How 3% Inflation Impacts Retirement: Beyond 60/40

Old-school 60/40 vs. 2025 reality: why 3% inflation still bites

Old-school 60/40 had a clean pitch: steady bonds, modest inflation, stocks get you growth, and the blend smooths the ride. That playbook worked when inflation sat near 2% for years and core bonds behaved like ballast. Today’s reality is messier. We still call 3% inflation “normal,” and fine, it is by historical standards, but it’s not harmless, especially when you stretch a retirement out 25-30 years and the sequence of returns in your first decade can make or break the whole plan.

Quick gut-check on the math: at 3% inflation, prices double in roughly 24 years. Put differently, the purchasing power of a fixed $1 falls by about 52% over 25 years ((1.03^25 ≈ 2.09) so you need twice as many dollars) and about 59% over 30 years ((1.03^30 ≈ 2.43). That’s not academic, if your grocery bill is $800 a month today, plan for ~$1,600 three decades from now, which, yes, feels a little absurd when you say it out loud. And here’s the kicker: spending rarely inflates evenly, healthcare tends to run hotter than headline CPI, and travel doesn’t get cheaper either. I’ve watched too many retirees get blindsided by that second decade.

What’s different now? A few things. Lifespans are longer, per Social Security and actuarial tables, a 65-year-old couple has roughly a 50% chance one partner lives to 90, so a 25-30 year horizon isn’t “conservative,” it’s realistic. Sequence risk is louder too. We all lived through 2022 when both stocks and bonds fell; the classic 60/40 portfolio dropped on the order of the mid-teens that year while the Bloomberg U.S. Aggregate Bond Index lost about 13% (calendar 2022), its worst year in decades. Bonds did recover some in 2023 (the Agg was up around the mid-single digits), but that damage showed the old “bonds always cushion” line has conditions attached.

But cash paid 5% recently, isn’t that enough? In 2023-2024, cash and T‑bills hovered near 5% as the Fed held policy at 5.25-5.50%. That was unusual, and helpful in the moment, but cash isn’t a long-term inflation hedge. If CPI runs near 3%, and it’s been hovering around there on a 12‑month basis through much of 2025, earning 5% for a year feels good, but over time short rates move; they’re cyclical, not a plan. The spread over inflation compresses, then vanishes, then you’re left with taxes and reinvestment risk. I still keep an ample cash bucket for clients, but it’s a runway, not the destination.

Here’s my take, and it’s just that, one informed take: the 60/40 can still work, but it needs a tune‑up to target real (after‑inflation) return and to handle the first 5-10 years of withdrawals without panic selling. And yes, the long-run average nominal return of a plain‑vanilla 60/40 is somewhere around 7%, give or take, but averages don’t pay your bills when your first three years are down and inflation quietly keeps knocking 3% off the top each year.

The point: 3% feels calm; over a 30‑year retirement it’s compounding erosion. Your plan needs durable, after‑inflation growth, not just nominal comfort.

What you’ll learn in this section of the guide:

• Why the traditional 60/40 relied on stable bonds and low, steady inflation, and why that assumption cracked in 2022
• How 3% inflation compounds into a serious drag over 25-30 years (with simple math you can sanity‑check)
• Why cash’s 2023-2024 yield “holiday” was helpful but temporary, and not a real hedge
• How sequence risk and longer lifespans change withdrawal math and portfolio design in 2025
• What it means to build for real return, and how to think about risk without pretending there’s a perfect answer, because there isn’t, and that’s okay

The sneaky math: what 3% does to your retirement paycheck

Three percent sounds harmless. It reads like a rounding error. But over a retirement that can run 25-35 years, it quietly shaves down your spending power. I’ve sat across the table with plenty of folks who swore they’d be fine with a flat paycheck. Five minutes with a calculator later, they’re not so sure. Here’s the plain-English version.

First, a sanity check with the Rule of 72: at 3% inflation, prices roughly double in about 24 years (72 ÷ 3 ≈ 24). That means a $1,000 property tax bill today becomes about $2,000 two decades and change from now without anything “bad” happening, just steady 3% inflation.

