Tax brackets for retirees: marginal vs. effective rate and why it drives every decision
"I'm in the 22% bracket" is one of the most misleading sentences in retirement planning. It sounds like you pay 22% on everything; you don't. The bracket you're in tells you what your next dollar costs, which is exactly the number retirement decisions turn on. Runway shows both rates; this post explains the difference with the 2026 numbers.
How do tax brackets actually work?
The IRS: "You pay tax as a percentage of your income in layers called tax brackets," and "when your income jumps to a higher tax bracket, you don't pay the higher rate on your entire income" — "you pay the higher rate only on the part that's in the new tax bracket" (IRS tax rates and brackets). Brackets apply to taxable income: what's left after your deduction.
What are the 2026 brackets and deductions?
From IRS Revenue Procedure 2025-32, taxable income up to each limit:
| Rate | Married filing jointly | Single |
|---|---|---|
| 10% | $24,800 | $12,400 |
| 12% | $100,800 | $50,400 |
| 22% | $211,400 | $105,700 |
| 24% | $403,550 | $201,775 |
| 32% | $512,450 | $256,225 |
| 35% | $768,700 | $640,600 |
| 37% | above | above |
The 2026 standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers, plus an additional $1,650 for each person 65 or older (married) — so a couple who are both 65+ deduct $35,500 before the first dollar is taxed. (Capital gains have their own rates; see the 0% bracket.)
Marginal vs. effective: what does that look like?
Runway's engine, for a married couple (both 65+) whose income is all ordinary income — IRA withdrawals, pension, taxable Social Security, interest:
| Ordinary income | Taxable income | Federal tax | Effective rate | Marginal rate |
|---|---|---|---|---|
| $70,000 | $34,500 | $3,644 | 5.2% | 12% |
| $90,000 | $54,500 | $6,044 | 6.7% | 12% |
| $140,000 | $104,500 | $12,414 | 8.9% | 22% |
| $220,000 | $184,500 | $30,014 | 13.6% | 22% |
Between $90,000 and $140,000 of income the couple's marginal rate jumps from 12% to 22%, but their effective rate only rises from 6.7% to 8.9%. The effective rate tells you what you've paid so far; the marginal rate tells you what the next decision costs.
What does this look like over a retirement?
Income rarely stays still. Here are the sample household's years from Runway's multi-year projection (Pat 65 and Alex 64, $95,000 of spending, Social Security claimed at 69 and 68), by Pat's age:
| Pat's age | Ordinary income | Federal tax | Effective rate | Marginal rate |
|---|---|---|---|---|
| 70 | $43,982 | $1,178 | 2.7% | 10% |
| 75 | $95,769 | $7,132 | 7.4% | 12% |
| 80 | $120,449 | $10,094 | 8.4% | 12% |
| 85 | $140,379 | $13,223 | 9.4% | 22% |
The early years sit in the 10% and 12% brackets and are cheap years to realize income in. By the mid-80s the same household is in the 22% bracket because Social Security income and withdrawals from the IRAs have both grown. That gap — low brackets now, higher ones later — is the entire case for moving income earlier.
Why does the marginal rate drive every decision?
- Roth conversions. Converting is paying tax now at today's marginal rate to avoid a higher one later. "Fill the 12% bracket" means converting until your taxable income reaches the top of the 12% bracket. See when a conversion pays off.
- Withdrawal order. Pulling from a traditional IRA adds ordinary income at your marginal rate; selling investments with a long-term gain may cost less. See taxable accounts.
- Other thresholds ride on income too. Taxable Social Security, ACA subsidies and IRMAA all respond to the same income, so the true marginal cost of a dollar can be more than the bracket shows.
See your bracket year by year. Runway projects your income and tax for every year of retirement — free to start, no credit card required.
Try the plannerHow were these numbers computed?
The bracket and deduction figures are from IRS Revenue Procedure 2025-32 (2026 tax year). The first table is Runway's federal tax calculation for a married couple filing jointly, both 65 or older, all ordinary income, with the marginal rate measured on the next $1,000. (At incomes where a bracket boundary falls inside that $1,000, the marginal rate would blend two rates; the incomes shown avoid that.) The second table is from the multi-year projection for the sample household with default market assumptions and no state income tax, in today's dollars.