Is $1.5M Enough With 3% Inflation? Why Timing Matters

Timing beats totals: why the year you retire matters

Timing beats totals: retiring in late 2025 does not feel like retiring in 2021. Same nest egg on paper, totally different starting line. In 2021 you were stepping off the treadmill into zero-rate cash and a roaring equity tape. In 2025 you’re stepping into 5% cash, 4-5% long Treasury yields, and a market that still remembers 2022’s bruise. The headline number matters, sure, but the year you start withdrawals can matter more than the number itself.

Here’s the simple idea I’m going to over-explain and then get to the point: if you pull money from a portfolio right after it falls, you lock in fewer shares; later rebounds lift a smaller base; compounding has less to compound. That’s sequence-of-returns risk. Two retirees each start with $1,000,000 and withdraw 4% adjusted for inflation, both earn the same 6% average for a decade. One gets −15%, 0%, +5% in years 1-3; the other gets +15%, 0%, +5%. The long-run average is identical, but after 10 years the early-loss retiree can end up ~20-25% behind because withdrawals came out when prices were down. Real life reminder: in 2022 the S&P 500’s total return was about −19% and core bonds (Bloomberg US Aggregate) were roughly −13%. Starting withdrawals into that kind of year leaves a mark.

Cash and bond math is different now. During the 2010s, 3‑month T‑bills averaged roughly 0.6% (2010-2019). This year, 3‑month T‑bills are around 5%+, and the 10‑year Treasury has spent much of 2025 near the mid‑4% range. High‑quality corporate bond yields are in the 5-6% neighborhood. That changes safe‑withdrawal guardrails: a 60/40 isn’t leaning on equities the way it did when cash paid basically nothing. Even TIPS real yields have hovered near ~2% at times this year, which gives inflation‑linked income a sturdier base.

Inflation? It cooled off from the 2022 spike, headline CPI peaked at 9.1% year-over-year in June 2022 per the BLS, but it hasn’t lived at 2% every year. Planning at 3% is reasonable for long horizons. At 3%, prices roughly 2.4x over 30 years ((1.03)^30 ≈ 2.43). So the question I get, “is $1.5m enough with 3% inflation?”, comes down to spending. An $80k lifestyle today needs about $195k in year‑30 nominal dollars. Your portfolio has to carry that glidepath, not just today’s budget.

Quick story: I watched two clients retire with almost the same balance, three months apart. The early‑year retiree hit a soft patch and had to trim withdrawals; the late‑year retiree caught higher bond yeilds and a modest equity bounce, five years later, the gap was six figures.

And the calendar details aren’t trivia; they’re cash‑flow levers you can pull:

  • RMD timing: The RMD age is 73 under current law (2025). Retiring in December vs. January can change your first RMD calendar year. Remember the “April 1” first‑RMD rule can force two RMDs in one tax year if you’re not careful.
  • Social Security: Your claiming month sets your benefit and earnings test window. A December claim vs. a January claim can shift 12 months of COLA and potential earnings-test exposure.
  • ACA premiums: Premium tax credits hinge on calendar‑year MAGI. Retiring mid‑year changes your income mix, and Open Enrollment generally runs Nov 1-Jan 15 on the federal exchange. Which month you stop W‑2 income can swing thousands in subsidies.
  • Tax brackets: The year you stop working sets that year’s bracket, Roth conversion room, and capital‑gain realization headroom. A few weeks on the calendar can open or close planning windows.

No absolutes here; context wins. But in Q4 2025, starting conditions, sequence, rates, and inflation timing, are doing more of the heavy lifting than the headline balance. That’s the frame we’ll use.

What does $1.5M actually buy at 3% inflation?

Here’s the plain-English frame I use with clients and, frankly, with my own spreadsheet. Start with a rule-of-thumb withdrawal band, then reality-check it against inflation and longevity.

Rule of thumb, framed: a 3.5%-4.0% initial withdrawal on $1.5M points to about $52,500-$60,000 in Year 1 (before taxes). After that, you lift the prior-year dollar amount by 3% annually, regardless of what markets did. That’s the classic “inflation-adjusted” spending rule that keeps lifestyle steady in real terms.