1. Compounding over 30 years: 1.03^30 ≈ 2.43. Prices are about 2.43x higher after three decades.
2. Purchasing power hit: If your income stays flat, your real spending power is cut by roughly 59% (1 ÷ 2.43 ≈ 41%; 100% − 41% ≈ 59%).
3. Translate it to a paycheck: If an $80,000 after-tax lifestyle works today, you’ll need roughly $195,000 in 30 years just to stand still at 3% (80,000 × 2.43 ≈ 194,400). Not nicer vacations. Same cart of groceries, same utilities, same basic life.

And here’s where it pinches in real life. Not all budget lines inflate at the headline CPI rate, and some are “services-heavy,” which tend to have stickier inflation.

• Housing taxes/HOA: Property taxes often track assessed values and levy rates, and HOAs price labor and materials. In practice, these can rise faster than the CPI benchmark during housing upswings.
• Insurance: Home and auto premiums are up meaningfully in recent years because of repair costs, catastrophe losses, and reinsurance. Even if headline CPI cools, insurers reprice annually. Retirees feel this line item more than they expect.
• Healthcare: Medical inflation doesn’t move in a straight line, but retiree out-of-pocket cost trends have historically run ahead of headline CPI at times. Medicare premiums, supplemental coverage, and drug plans add a steady drumbeat.
• Services-heavy spending: Anything labor-intensive, home maintenance, dining out, personal care, tends to embed wage growth. That’s sticky. If you like convenience (and who doesn’t in your 70s), budget for it.

But wait, I said something earlier about a flat paycheck. To be super clear: a nominally flat withdrawal plan feels safe because the dollar number doesn’t change. In real terms, though, it’s stepping down the stairs, one quiet year at a time. Year 1 feels fine. Year 12 is tighter. By Year 24, you’re in “what happened?” territory.

One more way to see it, because sometimes the second lens clicks better:

• At 3%, the “half-life” of your dollar’s buying power is about 24 years.
• At 3%, a 10-year span lifts prices by ~34% (1.03^10 ≈ 1.34). That’s your first decade of retirement right there.
• At 3%, a 20-year span is ~81% higher prices (1.03^20 ≈ 1.81). That’s the second decade.

The takeaway: A plan that doesn’t grow after inflation is a plan that shrinks. You can’t cut lattes for 30 years to make up the gap.

Real markets matter here. The cash yield “holiday” from 2023-2024 helped retirees keep up with living costs for a bit, but cash doesn’t historically outpace inflation over full cycles, and yields move. The right response isn’t chasing the hottest asset, it’s building a mix with a fighting chance at real growth while acknowledging risk. And yes, that means accepting some bumps so your future self isn’t stuck trimming essentials like insurance or meds because the quiet 3% kept marching.

Rethinking the 4% rule when inflation runs ~3%

The original “4% rule” came from William Bengen’s 1994 paper using U.S. data back to 1926. He tested a simple policy: start at 4% of your initial portfolio, then raise that dollar amount by inflation each year, and hold roughly 50-75% in U.S. stocks with the rest in intermediate Treasuries. In his worst historical start date (the mid‑1960s), that still lasted 30 years. Later work (Bengen again in the late 1990s) suggested closer to ~4.5% with a small-cap tilt, but same idea. It’s a guide, not a guarantee, conditions change, taxes exist, fees matter, sequences bite.

At ~3% inflation, the real arithmetic gets tight fast. If long-run real stock returns are around 7% (call it 6-7% net of some fees/taxes in real life), and bonds earn ~1.5-2% real over time, note: 10‑year TIPS real yields have hovered near 2% at points this year, then a balanced mix can support real withdrawals. But not in a straight line. We’ve had back‑to‑back odd years: 2022’s drawdown with high CPI, a big equity rebound in 2023, and mixed pockets earlier this year depending on your sector tilt. Cash looked great in 2023-2024; today, short rates aren’t what they were last year and they wiggle. That’s the point: static rules suffer when reality meanders.

I prefer flexible guardrails instead of a single number. You set a target rate and a band, then adjust as markets move and inflation shows up on the receipt at the pharmacy.

