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Reaching $1 million in your retirement savings is a major milestone, one that many Americans may never achieve. But what you may not realize is that hitting that number doesn’t mean you get to decide exactly how and when to access the funds in your retirement account — at least not entirely. That’s because, once you reach a certain age, the federal government steps in with its own set of rules, requiring you to start pulling money out of your tax-deferred accounts on a specific schedule, regardless of whether you actually need the income.
Those retirement withdrawal rules are perhaps now more relevant than ever. After all, market turbulence, persistent inflation and rising concerns about longevity risk have pushed retirement planning into sharp focus for millions of Americans. And as retirees increasingly rely on traditional IRAs and 401(k)s to fund their later years, the mechanics of how and when they must take withdrawals can have sweeping consequences for their tax bills, their Social Security benefits and the long-term durability of their savings.
So, what’s the minimum you’re required to withdraw each year on a retirement account with a $1 million balance? Knowing that answer — and what that could mean for your broader financial picture — is a critical piece of the retirement planning puzzle.
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What is the minimum you’re required to withdraw on a $1 million retirement account?
Required minimum distributions (RMDs) are mandatory annual withdrawals that the Internal Revenue Service (IRS) requires from most tax-deferred retirement accounts, including traditional IRAs and 401(k)s. Under current rules, most retirees must begin taking RMDs at age 73. The amount you owe each year is calculated using a straightforward formula:
- Account balance ÷ life expectancy factor = RMD
The life expectancy factor comes from the IRS Uniform Lifetime Table, which outlines this information by age. For a retiree with a $1 million balance, here’s how the minimum withdrawal math breaks down at different ages:
- Age 73: The life expectancy factor is 26.5 at age 73, which means a $1 million balance would require a minimum withdrawal of roughly $37,736 per year.
- Age 75: With a factor of 24.6 at age 75, the required withdrawal climbs to approximately $40,650 per year.
- Age 80: The life expectancy factor drops to 20.2 at this point, pushing the annual RMD for an 80-year-old retiree to about $49,505.
What the calculations above illustrate is that your life expectancy factor decreases with age, and the percentage of your account you’re required to withdraw increases each year alongside it. And that’s true even if the market has taken a bite out of your retirement balance.
The tax implications of retirement withdrawals compound this. Required minimum distributions from traditional tax-deferred accounts are treated as ordinary income by the IRS, meaning a larger required withdrawal can push you into a higher tax bracket, trigger increased taxation of your Social Security benefits or drive up your Medicare premiums through income-related adjustment amounts, commonly known as IRMAA surcharges.
The penalty for missing an RMD is also worth noting. While recent legislation reduced the maximum penalty, you can still face a charge of up to 25% of the amount that should have been withdrawn, which is a steep price for an otherwise avoidable oversight.
If you hold multiple retirement accounts, though, the logistics get more complex. IRA RMDs can often be aggregated and taken from a single account, but 401(k) withdrawals must generally be taken from each account individually.
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What retirement investments should you add to your portfolio right now?
Retirees are navigating a complicated investment landscape right now. Inflation is elevated and rising, interest rates are still relatively high and market volatility hasn’t disappeared, prompting many investors to revisit how their retirement portfolios are structured.
For some, that could mean adding more income-producing investments. For example, certificates of deposit (CDs), Treasury securities, money market accounts and high-yield savings accounts are still offering competitive returns compared to recent years, providing a way to generate steady interest while preserving capital.
Dividend-paying stocks are also appealing to many retirement investors. Established companies with strong dividend histories can provide both income and long-term growth potential, helping retirees keep pace with inflation over time.
Annuities are another option worth considering, especially for those looking for a predictable monthly income. Fixed annuities, in particular, can supplement Social Security payments and reduce pressure on retirees to withdraw heavily from investment accounts during market downturns.
Gold is also attracting renewed attention. Gold prices climbed sharply earlier this year amid inflation concerns, geopolitical tensions and economic uncertainty, and while they’ve moderated somewhat in the time since, they’re still high, especially by historical standards. While gold doesn’t generate income like stocks or fixed-income investments, many retirees use it as a diversification tool and potential hedge against market volatility.
The bottom line
If you’ve built a $1 million retirement account, the IRS has a clear say in how you access it once you reach age 73. Your required minimum withdrawal will depend on your age and current account balance, and it will rise over time — potentially reshaping your tax picture and broader income strategy in ways that demand careful attention. At the same time, the investments you hold alongside those accounts still matter, so make sure you’re regularly optimizing your portfolio to fit your needs while ensuring that you’re adhering to the withdrawal requirements to avoid costly but unnecessary penalties along the way.
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