Best Investments & Retirement Moves for 3% Inflation

What the pros wish everyone knew about “only” 3% inflation

“Only” 3% inflation sounds tame, like a small service fee on life. Except it isn’t small over time. At ~3%, prices double roughly every 24 years (rule of 72). Translation: a dollar’s purchasing power is cut almost in half over a couple decades. If your plan ignores that compounding, it’s basically wearing flip-flops in a snowstorm.

Here’s the frame pros use in 2025: your real hurdle is return minus inflation minus taxes. A 6% nominal return is not 6% real. If you earn 6% in a taxable account and you’re in the 22% bracket, your after‑tax nominal is about 4.68%. Subtract 3% inflation and your real return is ~1.7%. That’s fine, not fantastic. With a 5% CD, after a 24% federal bracket, you’re at ~3.8% nominal; against 3% inflation, that’s ~0.8% real. Feels different when you see it in after‑tax, after‑inflation terms, right?

And inflation compounds. At 3% for 20 years, costs climb ~80% ((1.03)^20 ≈ 1.806). A $1,000 monthly budget today needs about $1,806 in two decades to buy the same cart of groceries, utilities, and the occasional baseball ticket. Which means your plan should bake in raises, automatic, like a COLA for your lifestyle, not just hope the market covers it.

What’s unique right now? Cash actually pays again in 2025. T‑bills and high‑yield savings have lived in the high‑4% to low‑5% neighborhood earlier this year, worlds apart from the near‑zero 2010s. That’s helpful, especially for short‑term goals and dry powder. But yield isn’t a plan. Because taxes nibble, and inflation nibbles, and those nibbles add up.

One more thing folks miss until it hurts: sequence risk. The order of returns matters a lot in retirement. Two retirees with the same average return can end up with very different outcomes if one hits bad years early. Real history made this painfully clear: the S&P 500 fell about 49% from 2000-2002 and about 57% from 2007-2009. If you were withdrawing 4-5% during those drawdowns, your portfolio had to work overtime later. If you started in 2010, you had the wind at your back instead. Same “average,” very different journey.

Quick gut‑check: Every decision should answer, “Does this beat inflation after taxes with risk I can actually live with?” If not, rethink it.

Here’s what we’ll cover next, practical, no‑nonsense stuff you can use for year‑end planning in Q4 2025:

• How to set your true hurdle rate and compare options apples‑to‑apples in real, after‑tax terms.
• When cash and short bonds make sense this year, and where they fall short.
• Portfolio tweaks that reduce sequence risk without giving up the farm.
• Inflation‑proofing your budget: automatic raises, smart debt paydown, and tax‑aware withdrawals.
• Simple checklists for IRAs/401(k)s, tax‑loss harvesting, and charitable moves before December 31.

I’ve sat through too many meetings where we all stared at nominal returns and nodded like everything was fine. It wasn’t. We’ll keep it real, literally. And if I slip a typo, well, that’s on me and my second cup of coffee.

Build a real-return core you can live with

Build a real‑return core you can live with

If you assume inflation hangs around ~3% this year (a reasonable base case in Q4 2025), the anchor isn’t flashy: it’s short Treasuries, TIPS, and disciplined cash. I still keep a boring T‑bill ladder, because it forces me to be honest about my 0-24 month bills. When the mortgage escrow or tuition is due, I don’t want to “hope” markets cooperate. I want the maturity date to do the work.

Segment the near-term stuff (0-3 years) into short Treasuries. Match known liabilities to maturities and spread them out. A simple approach: buy 3-, 6-, 9-, 12-, 18-, and 24-month T‑bills and roll each as it comes due. That ladder reduces reinvestment timing regret (you’ll never hit the exact top or bottom, which is the point). Treasury bills are state‑tax exempt, which helps the after‑tax math if you’re in a high‑tax state.

I use a 6‑rung T‑bill ladder for expenses over the next 18 months. It’s dull. It also works.