• Start with a range, not a point: Think 4-5% as your initial band for a 30‑year horizon if you’re equity‑heavy (60-70% equities) and costs are controlled. If you’re more conservative or have higher fees, bias to the low end.
• Annual inflation adjustments with a cap: Give yourself a cost‑of‑living raise each year, but when the portfolio falls (say, calendar‑year return is negative), cap the raise, e.g., the smaller of actual CPI and 1%, or even skip it once. That one small brake materially reduces sequence risk.
• Build a 5-10 year “spending runway” in safe assets: Hold near‑term withdrawals in cash, T‑bills, short/intermediate bonds, and TIPS. That lets you avoid selling stocks right after a bad year. Personally, I sleep better when the next 7 years of planned withdrawals are ring‑fenced.
• Define triggers ahead of time: If your portfolio drops, adjust. Example: if withdrawal rate (this year’s dollar spend divided by current portfolio) drifts 20% above your target, cut spending by 5-10% and recheck next quarter. The Guyton‑Klinger decision rules (2006) use similar bands and have held up in tests I’ve seen, though I’m blanking on one footnote detail.

Given the current regime where inflation trends around 3% year‑over‑year in 2025 (headline CPI has bounced near that zone), stress test at both 3% and 4% inflation. That second case isn’t pessimism, it’s just giving yourself margin. Under 3% inflation with a 60/40 and reasonable fees, many plans handle a 4% starting rate if you use the caps and triggers above. Under 4% inflation, you might plan on 3.5-3.8% unless you’ve got strong guaranteed income or you’re willing to flex spending.

Practical checklist: 1) Pick a 4-5% band; 2) pre‑commit to inflation raise caps in down years; 3) hold 5-10 years of withdrawals in cash/bonds/TIPS; 4) set a “cut by X%” rule when returns lag inflation or your withdrawal rate breaches the guardrail. Boring beats heroic.

One last thing: review annually. Markets, taxes, and your real life all change. A tiny tweak when conditions shift is way better than a big, painful cut two years late.

Social Security COLAs help, but they don’t finish the job

Quick refresher on how the cost-of-living adjustment works: Social Security uses the CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers, to set each year’s COLA based on the average CPI-W in Q3 versus the prior year’s Q3. That’s the math behind the big bump we all remember: an 8.7% COLA for 2023 benefits (SSA data), a 3.2% COLA for 2024 benefits, and, announced in October 2024, another 3.2% COLA for 2025 benefits. Those checks kept people afloat when inflation spiked, no question. But there’s a catch that shows up quietly in the monthly budget.

CPI-W reflects spending patterns of workers, it overweights transportation and gas, underweights healthcare relative to many retirees. Retiree medical costs and services can run faster than CPI-W (Medicare premiums, supplemental plans, prescription drugs, pick your headache). When healthcare sprints while gasoline slumps, CPI-W can lag what retirees actually feel. So even with a 3.2% raise this year, your Medicare premiums or Part D plan might eat more than their share. That’s the gap your portfolio has to fill. And yes, it’s annoying. I’ve had clients look at a COLA letter and then a January premium notice and say, “So…net zero?” Not far off some years.

One lever that really matters is when you claim. Delaying to age 70 boosts your base benefit with delayed retirement credits, about 8% per year after full retirement age, and that higher base gets the COLA for life. Translation: you’re not just deferring; you’re building a bigger, inflation-adjusted floor. If markets are wobbly (they’ve been choppy this year with rates sticky and CPI bouncing near ~3%), a larger Social Security floor reduces the pressure on your withdrawals when inflation pops.

But COLA is not a precision tool for your personal inflation basket. That’s why the plan from the prior section matters: you coordinate claiming with withdrawals to keep your real, after-inflation income stable. When COLA undershoots your costs, you pull a bit more from the safer sleeve, cash, short Treasuries, TIPS. When markets are strong and COLA is generous, you can ease off portfolio draws or refill the cash bucket. Simple idea, slightly messy in practice.

