Retiring With $1 Million and a Pension? You Might Be Able to Spend More Than You Think

If you retire with $1 million in savings and a pension, you may be able to spend a lot more of your money than you think. But that same pension can create expensive tax problems — and one pension decision could determine how much income your spouse receives after you're gone.

Let's look at what a $1 million portfolio plus a pension actually means for your spending, your taxes, and your family.

The Example: $102,000 In, $75,000 Out

Picture a 65-year-old who worked for 35 years and saved $1 million in a 401(k) and IRA. Add a pension paying $5,000 a month — $60,000 a year — plus $3,500 a month in combined Social Security. That's $102,000 of annual income before taxes.

Now assume the mortgage is paid off, the kids are independent, and household spending is about $75,000 a year. There's a $27,000 gap between what's coming in and what's going out — and the entire $1 million is still invested.

So what is that million dollars actually for?

Your Investments Have a Different Job

When your pension and Social Security already cover your lifestyle, your investments aren't there to pay monthly bills. They're there to fund travel, cover surprises, help family, and make retirement enjoyable.

This is where many retirees get stuck. After decades of watching their savings climb — first $100,000, then $500,000, then $1 million — withdrawing money can feel like breaking something. So they live on the pension, leave the investments untouched, and promise they'll spend it "later."

But later isn't guaranteed. Consider the retiree who has always wanted a month in Europe. Their income covers their expenses, and the savings are there. But spending $20,000 triggers doubt: What if the market crashes? What if I need that money at 85?

Those concerns are reasonable — you genuinely need reserves for emergencies, healthcare, and potential long-term care. But there's a difference between protecting your future and refusing to enjoy the retirement you earned.

One caution before spending more freely: that $27,000 gap isn't all spendable. Taxes on your pension and Social Security come out of it first. Once you know what you're actually keeping, you can decide whether an extra $10,000 or $20,000 a year from your portfolio fits the plan — or doesn't.

Two Threats to Your Pension's Protection

Your pension may cover expenses today, but will it provide the same protection in 20 years? That depends on two factors.

Inflation. A $60,000 pension without a cost-of-living adjustment has the purchasing power of roughly $33,000 in today's dollars after 20 years of 3% annual inflation. That's why your investments may still need to grow even if you're not withdrawing from them.

Survivor benefits. Say your pension offers two options: $5,000 a month for your lifetime only, or $4,300 a month under a joint-and-survivor option that continues payments to your spouse for life.

The single-life option pays $700 more every month — $8,400 a year, or about $168,000 over 20 years. That sounds attractive. But if you die first, that $5,000 payment disappears, and the household generally won't keep both full Social Security checks. Your spouse could suddenly live on significantly less income for another 15 or 20 years.

The biggest monthly payment isn't automatically the best choice. It depends on your spouse's age, health, other income, and needs. Some households evaluate pairing a single-life pension with life insurance, though that brings its own costs and risks.

Here's what makes this decision so important: you could spend 35 years building your savings, make one pension election without understanding the consequences, and leave your spouse with an income shortage that could have been avoided. Depending on your plan's rules, you may not be able to change that decision later.

The Tax Problem Growing Inside Your 401(k)

While your pension pays the bills, your investments are growing. That sounds great — until you remember most of it sits in a traditional IRA or 401(k), which is a future tax bill.

Take someone who is 65 in 2026. Under current rules, people born in 1960 or later generally begin required minimum distributions (RMDs) at 75. Leave the $1 million invested at roughly a 7.2% average annual return, and it could grow to about $2 million in 10 years — returns aren't guaranteed, but that's the illustration.

The first RMD on $2 million would be roughly $81,300. That money must come out whether you need it or not. Stack it on top of a pension and Social Security, and those forced withdrawals could push you into higher tax brackets, make more of your Social Security taxable, and trigger higher Medicare premiums.

The irony: you saved for decades to avoid running out of money, and now you might pay more in taxes precisely because you never needed to withdraw it. That's why the years before RMDs begin are so valuable — for strategic withdrawals, Roth conversions, or a deliberate decision to leave things alone. Each option depends on your tax situation, future income, Medicare costs, and estate goals. The key is running the numbers while you still have flexibility.

Your Kids May Inherit a Tax Bill

There's another reason tax planning matters: your children.

Suppose your pension covers your living expenses and you pass away with a large traditional IRA. Your two children inherit it. Under current rules, many adult children must empty an inherited IRA within 10 years (with exceptions depending on the circumstances).

If each child inherits $750,000 and spreads withdrawals evenly, that's $75,000 of taxable income a year. Now imagine that child already earns $150,000. The inheritance could stack $75,000 on top of it annually — a significant tax burden.

That raises a question worth asking: would paying some tax during your retirement, perhaps through carefully planned Roth conversions, reduce what your family pays in total? Not always. But it's worth evaluating while you still have choices.

One Update for Public Pension Holders

If you're a retired teacher, firefighter, or government employee: the Social Security Fairness Act, signed into law in 2025, eliminated two provisions that previously reduced benefits for people receiving pensions from jobs not covered by Social Security. If those rules affected you, confirm your current benefit estimates reflect the change. It won't apply to every pension holder, but for eligible households it can make a meaningful difference.

The Bottom Line

Retiring with $1 million and a pension can put you in an excellent financial position. Your guaranteed income may cover most or all of your regular expenses, and your investments can fund the retirement you actually want. But you still face important decisions about spending, inflation, survivor benefits, taxes, and inheritance — and some become difficult or impossible to reverse once they're made.

The goal isn't simply to avoid spending what you've accumulated. It's to understand what your pension makes possible and use your investments wisely. Having $1 million saved is an accomplishment. Knowing what to do with it is what makes the difference.

If you're approaching retirement with a pension and a substantial account, don't assume that having enough income means your plan is finished. Schedule a call with Stegent Equity Advisors, and we'll review your retirement income, investments, taxes, and survivor benefits — so you can identify what deserves attention now and move into retirement with a clearer plan for your money and your family.