Key Takeaways
- Affluent investors in HSBC’s latest survey think they need $1.26 million to retire, and on average they’ve saved 49% of it.
- A married couple, both 65, taking 4% a year from $1.26 million in a 401(k) would owe just $290 in federal income tax in 2026 and keep $4,176 a month.
- Half that nest egg, $630,000, pays $2,100 a month at the same rate, with no federal income tax at all.
- The $12,000 senior deduction ends after 2028, and Social Security benefits can add to taxable income once they start.
If you’ve ever wondered what a seven-figure nest egg actually pays in retirement, HSBC just gave us a good number to test. Affluent investors think they need $1.26 million to retire, according to new research from HSBC, conducted by Ipsos and published Oct. 21. That’s 20% more than the target in HSBC’s survey a year earlier. It’s an average across 9,993 people aged 21 to 69 in the 10 markets HSBC covered, each with $100,000 to $2 million to invest.
The catch? On average, they’ve saved just 49% of it.
That’s a big gap. But $1.26 million is hard to picture until you turn it into a monthly check. The good news is that the IRS takes a lot less of that check than you might think.
Let’s put $1.26 million to work
Let’s take a hypothetical married couple, both 65, with $1,260,000 in a 401(k). They’ve stopped working and are holding off on Social Security for now, so the 401(k) is their only income. Say they withdraw 4% a year, which is a common rule of thumb and my assumption here. That’s $50,400 a year. Since it all comes out of a pretax account, every dollar of it counts as taxable income.
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They can deduct $47,500 before owing a dime
Start with the standard deduction: the IRS’s 2026 figure for married couples filing jointly is $32,200. Each spouse who’s 65 or older adds $1,650 to that, so this couple gets another $3,300. Then there’s the IRS’s enhanced deduction for seniors: an extra $6,000 for each person 65 or older, or $12,000 for a couple who both qualify. It starts to phase out for joint filers once modified adjusted gross income passes $150,000. At $50,400, this couple is nowhere close. Add it all up, and they can take $47,500 off their income before the IRS taxes a dollar of it.
A $290 tax bill
That leaves $2,900 of taxable income. In 2026, the first $24,800 of a married couple’s taxable income is taxed at 10%. So their federal income tax comes to $290, less than 1% of what they took out. Subtract it, and they keep $50,110 for the year, or $4,176 a month.
Now take the savers who are halfway there. Half of $1.26 million is $630,000, and 4% of that is $25,200 a year, or $2,100 a month. That’s well under the couple’s $47,500 of deductions, so they’d owe no federal income tax at all. The table below sets the two nest eggs side by side:
| Metric | $1,260,000 | $630,000 |
|---|---|---|
| Yearly withdrawal at 4% | $50,400 | $25,200 |
| Deductions | $47,500 | $47,500 |
| Taxable income | $2,900 | $0 |
| Federal income tax | $290 | $0 |
| Monthly, after federal tax | $4,176 | $2,100 |
Either way, the tax is small change, and the monthly check comes down to how much the couple saved. And $2,076 a month is a lot of groceries.
There’s room to draw more in the low-tax years
For a couple like this one, federal taxes are about as low as they’ll get between the last paycheck and the first Social Security check. In 2026 they could withdraw up to $72,300 and pay no more than 10% on any of it. That’s their $47,500 of deductions plus the $24,800 taxed at 10%. Above that, the 12% rate runs up to $100,800 of taxable income for joint filers, and only past that does the rate climb to 22%. Pulling some income forward, with bigger withdrawals or Roth conversions, is a trade-off each couple has to weigh against how long they need the money to last.
Enjoy it while it lasts
Frankly, $1.26 million buys more than I’d have guessed once the IRS gets its cut: this couple keeps more than 99 cents of every dollar they withdraw. The savers with half that have a harder road, since $2,100 a month is their whole check until Social Security starts.
But the senior deduction only runs from 2025 through 2028. At this year’s figures, losing that $12,000 would raise the couple’s taxable income to $14,900 and their federal tax to $1,490. That cuts the monthly check to $4,076. The IRS adjusts the standard deduction and the brackets for inflation each year, so the real figures will be different by then. And once the couple claims Social Security, part of their benefits can become taxable on top of the same 401(k) withdrawals, so these near-tax-free years have an end date.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