Here’s a practical way to stitch it together (and I’m oversimplifying a hair to keep it readable):

• Build your floor: Aim to claim later if health and cash flow allow. Each year you wait to 70 locks in that larger, inflation-adjusted base.
• Map your “personal CPI”: List the 5-7 line items that actually move your budget, premiums, meds, property taxes, groceries, utilities. Track their year-over-year change, not just headline CPI.
• Use TIPS and cash buckets: A 3-5 year ladder for known spending plus a TIPS sleeve hedges years when CPI-W misses your healthcare reality.
• Coordinate raises: If COLA is 3.2% but your budget is up 5%, let the portfolio cover the 1.8-2% gap; if markets are down, cap that gap draw and plan a catch-up when returns rebound (guardrails still apply).

One more nuance I should flag. COLA math is based on last year’s Q3 data. So if prices re-accelerate late in the year (oil spikes, services stay sticky), you might feel the pain before the next COLA shows up. That timing mismatch is why we hold boring buffers. I may be misremembering the exact weight CPI-W gives to medical care, think it’s lower than CPI-E (the experimental elderly index), but the direction is right: healthcare gets less weight than many retirees would choose.

Bottom line: Treat COLA as the first line of defense against inflation, not the whole defense. Your portfolio, especially the cash/TIPS sleeve, and your claiming age handle the rest so your real paycheck stays steady, even when your personal inflation runs hotter than 3.2%.

Bonds, TIPS, and cash: building a real-return core

Here’s the practical stack I use when the goal is spending power first, bragging rights second. The target is simple: after-inflation stability around that 3% bogey we’ve been using. The instruments aren’t exotic, just lined up so each one does a specific job.

• TIPS for explicit inflation linkage. TIPS adjust principal with CPI-U, so your coupons are paid on inflation-adjusted principal. In 2024, 10-year TIPS real yields hovered around ~2% at times (you could actually lock a 2% real yield), which creates room for positive real income on top of CPI. Translation: a 10-year TIPS with a 2% real yield + realized CPI near 3% pays ~5% nominal and leaves you ~2% ahead of inflation before taxes. That’s the core hedge against the 3% inflation target, no hand-waving.
• Cash and near-cash for timing and bills. Keep 12-24 months of withdrawals in T-Bills/Treasury MMF/high-yield savings. It’s not about beating inflation here; it’s about not selling risk assets when markets are cranky. Cash yields were unusually high in 2023-2024, which helped; if those drift, the role is still the same: paycheck smoothing.
• Laddered Treasuries/CDs for 3-7 years of known cash flows. A simple ladder, say 1-7 year Treasuries or CDs, funds the next several years of withdrawals at known nominal rates. That reduces sequence risk (selling low) because you’ve pre-bought your “paychecks.” Reinvest maturities annually. If you want an even tighter inflation tie, pepper in 5-10 year TIPS inside the ladder and let the CPI accretion do the heavy lifting.
• I Bonds for inflation shocks. The Treasury’s I Bonds printed a 9.62% annualized variable rate in 2022 H2 (that was the wake-up call). They’re tax-deferred and CPI-linked, but purchase limits, $10,000 per person per calendar year via TreasuryDirect, plus up to $5,000 via a tax refund, cap the impact. Great complement, not a whole plan.
• Equities for the long-run inflation engine. Stocks outrun inflation over time; dividends help the carry, but they aren’t a bond substitute (boardrooms can cut payouts; maturities don’t exist). Expect volatility and size the equity sleeve so you’re not forced to sell in a drawdown.

How it fits together in practice (and yes, there are moving parts):

1. Hold 1-2 years of spending in cash/T-Bills for near-term needs.
2. Build a 3-7 year Treasury/CD ladder to pre-fund withdrawals. Refill it from TIPS coupons/maturities and, in good years, from equity trims.
3. Own intermediate TIPS (5-10 years) as your real-return engine. In years like 2024, when 10-year TIPS real yields were ~2%, you’re actually getting paid a real spread to inflation.
4. Layer I Bonds annually up to the limit, think of it as your “shock absorber.”
5. Keep equities sized for growth, not for rent money.