Know your TIPS breakeven. For the 5‑year part of the curve, breakeven ≈ 5‑yr nominal Treasury yield minus 5‑yr TIPS real yield. If your inflation view is above the breakeven, favor TIPS; if below, favor nominals. Example (not a quote): if 5‑yr nominal = 4.1% and 5‑yr TIPS = 1.8%, breakeven ≈ 2.3%. Expect >2.3% inflation? Take TIPS. Expect less? Take nominals. Yields change every day, check live quotes before pulling the trigger. I won’t pretend I can call next quarter’s CPI surprise; I can just stack the odds in my favor with the breakeven math.

Series I Bonds still pull their weight in taxable accounts. Annual purchase limits are specific and matter: $10,000 per person per calendar year electronically at TreasuryDirect, plus up to $5,000 via a federal tax refund in paper form. There’s a 12‑month lockup and a 3‑month interest penalty if redeemed before 5 years (those rules are straight from Treasury). The fixed rate resets each May/November, check the posted rate, because that fixed component is your long‑term real floor. I like them for the “can’t‑lose‑to‑CPI” feature within those limits.

Cash is a tool, not a lifestyle. Hold emergency/near‑term cash at competitive yields (high‑yield savings, Treasury‑only money funds), but cap it to known spending needs, usually 3-6 months of expenses for emergencies, plus any big known outlays in the next 12 months. Keep FDIC/NCUA coverage in mind: $250,000 per depositor, per bank, per ownership category. If you have more, split across institutions or use Treasuries where credit risk isn’t the variable.

Rebalance rules‑based, not vibes‑based. Quarterly works. So do threshold bands (e.g., 5% absolute or 20% relative drift). The key is to write it down and stick to it, even when the headlines are loud. Small confession: I’ve broken my own rule on a Friday afternoon and regretted it Monday morning. Rules exist to save us from ourselves.

Now, quick enthusiasm spike, because ladders plus TIPS actually make budgeting fun (yes, I said fun). You can pre‑fund next year’s spending with bills, hedge medium‑term inflation with 5‑ to 10‑year TIPS, and let the rest of the portfolio take equity risk where it belongs. We’ll circle back to sequence‑risk tweaks later, but this core keeps the day‑to‑day stable so you’re not forced to sell stocks into a drawdown.

One more practical note: taxes. Short Treasuries avoid state tax; TIPS inflation accretion is taxable in taxable accounts (the “phantom income” thing), so consider IRAs/401(k)s for TIPS if you have room. Not perfect, but it beats pretending taxes don’t exist.

Equities that actually keep up: pricing power and payout growth

At 3% inflation, the math is boring but unforgiving: if your dividend isn’t compounding faster than prices, your real income shrinks. So I want businesses that can raise prices without bleeding customers, and boards that habitually hike dividends at a clip that beats CPI. Simple idea, hard filter. And yes, valuation still matters, 2025 reminded us that paying any price for “quality” works… until multiple compression shows up on a random Tuesday.

Here’s the evidence piece. Dividend growers have tended to beat the market’s problem children over long spans. Ned Davis Research’s long-run study shows that from 1973-2023, Dividend Growers & Initiators returned about 10.2% annualized, while Non-Payers did roughly 4-5% and Cutters/Eliminators near 0% or worse. That’s not a magic trick; it’s capital discipline plus pricing power. On the base rate side, S&P Dow Jones data shows S&P 500 dividends grew at roughly an ~8% CAGR from 2010 to 2024, well ahead of U.S. CPI over that stretch. And this year, with CPI running about ~3% year-over-year into Q3 2025, I’m still prioritizing companies with double-digit dividend growth histories and the balance sheets to keep it going.

What actually screens in?

