no advance directives. With an estate that could grow meaningfully over time, the absence of basic documents created real exposure, especially for the surviving spouse.

Long-term care was a vague concern, not a plan. With enough surplus built through coordinated timing and tax efficiency, self-funding a portion of long-term care costs was more viable than they assumed.

Jack could retire before 65. That was the question they came in hoping to answer. The answer was yes, and the portfolio drawdown would reach zero by the time he turned 68.

The Outcome

Jack and Jane came in wondering if they were being naive. They left with something better than reassurance: they left with a sequence.

Sixteen more months of work. A Roth conversion this year. Contributions redirected to the mortgage next year. A clean retirement at 63, debt-free, with an ACA subsidy cutting their healthcare cost to nearly nothing.

Then three years of manageable drawdown, a reduction when Jane's Social Security starts, and a full stop when Jack's benefit turns on at 68.

At that point, their portfolio, somewhere around $800,000 in traditional IRA money, $160,000 to $200,000 in Roth, and $75,000 to $80,000 in savings, stops being touched entirely. It just grows. The Roth conversions between 65 and 68 create tax diversification that protects the survivor in the future. The delayed Social Security created income they cannot outlive.

The confidence they left with didn't come from being pushed toward higher returns, early benefit claims, or products they didn't understand. It came from seeing the full picture, understanding the trade-offs, and knowing exactly what to do and in what order.

Grandkids in the fall. Road trips in the summer. And a retirement that, as it turned out, was littel more than a year off in the future.

Converting from a traditional IRA to a Roth IRA is a taxable event.

A Roth IRA offers tax free withdrawals on taxable contributions.

To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.