One quick aside, I know taxes and account location can scramble the picture. TIPS in tax-deferred or Roth avoids the annoying phantom income from CPI accretion; Treasuries are state-tax free; CDs aren’t. Not perfect, but it adds up. If inflation runs hotter than 3% for a spell, the TIPS/I Bond links adjust; if it cools, the ladder and equities carry more of the load. It’s messy in the real world, but the stack gives you multiple ways to stay ahead of that 3% line without betting the farm on any single macro outcome.

Bottom line: Use TIPS to hard-link to CPI, a 3-7 year Treasury/CD ladder to kill sequence risk, cash for near-term bills, I Bonds as a capped-but-excellent shock tool, and equities for the long haul. That gets you an after-inflation core that doesn’t wobble every time headlines do.

Healthcare and long-term care: where 3% isn’t the ceiling

Healthcare and long‑term care: where 3% isn’t the ceiling

Here’s the part of the budget that doesn’t care what your headline CPI assumption is. Medical costs and long‑term care don’t always move with the rest of the basket, and when they run, they run. Fidelity’s 2023 estimate pegged average lifetime healthcare costs in retirement at about $315,000 for a 65‑year‑old couple on Medicare, and that excludes long‑term care. That number isn’t a bill due on day one, but it’s a real planning anchor. Will your mileage vary? Absolutely. But ignoring it is how budgets blow up.

Do medical categories often outpace CPI? Yes. Not every month, and not every sub‑category, but yes. The Bureau of Labor Statistics has shown that “nursing homes and adult day services” inflation ran materially hotter than headline CPI in many months of 2023 and 2024, frequently mid‑single to high‑single digits year over year, driven by wages and staffing shortages. Headline CPI cooled at points last year; facility care didn’t behave. And here in 2025, staffing costs are still tight in a lot of markets, which you feel in care quotes even when gas and groceries settle down for a bit.

So what do you do with that? In my own models, I carve a separate “healthcare wedge” instead of letting a 3% blended CPI swallow the variability. Practically, that means two lines in the plan:

• Core living CPI at your base (say 2-3%).
• Healthcare/LTC wedge with a higher glide path (I often use 4-6% for medical and 5-7% for facility care as a planning assumption). Is that perfect? No. Is it conservative enough to keep you out of trouble? Usually.

On current mechanics: Medicare premiums have been trending up. For reference, the standard Part B premium in 2024 was $174.70/month per CMS. Advantage and Part D formularies shift every year, and we’re seeing tighter prior auth in some Advantage plans this fall. Point being, don’t set and forget this line item.

Quick enthusiasm spike, because HSAs are still one of the best tools in the kit. If you’re still working: max the HSA while you can. For 2025, IRS limits are $4,300 for self‑only and $8,550 for family, plus a $1,000 catch‑up if you’re 55+. The triple tax benefit (deductible in, tax‑deferred growth, tax‑free out for qualified medical) is tough to beat. One tactic I love: pay current medical costs from cash and let the HSA compound, then reimburse yourself years later. Just keep receipts. Is it a bit nerdy? Yeah. Does it move the needle after 10-15 years? Also yeah.

Medigap vs. Medicare Advantage trade‑offs deserve a sober pass every year during open enrollment:

• Medigap (Original Medicare + supplement): higher premiums, broad access, predictable cost share, no networks. Underwriting can make switching later tricky in some states.
• Medicare Advantage: lower premiums, added extras (dental/vision), but networks and prior auth matter. If you travel or have a complex condition, the friction can be costly in both dollars and time.

Long‑term care: evaluate early, not when a parent’s diagnosis makes it urgent. Why early? Premiums are age/health sensitive and underwriting has tightened. Options to consider:

• Traditional LTC insurance with 3-5% compound inflation riders. Premiums aren’t cheap, and they can rise, but a partial benefit can cap the tail risk.
• Hybrid life/LTC (asset‑based). More stable premiums, cash value or death benefit if you never claim. You give up liquidity versus a plain brokerage account.
• Self‑funding with a dedicated sleeve, taxable or Roth, earmarked for care. I often model a 2-3 year assisted living need and a 1-2 year skilled nursing tail as a base case; adjust for family history and geography.
• Home equity as a contingent asset, HELOC, reverse mortgage, or sale. Not ideal, but it’s a real backstop for many households.