• Dividend-growth over high-yield traps. A 7-8% yield can be a siren song. I’d rather take a 1.5-2.5% yield from a wide-moat name that grows the payout 10-15% annually. Check the actual 5-, 10-, 15-year records; don’t rely on the slide deck. If I’m fuzzy on a stat, I pull the filings, memory lies, PDFs don’t.
• Recurring revenue + contractual escalators. Think software with sticky seats, toll roads with CPI-linked tariffs, regulated utilities with rate pass-throughs. Many net-lease contracts show 1.5-2.5% fixed bumps or CPI-capped escalators in the 2-3% zone based on company disclosures, good enough to hold real value, great when layered on unit growth.
• REITs and listed infrastructure can help. Select REITs with CPI-linked leases (more common in Europe and in certain U.S. net-lease niches) and infrastructure assets with regulated inflation pass-throughs. Watch use. Higher real rates in 2025 are still unforgiving if maturities stack up. I like staggered debt ladders and interest coverage well north of 3x.
• Global diversification. Different inflation regimes and currencies can smooth real returns. 2022 reminded us the strong USD can bite, but we’ve also seen periods where a weaker dollar boosts foreign cash flows. I don’t pretend to time FX; I size it and keep it purposeful.
• Keep the value/quality bar high. Free cash flow first, then balance sheet strength, then the narrative. Pricing power beats a great story. Always has. When multiples stretched earlier this year, the names with clean FCF and low net use took the hit better than the story stocks, wasn’t subtle.

Quick enthusiasm spike here because I love this stuff: dividend compounding plus modest buybacks in a wide-moat, recurring-revenue business… that’s how you outrun 3% inflation without drama. If I’m nitpicking, I want double-digit dividend growth for 5-10 years running, payout ratios trending down or stable, and ROIC comfortably above WACC. If I can’t remember whether a company skipped a raise in, uh, 2017? I go back and check. No shame in that.

Rule of thumb I keep taped to my screen: “Yield for now, growth for later, price for always.” Pay a fair price or be patient. 2025 has been a loud reminder.

Fixed income beyond cash: locking in while staying sane

. Bonds are investable again, finally. Cash at 5-ish felt great, but reinvestment risk is sneaky. The real 2025 question is how much duration to take and where credit spread actually pays you for risk (and where it really doesn’t). For retirees, the answer is still boring and effective: build a ladder, not a guess.

Years 1-10 spending? Ladder it. I like a 1-10 year U.S. Treasury or high-grade ladder where each rung’s coupon + maturity lines up with your planned withdrawals. That means you’re spending principal and coupons from bonds coming due, not hoping your bond fund price cooperates that month. You can use new issues or on-the-run Treasuries; if you want a little extra income, sprinkle in A/AA corporates with clean balance sheets and short maturities. Duration math still matters: a 5-year effective duration means roughly a 5% price move for a 1% rate shift, directionally helpful when you’re sizing your comfort level.

Municipals help after-tax, check AMT and state rules. For higher tax brackets, munis can lift after-tax yield. Simple reminder: tax-equivalent yield = muni yield / (1, tax rate). Example: a 3.0% muni is a 4.6% tax-equivalent yield for a 35% federal bracket (3.0 / 0.65). Historical data backs the credit quality point: Moody’s long-run 10-year cumulative default rate for investment-grade municipal bonds was about 0.10% versus ~2.17% for investment-grade corporates (study covering 1970-2021). That’s a big gap. Two caveats I nag clients about: (1) private activity munis can be subject to AMT; (2) state tax treatment varies, home-state bonds may be state tax-free, out-of-state usually aren’t. It’s a little paperwork-y, but worth confirming before you buy a slug.

Credit: be selective, not heroic. Late-cycle credit is where yield temptation gets folks in trouble. I want to be paid to take risk with tight docs. Avoid stretching for an extra 75 bps in lower-quality credits without strong covenants, real free cash flow, and reasonable use. Remember, the long-run average annual default rate for speculative-grade bonds has hovered around the mid-single digits in many Moody’s studies (varies by cycle and year), while recovery rates swing wildly in down cycles. If you can’t point to a covenant that protects you, you’re the covenant.

Stagger duration on purpose. I keep a core in short/intermediate bonds to anchor volatility and a sleeve in longer duration as a hedge if growth cools or if inflation keeps trending toward the 2-3% zone again. When growth slows, long duration usually does the heavy lifting. You don’t need to nail the exact pivot; you just need the ballast. And yes, this is messy, there’s no perfect mix. I’d rather be roughly right with 70-80% short/intermediate and a measured 20-30% long than precisely wrong.

