Her budget is not $71,600 of muni interest. It is $71,600 of anything.

This article first appeared in The Nest Egg, my daily email, on 2026-09-30. Read the original issue. It is educational, not a recommendation for you. The household in it is a hypothetical example, and market figures are as of the date shown and will have changed.

Every figure below names its document. Every calculation is shown. Nothing here is a forecast.

Good morning. Crude settled down 3.48% at $89.38, back under $90 for the first time in two weeks, and the long end barely moved. Then the smallest number this letter has run, which turns out to have the sharpest edge.

In today's issue

The tape. Oil gave up 3.48%, gold steadied, and the 30-year is at 5.584%. Two minutes.

$71,600. Yesterday's instruction was right about the number and wrong about what it counts. Four minutes.

$12,416.85. Five places it could go, each priced by what it does to her Medicare income. Four minutes.

One more thing. The one instrument that fits, and the federal limit that only lets 81% of it in. One minute.

The tape

Closing levels and session changes, CNBC US markets, September 29, 2026. Gold and WTI crude are front-month futures settlements, measured settlement to settlement; the gold contract is December 2026 and crude is November 2026, unchanged. Treasury yields are quoted to three decimals and the change is in basis points.

The story

Yesterday this letter ended with an instruction: buy $71,600 of tax-exempt interest, and stop.

The number is right. The instruction is wrong, and the error is the same shape as the one we corrected on Tuesday. It describes the wrong quantity.

Her Medicare income is not municipal interest. It is every countable dollar the portfolio produces, of any kind, from any holding. Municipal interest happens to be one of them, because 42 U.S.C. 1395r counts tax-exempt interest in full.

So $71,600 is not a municipal bond budget. It is a budget for everything.

The position

Her taxable Social Security caps at $37,400 and does not move again. The single Medicare threshold is $109,000. The gap between them is $71,600, and it has to cover every dollar of interest, dividends, capital gain distributions and taxable withdrawals she receives in a year.

Fill it entirely with municipal interest at a 4.51% yield to maturity and the ladder holds $1,587,583.15. That leaves $12,416.85, which is 0.78% of the ladder and 0.44% of the household.

And that $12,416.85 now has a constraint attached that nothing else in this portfolio has. Her remaining headroom is zero. Not small. Zero. Whatever it buys has to produce no countable income at all, or the ladder has to shrink to make room for it.

The arithmetic

Option one. A Roth. $0 of countable income.

Nothing inside a Roth reaches her Medicare income, ever. It is the only perfect answer.

It is also the only one that has to be bought. Adding $12,416.85 to last Thursday's year-of-death conversion takes it from $166,465.31 to $178,882.16. Her taxable income goes from $168,365.31 to $180,782.16, still inside the 22% joint bracket, so the extra costs $2,731.71.

Her Medicare income that year goes to $269,562.16, which is $4,437.84 under the $274,000 line. It fits, with room.

Option two. Series I savings bonds. $528.96 of income, $0 countable.

The current composite rate is 4.26%, including a 0.90% fixed rate, for bonds issued May 1 through October 31. Federal tax on the interest is deferrable until she redeems them, and they are exempt from state and local tax entirely.

Deferred interest is not countable interest. On $12,416.85 that is $528.96 a year of return that her Medicare income never sees. It is the best answer on this list that does not require buying anything first.

There is a limit. We will come back to it.

Option three. A broad equity index fund. $130.38 of income, all of it countable.

Vanguard's total market fund yields 1.05%. On $12,416.85 that is $130.38 a year of dividends, and every cent lands in her Medicare income.

To make room the ladder has to fall by $130.38 divided by 4.51%, or $2,890.84.

So she gives up $130.38 of municipal interest to collect $130.38 of dividends. Exactly a wash on income, and she gets $12,416.85 of equity exposure for it. That is the trade, and it is close to free.

Option four. Treasury bills. $460.67, all countable.

The 1 to 3 month bill fund yields 3.71%. That is $460.67 a year, fully countable, which forces the ladder down $10,214.31. She surrenders 82% of the position's value in ladder capacity to hold cash that will not grow.

Option five. Treasury STRIPS. The trap.

STRIPS look like the deferred-interest answer because they pay nothing until maturity. They are the opposite. Original issue discount accrues and is taxable every year, on cash that does not arrive.

Priced near the 10-year, which closed at 5.251%, call it 5.20%: that is $645.68 of phantom income a year, pushing the ladder down $14,316.55, to fund a Medicare surcharge with money the bond will not pay her for a decade.

Left: five destinations for the $12,416.85 the municipal ladder cannot hold, each priced by the income it produces, how much of that income counts toward her Medicare threshold, and how far the ladder must shrink to make room. Right: the same question at ten times the size. Fund yields from CNBC on September 29, 2026 and iShares on September 25; Series I savings bond rate and purchase limit from TreasuryDirect. Medicare thresholds and the two-year lookback: 2026 Part B and Part D income-related monthly adjustment amounts, Centers for Medicare & Medicaid Services. Hypothetical illustration of published rates, built to show arithmetic. Not a projection of any reader's result and not a recommendation.

What the four of them would say

The portfolio manager. The equity fund is the answer, and not because of the tax. $12,416.85 of stock is the first dollar in this household with an uncapped outcome. Everything else we have built for her is a ceiling: $71,600 of income, $109,000 of Medicare income, a bracket, a threshold. Twelve thousand dollars will not change her life, but it changes the shape of the portfolio from entirely bounded to slightly unbounded, and the cost of doing it is a $2,890.84 reduction in the ladder.

The CPA. Notice what does the work in every one of those five rows. Not the tax rate. Her taxable income is $19,250 and she is in the 12% bracket; the federal income tax on any of this is close to nothing. What moves the numbers is a cliff that is not in the tax code at all, and the interest that trips it is interest Congress already declared exempt. Tax-exempt on the 1040, fully counted on the Medicare form. Both statements are true at the same time.

The financial planner. Two days ago I told you to buy $71,600 of tax-exempt interest and stop. That was a rule about one asset class written for a household that owns several. The rule that actually holds is: her income budget is $71,600 and every holding draws on the same account. Write the budget, not the shopping list. A rule that names a product will break the first time she owns something else.

The estate attorney. The Roth line has a detail worth sitting with. It costs $2,731.71 and it fits under the $274,000 line with $4,437.84 to spare, but only inside the year-of-death window, and only after the account has been retitled to her. Every clean answer we have found this month runs through that same four-month window. At some point the plan stops being a portfolio question and becomes an instruction letter.

One more thing

The I bond is the best instrument on that list. Return with no countable income is exactly what the constraint asks for.

One Social Security number may buy $10,000 of electronic I bonds in a calendar year. That is the limit, and it is a hard one.

So the answer to $12,416.85 is: $10,000 of it fits, earning $426 a year her Medicare income never sees, and $2,416.85 does not.

The cap covers 81% of the problem. Scale the leftover to $124,168.51, which is what this question looks like in a household with $16,000,000 instead of $1,600,000, and the same cap covers 8%.

That is worth knowing before you build a plan on it. The instrument that solves this perfectly is the one that stops working the moment the problem is large enough to matter.

Tomorrow

Tomorrow is October 1, and this household is now carrying a list of decisions that all expire on the same date.

The conversion. The retitling. The required distribution. The charitable transfer. The $10,000 that resets on January 1 and can be bought twice in five weeks if you know the calendar.

Tomorrow we put every December 31 deadline on one page with the dollars attached, because a decision with a deadline and no date on a calendar is not a decision.