And humility here: predicting your exact healthcare path is… impossible. The goal isn’t precision; it’s resilience. Build a plan that still works if medical inflation prints 6% while headline sits at 3%, or if a spouse needs two years of memory care. That’s the job.

Action checklist: carve out a separate healthcare line with higher inflation, review Medicare (Medigap vs. Advantage) annually, max the HSA while working (2025 limits: $4,300/$8,550 + $1,000 catch‑up), and decide, this year, whether LTC risk is insured, self‑funded, or shared with home equity. Boring? Yep. But this is how you keep a 3% plan from getting blindsided by 7% realities.

If you snooze, you pay: the cost of not planning for 3%

Here’s the uncomfortable math. A steady 3% inflation rate cuts purchasing power by about 26% in 10 years, ~45% in 20 years, and ~59% over 30 years. That’s not a forecast; that’s the compound effect (1.03^n). If you do nothing, your lifestyle gets quietly resized, restaurant meals turn into takeout, travel gets shorter, the HVAC replacement gets “next year’d.” I’ve watched households take a 40-60% real pay cut over a long retirement just by letting inflation do its thing. Been there, seen it, not fun.

We aren’t talking about 1970s flames here. Even “normal” inflation is a grinder. The Bureau of Labor Statistics shows CPI averaged around 2.5% annually from 1995-2024, and closer to about 3% over longer history since the 1920s. And remember, healthcare and services often run hotter than headline CPI. In a 25-30 year retirement, a 3% base case is not pessimistic; it’s… prudent.

Without a real-return core, withdrawals can turn into a bad game of catch-up. Markets drop, you still need cash, you sell low, and a year later you’re short on both assets and purchasing power. Sequence risk meets inflation risk. I’ve seen portfolios with an all-nominal bond core get pinched when real yields were negative, then forced to chase equities right after a drawdown. Not illegal, just painful.

Good news: the tool kit in 2025 is better than it’s been in years. Intermediate TIPS real yields sit roughly around 1.8%-2.2% this fall, and high-quality cash/short Treasuries are still paying near the mid-4%s, give or take. That makes building an inflation-aware runway actually feasible today, not theoretical.

Action steps to avoid the slow-motion pay cut:

• Build a 10-15 year cash/bond runway that can fund your core withdrawals through a couple bear markets. Blend cash, short Treasuries, and high-quality intermediate bonds.
• Add TIPS exposure as your real-return core. Ladder maturities to match spending years or use a low-cost TIPS fund for simplicity.
• Adopt withdrawal guardrails (e.g., 4-5% starting rate with 10% bands). If the portfolio falls 20%, trim the paycheck; if it rises enough, give yourself a raise. Guyton-Klinger style rules work; perfection isn’t required.
• Pressure-test at 3%-4% inflation with a couple ugly markets early in retirement. If it still holds, you’ve got something resilient.

One more honest note: models are tidy, real life isn’t. You’ll have taxes, RMDs, Medicare IRMAA cliffs, and a roof that leaks at the worst time. Some years you’ll be over-withdrawn, some under. That’s fine. The key is having real yield in the plan, a runway that keeps you from panic-selling, and rules that nudge you back on track when markets wander. It sounds complex because it is a bit, sorry, but ignoring it is costlier. A 3% plan is the floor; execution is the moat.

Frequently Asked Questions

Q: How do I set a retirement withdrawal plan that holds up if inflation sticks around 3% and the market stumbles early on?