Use funds/ETFs that are plain and cheap. Low-cost index funds or transparent active funds with clear duration and credit targets are your friends. Check the SEC yield, effective duration, and sector breakdown. Avoid opaque structures, levered credit products, esoteric ABS, or “enhanced income” strategies you can’t explain to a spouse over dinner. If the factsheet ducks the drawdown history, pass.

Bottom line for retirees (and honestly, for anyone taking distributions): a ladder for years 1-10 stabilizes cash flows, munis can boost after-tax income in higher brackets, and a modest long-duration sleeve hedges a growth slowdown. Repeat the mantra: match cash needs, get paid for risk, keep the structure simple. Simple now beats clever later, every time.

Personal note: I still like seeing coupons hit the account on schedule. Calm is a feature, not a bug.

Retirement levers in a 3% world: withdrawals, Social Security, and healthcare

Moderate inflation changes the playbook. At ~3% CPI, “raises” in retirement can’t be mindless autopilot. COLAs help, yes, but healthcare keeps outrunning the headline CPI, year after year. The Centers for Medicare & Medicaid Services (CMS) projects national health spending to grow about 5.6% per year on average from 2023-2032, with health care reaching 19.7% of GDP by 2032 (CMS, 2024 report). That gap is exactly why budgets crack: groceries and travel look fine; prescriptions and premiums do not.

Use dynamic withdrawals, not fixed rules. In a 3% inflation regime, guardrail methods keep spending responsive to both markets and prices. One practical version (think Guyton-Klinger style):

• Start with a conservative initial rate (3.8%-4.3% of the portfolio, pre-tax, depending on how much guaranteed income you already have).
• Give yourself an annual inflation raise, but cap it if the portfolio is down (or skip it entirely after a big drawdown).
• Set portfolio “rails” at, say, ±20% of the starting withdrawal rate. If the current withdrawal rate drifts above the upper rail, cut spending 10%; if it falls below the lower rail, raise spending 10%.

Is it fussy? A little. But you’re trading a small ruleset for a big payoff: fewer forced sales after bad markets and steadier purchasing power over decades.

Coordinate Social Security with longevity and taxes. COLA is inflation-linked, but the start age still dominates outcomes. For the 1960-and-later cohort (FRA = 67), claiming at 62 permanently cuts the benefit by about 30% versus FRA, and delaying to 70 increases it by 24% over FRA (SSA guidelines). Net-net, a claim at 70 is roughly 70-80% higher than a claim at 62, before spousal and survivor math. That spread is massive over a 30-year horizon, especially for the longer-lived spouse. And don’t forget taxes: pairing Roth conversions in your early retirement years with a later Social Security start can lower lifetime taxes by keeping IRMAA surcharges and bracket creep in check (timing matters, one wrong RMD year can trip those thresholds).

Price guarantees the way a bond desk would. SPIAs and DIAs can cover your core, non-discretionary spend. Quote both nominal and CPI-adjusted options, but evaluate in real terms. With 10-year TIPS real yields hovering around ~1.9%-2.1% in September 2025 (I might be off by a tenth), inflation-adjusted SPIAs for a 65-year-old have generally shown initial real payout rates in the ~4%-4.5% area this year, depending on state, gender, and riders. If a CPI-SPIA clears your hurdle relative to a TIPS ladder of the same duration, that’s a workable trade: you hand liquidity to the insurer and receive longevity pooling in return. If not, build the ladder and keep your options open. Simple beats clever, still true here.

Budget healthcare with its own inflation rate. Don’t staple 3% onto healthcare. Use 5%-6% for planning unless you have employer retiree coverage. Fidelity’s estimate for a 65-year-old couple’s lifetime healthcare out-of-pocket costs (ex. long-term care) was $315,000 in 2023; it’s been drifting higher in recent years. And do the unglamorous work each fall: review Medigap and Part D during Medicare’s open enrollment (Oct 15-Dec 7). Formularies, preferred pharmacies, and premiums shift. Every. Single. Year.

