When it comes to retirement planning, people often think in broad strokes: save enough, invest wisely, draw down carefully. The devil is in the details, however, and the biggest shocks in retirement don’t always come from market swings. They come from rules buried deep in the tax and benefits system.
One of the most surprising examples is what’s known as the “$1 More Rule.” It refers to situations where earning just one extra dollar of income can trigger outsized consequences. That single dollar can push you over a threshold that changes how your benefits or taxes are calculated, creating ripple effects that cost far more than the income itself.
For example:
- Medicare premiums (IRMAA): Cross a certain income threshold, and even by a dollar, your monthly Medicare premiums jump hundreds of dollars for the year.
- Social Security taxation: Additional income can increase how much of your Social Security benefit is taxable.
- Tax credits or deductions: A slight income bump may phase you out of valuable credits or deductions, raising your overall tax bill.
Each of these cliffs works differently, but the principle is the same: small, unexpected income can cascade into big changes. That might be a capital gain from selling investments, some part-time consulting work, or even a required minimum distribution (RMD) that was larger than expected.
The takeaway isn’t that you should avoid earning more. It’s that planning ahead matters. By being aware of these thresholds, you can make informed choices about when to realize income, how to structure withdrawals, or whether it makes sense to spread income across multiple years.
These aren’t always easy decisions to spot on your own. A good retirement plan doesn’t just model investment returns—it anticipates the hidden cliffs and stress-tests your income streams against them.
If you want to see how the “$1 More Rule” could affect your retirement income, and how to plan around it, let’s talk.