A: You’re juggling two moving parts, costs rising and sequence risk, so there isn’t a single “right” knob to turn. Here’s a practical, belt-and-suspenders setup I use:

• Start rate: Begin near 3.5%-4.0% if you’re well-funded; lean closer to 3.0%-3.5% if your plan is tighter.
• Guardrails: Use a rules-based system (e.g., Guyton-Klinger). Give yourself a pay raise for inflation annually, but skip or cap the raise (0%-1%) after a down year. Cut withdrawals ~10% if your portfolio drops past a preset band; add back when it recovers.
• Buckets: 2-3 years of spending in cash/T‑bills, 3-7 years in short/intermediate bonds (mix in TIPS), growth bucket in equities. Refill the cash bucket from winners annually.
• Inflation assumptions: Use 3% headline, but model healthcare at 5%-6%. In my experience, it’s the second decade that bites if you underbudget healthcare.
• Longevity: Plan for 25-30 years; consider delaying Social Security to age 70 to raise your inflation-adjusted floor.
• Real cash flows: If you want more predictability, build a 5-10 year TIPS ladder to cover essential expenses, then let equities handle discretionary and long-run growth. I’ve seen this blend help clients stay invested without white-knuckle cuts when markets wobble.

Q: What’s the difference between holding cash in T‑bills and using a short‑term bond fund when inflation is around 3%?

A: Simple version:

• Yield path: T‑bills reset quickly; great when rates are high, but reinvestment risk is real if rates drift lower (as they’ve been doing since the 2023-2024 peak). Short-term bond funds lock in a bit more yield via duration, so they can hold up better when the Fed cuts.
• Risk mix: T‑bills = near-zero credit risk, minimal price swings. Short-term bond funds = small interest-rate and some credit risk; prices can wiggle.
• Taxes: Treasuries are state-tax free; many bond funds aren’t. In high-tax states, that matters.
• Liquidity/cost: Both are liquid; ETFs/funds carry small expense ratios. Buying bills directly is cheap but requires rolling. Rule of thumb I use: money needed in the next 0-12 months sits in T‑bills/high-yield savings; 1-3 years goes in a short/intermediate Treasury/TIPS ladder or a high‑quality short-term bond fund; beyond that, step out the duration slowly.

Q: Is it better to fight inflation with TIPS or just own more stocks?

A: They’re different tools. TIPS hedge measured inflation directly, your principal adjusts with CPI, so they defend purchasing power on a schedule you can plan around. Stocks aren’t a hedge in the short run; they’re an engine. Over long periods they tend to outrun inflation, but in any given 3-5 year window (see 2022) they can drop while your costs rise. Practical mix:

• Essentials: Use a TIPS ladder (5-10 years) or a low-cost TIPS fund to match core expenses. I like this for housing, food, insurance.
• Growth: Keep equities for long-horizon goals and to replenish the ladder over time.
• Extras/alternatives: I Bonds (limited to $10k/yr per person, plus tax refund), and a modest sleeve of real assets (commodities/real estate) if your risk tolerance allows. If you’re late in the retirement window or defnitely skittish about sequence risk, lean more on TIPS. If you’ve got surplus assets and a longer runway, bias a bit more to equities. It doesn’t have to be either/or.

Q: Should I worry about the classic 60/40 after 2022, or is it still fine for a 25-30 year retirement?

A: Worry? No. Blind faith? Also no. 2022 reminded everyone that stocks and bonds can both fall, 60/40 dropped roughly mid‑teens and the U.S. Agg lost about 13% in 2022 before partially recovering in 2023. The fix isn’t to abandon 60/40, it’s to modernize it:

• Diversify your bonds: Blend Treasuries, some TIPS, and avoid putting everything in long duration. A barbell (short + intermediate) has been more resilient around rate pivots.
• Add a quality tilt in equities and keep global exposure.
• Rebalance on a schedule (or by bands) to harvest volatility.
• Match allocation to cash‑flow needs: If you’ll spend 4%/yr, make sure you actually have 5-7 years of withdrawals in bonds/cash so you’re not forced to sell stocks in a slump. For many retirees, a tweaked 60/40 (say 55/35/10 with 10% in TIPS or cash) works better than a museum‑piece 60/40. I’ve kept plenty of clients in that lane with fewer sleepless nights.

@article{how-3-inflation-impacts-retirement-beyond-60-40,
    title   = {How 3% Inflation Impacts Retirement: Beyond 60/40},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/3-percent-inflation-retirement/}
}