Keep a 2-3 year “cash plus short bonds” runway. Sequence risk is the silent killer. Hold 24-36 months of essential spending in cash, T-bills, and short-duration, high-quality bond funds. When markets drop, spend from the runway and pause equity sales; when markets recover, refill it. With money market funds still paying north of 4% for much of 2025 and front-end Treasury yields not far off, the opportunity cost of safety isn’t punitive like it was in 2021.

Personal note: the biggest surprise I see isn’t markets, it’s meds. Part D tweaks and tier changes blindside clients. One year the generic’s $8, the next it’s $62; same pill, different list.

Bottom line: set a flexible withdrawal policy, treat Social Security as your inflation-protected bond with optionality on start age, price annuities against real yields, and give healthcare its own escalator. None of this is perfect, and that’s okay. It’s designed for the world we actually live in, not the tidy one in spreadsheets.

2025 year-end tax moves before brackets change

This is the last lap under the TCJA individual rules. They sunset after December 31, 2025, which means Q4 actions matter more than usual, your 2025 return is the last one with today’s lower brackets and bigger standard deduction before the 2026 reversion. I’m not trying to be dramatic, it’s just the math.

Roth conversions: fill your bracket on purpose. If you expect to be in a higher bracket starting 2026, many will when 22%/24% drift back toward 25%/28%, consider converting enough traditional IRA dollars in 2025 to “top off” your current marginal bracket. Don’t guess. Model it with your CPA or software using your year-to-date income, RMDs (if any), capital gains distributions, and charitable plans. Two guardrails that catch people: (1) Medicare IRMAA uses a two-year MAGI lookback, so 2025 income can raise 2027 Part B/D premiums; (2) state tax. A 24% federal bracket conversion can feel like 30% all-in in high-tax states.

Asset location still matters. Keep tax-inefficient stuff, taxable bond funds, TIPS funds, REITs, in tax-deferred accounts when you can. Hold equities and equity ETFs in taxable accounts to keep qualified dividend rates and preserve step-up on death; just confirm your state inheritance/estate basis rules since a few have quirks. This simple location shift routinely improves after-tax returns without any heroics, and yes I’ve seen folks reverse it by accident after a rebalance in a rush.

Harvest losses (if you have them) without breaking your allocation. Tax-loss harvesting can offset realized gains dollar-for-dollar and up to $3,000 of ordinary income per year if losses exceed gains. Mind the 30-day wash-sale window. Use like-kind but not substantially identical ETFs so your portfolio stays invested, think “total market” to “large-cap blend” substitute, then pivot back later if you want. Don’t create a tax win that leaves you underweight equities during a rebound; I’ve watched that movie, twice.

Charitable moves: QCDs, appreciated stock, or bunching. If you’re age 70½ or older, Qualified Charitable Distributions (QCDs) from IRAs send dollars directly to a charity and reduce AGI. The annual QCD cap is $105,000 in 2025 per person (indexed). QCDs can satisfy RMDs for those subject to them. If you’re younger or itemizing, consider gifting appreciated stock to avoid capital gains, or bunch two years of gifts into 2025 via a donor-advised fund to clear itemizing thresholds, handy with the standard deduction still high this year and likely smaller starting 2026.

Max the easy buckets for 2025 (and yes, front-load if your cash flow can handle it):

• 401(k)/403(b)/457 elective deferrals: $23,500 for 2025; catch-up still $7,500 for 50+ (traditional or Roth depending on plan rules).
• IRA contributions: $7,500 for 2025; catch-up $1,000 at 50+. Backdoor Roth still works if you manage pre-tax IRA balances.
• HSAs: $4,300 self-only and $8,550 family for 2025; catch-up $1,000 at 55+. If you can swing it, I like front-loading HSAs because healthcare inflation never takes a holiday, HSAs are the stealth retirement account.

Bracket management checklist for December, quick, messy, effective:

1. Estimate 2025 taxable income with all dividends, bonuses, RSUs, and RMDs.
2. Decide whether to realize capital gains in 2025 or wait for 2026’s different rules; pair gains with harvested losses.
3. Right-size a Roth conversion to the top of your chosen bracket without tripping IRMAA or NIIT accidentally.
4. Execute QCDs or appreciated stock gifts before year-end; don’t leave it to the last trading day (custodians get jammed).
5. Finish contributions: retirement plans, IRAs (you have until April, but why wait), HSAs, and even 529s if your state gives a deduction.

Personal note: I once squeezed a client’s QCD in on December 30, the check cleared January 3, great charity, wrong tax year. We laughed; I didn’t.

One more thing, market context. Cash and T‑bill yields have cooled from last year’s peaks but are still around the mid‑4% area for prime money funds as we sit here in October 2025, so holding cash for taxes and near-term spending isn’t painful. Use that to your advantage: line up liquidity now, execute cleanly, and let 2026’s higher brackets be future-you’s problem, not present-you’s surprise.

Your 90‑minute inflation audit: prove your plan beats 3%

Time to pressure-test your setup while it’s still 2025. Grab a coffee, I literally do this with a spreadsheet and a very judgmental dog staring at me. Why 3%? Because that’s the long-run target-ish number most plans use. But real life doesn’t inflate evenly. Some stuff runs hotter, some cooler. The goal here is simple: if your withdrawals, cash buckets, and equity sleeve can outrun the parts of your budget that inflate faster than 3%, you’re good. If not, we tune it. Quick, systematic, no drama.

1. List 12 months of spending. Not categories from memory, pull the actual last 12 months. Bank, card, checks. Sum it, then average monthly. If you’re retired or close, split it into “must” (housing, food, insurance, utilities, baseline healthcare) and “nice” (travel, upgrades, gifts). I know this sounds tedious. It is. Do it anyway.
2. Tag line items that likely inflate faster than 3%. Historically, healthcare runs hot: the CMS projects national health spending growth averaging about 5.6% annually from 2023-2032 (CMS, 2024 report). Employer family premiums jumped 7% in 2023 and again about 7% in 2024 (KFF). Auto insurance spiked, BLS reported 12‑month increases above 20% at points in 2024; it’s cooler this year but still elevated. Tuition? The College Board’s longer-run nominal trend has been in the 3-5% range, even if year-to-year wiggles. Homeowners insurance saw double-digit increases in many states in 2023-2024. Tag these items 4-6%, not 3%.
3. Map the next 5-10 years of withdrawals to a ladder. Fancy word “duration”, sorry, I mean match the timing. Years 1-2: cash, T‑bills, or high-yield money funds. Yields are still in the mid‑4% area here in October 2025, which helps. Years 3-5: CDs, agencies, or short/intermediate Treasuries. Years 6-10: higher-quality munis or investment-grade bonds depending on your tax bracket. The point: limit sequence risk. If stocks have a mood swing, your next 5-7 years of spending shouldn’t care.
4. Decide what stays in growth assets. After the ladder is set, the rest is your growth engine. Keep it simple and intentional. You don’t need 17 funds that all own the same ten mega-caps.
5. Audit the equity sleeve for pricing power and dividend growth. Look for businesses that can pass through costs and still grow free cash flow. Dividend growth of 5-8% can counter those faster-inflating budget lines. Trim “story” stocks with negative free cash flow and no clear path to self-funding. I love a good narrative; I just don’t fund retirements with vibes.
6. Refinance or restructure debt only if the math wins after tax. Don’t chase a 40 bps rate cut if fees take two years to breakeven and you might sell in 18 months. Do the after‑tax, all‑in analysis: rate, points, fees, tax deductibility. If the net present savings aren’t obvious on one page, it’s probably a no. And yes, I just said “net present”, translate: does the total savings, discounted back, beat the costs?
7. Set two calendar reminders: (a) Rebalance before year-end. Even a 2-3% drift back to targets helps manage risk without overthinking. (b) Revisit taxes before Dec 31. Harvest losses where it makes sense, or trim winners to fund the ladder while capital gains brackets are known. Small, boring moves now compound in your favor. I’ll say that again because it’s the whole trick, small and boring wins.

Now, a quick circle-back. On the ladder: if you’re taxable, munis can make sense when your marginal rate is high; if you’re in an IRA, stick to the highest after‑fee yield regardless of tax status. And on inflation tags, don’t overdo it. You don’t need 14 custom assumptions. Pick 3-4 categories that genuinely drive your budget risk and give them realistic rates: healthcare 5-6%, insurance 5% (check your renewal quotes from this year), tuition 4-5% if you’re still paying. Everything else at 2.5-3% is fine.

One last reality check: cash isn’t trash right now. With money funds around the mid‑4s and short Treasuries in that ballpark, your year 1-2 bucket earns while it waits. That makes the psychology easier, you’re not “out of the market,” you’re “funding certainty.” My dog still looks unimpressed, but the spreadsheet doesn’t lie.

Frequently Asked Questions

Q: Should I worry about 3% inflation if my savings account pays 5% right now?

A: Short answer: yes, a little. A 5% yield isn’t 5% in your pocket. In a 24% federal bracket, 5% becomes about 3.8% after tax. Subtract 3% inflation and your real return is ~0.8%. Better than 2021 cash, sure, but it won’t grow your purchasing power much. Great for short-term goals; not a stand‑alone retirement strategy.

Q: How do I set my retirement withdrawals so my money keeps up with prices without getting crushed by a bad first few years?

A: Build a rules-based plan. Start around a 3%-4% initial withdrawal, then add a realistic “COLA” each year (2%-3% by default), but add guardrails: if portfolio falls 20% or your withdrawal rate breaches, say, 5.5%, pause or trim the raise. Keep 2-3 years of withdrawals in T-bills/high-yield cash to buffer market dips, and rebalance annually. Own inflation fighters (TIPS) alongside equities for growth. And consider delaying Social Security to 70 for a higher, inflation-adjusted floor. The ugly stretches (2000-2002, 2007-2009) show the order of returns matters; a cash bucket plus guardrails reduces the hit.

Q: What’s the difference between nominal and real returns, and how should I plan around it?

A: Nominal is the headline number on your statement. Real is after inflation, and after taxes if it’s a taxable account. Example from this year’s math: earn 6% nominal in a taxable account at a 22% bracket and you net ~4.68% nominal after tax. Subtract 3% inflation and you’re at roughly 1.7% real. Plan with real returns: grow your expenses at ~3%, check that your portfolio’s expected after‑tax, after‑inflation return exceeds that, and improve the gap with tax shelters (401(k), Roth, HSA) and asset location.

Q: Is it better to park cash in T-bills/CDs or stay invested in a diversified portfolio in 2025?

A: It depends on time horizon and taxes. Cash actually pays again this year, high‑yield savings and T‑bills have lived in the high‑4% to low‑5% range earlier this year. After a mid‑20s tax bracket and ~3% inflation, the real return is roughly flat to slightly positive. That makes cash great for 0-3 year needs and a 1-3 year “cash bucket” in retirement to reduce sequence risk. Tactics: ladder 3-18 month T‑bills/CDs, auto‑roll maturities, and favor Treasuries for state tax breaks; if you’re in a high bracket, consider a high‑quality muni money market for taxable cash. For 5+ year goals, equities and a diversified mix historically do the heavy lifting against inflation. Own broad stocks for growth, add TIPS for explicit inflation protection, and rebalance, don’t performance‑chase. Keep dry powder, yes, but don’t let 5% cash tempt you out of a long‑term plan; rates can drift lower later this year, and reinvestment risk is real. Place bonds/cash in tax‑deferred accounts when possible, higher‑growth assets in Roth for tax‑free compounding. Net-net: match the vehicle to the job, cash for near‑term certainty, diversified portfolios for long‑term purchasing power. And write it down in an IPS so you don’t renegotiate with yourself at 2 a.m. during a selloff.

@article{best-investments-retirement-moves-for-3-inflation,
    title   = {Best Investments & Retirement Moves for 3% Inflation},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/best-investments-3-inflation/}
}