Quick math anchor: at 3% inflation, spending doubles roughly every 24 years (Rule of 72 → 72 / 3 ≈ 24). That compounding is the quiet bully; don’t ignore it.

To make it less abstract, pick the midpoint, say $55,000 in Year 1, and apply 3% bumps:

  • Year 1: $55,000
  • Year 5: ~$61,900
  • Year 10: ~$71,700
  • Year 20: ~$99,300
  • Year 24: ~$110,000 (about double)
  • Year 30: ~$129,600

Now, longevity. A 60-65 year-old today should plan on a 30-35 year horizon. That pushes the sustainable starting rate toward the low end of that 3.5%-4.0% band. Not because markets won’t cooperate, but because they won’t cooperate every year, and the order of returns early on matters a ton. If the first 5 years are choppy, the portfolio has less time to recover while you’re still withdrawing.

Stress test it with two spending targets, assuming no guaranteed income vs. some:

  1. Need $90k after tax, no other income: You likely need ~$105k-$115k pre-tax depending on state and deductions. That’s 7.0%-7.7% of $1.5M in Year 1, well above the sustainable range for a 30-year plan with 3% inflation. Even if cash and short Treasuries have been yielding around the high‑4s to low‑5s earlier this year, that’s nominal yield, not a safe inflation-adjusted withdrawal policy. Verdict: tight, unless you flex spending or delay withdrawals with part-time income.
  2. Need $50k-$60k after tax, with partial Social Security: Say a couple has ~$30k-$45k combined benefits depending on their records and claiming ages (COLAs apply annually). The portfolio might only need to cover the gap, often $20k-$35k, which lines up cleanly with a 3.5%-4.0% start on $1.5M. That’s usually workable, especially if you keep a 1-2 year cash buffer for sequence risk.

Let me circle back on one thing I said, “inflation-adjusted regardless of markets.” That’s the classic rule, but plenty of retirees blend it with guardrails: raise spending by 3% except after a down year, cap raises if the withdrawal rate drifts above, say, 5.5%, and add raises faster if it drifts below 3%. It’s not fancy, it’s just common sense guardrails layered on top of the base math.

Where guaranteed income fits: Social Security is the workhorse. Your benefit depends on your earnings record and when you claim; delaying to 70 increases the monthly check and reduces portfolio strain. Pensions, SPIAs, or laddered TIPS can also cover baseline costs so the market-facing portfolio funds the discretionary stuff. It’s boring, and it works. I’m blanking on the exact median household Social Security benefit for married couples right now, around mid‑$30ks to low‑$40ks annually is common in cases I see, but the point is the same: those checks materially lower the required withdrawal rate.

Bottom line in Q4 2025: With 3% inflation assumptions, a $1.5M portfolio supports an initial $52.5k-$60k spend (pre-tax) and needs to grow that dollar amount every year. Spending roughly doubles by year ~24, so build that into the plan. If you truly need $90k after tax and have no other income, you’re probably stretching. If you need $50k-$60k and you’ve got partial Social Security, that’s often very doable, especially if you’re willing to trim a bit in bad markets and keep taxes, fees, and frictions low.

Taxes, accounts, and your spend rate: the real-world math

Here’s where the same $1.5M feels very different depending on which buckets you actually own. I’ve sat at plenty of kitchen tables where the gross plan looked fine, and then taxes and premiums ate a hole in it. Happens fast, especially now, with cash still yielding high‑4s and markets up this year, nice problems to have, but they create taxable income if you’re not careful.

Account mix example (simple, but it gets the point across):

  • Case A: All in a traditional IRA ($1.5M). You want $60k to spend. Pulling $60k = $60k of ordinary income. For a married couple with only this income and the 2024 standard deduction ($29,200 MFJ; 2025 is a bit higher), taxable income is roughly $30,800. Most of that sits in the 12% bracket for 2024, with some at 10%. Add state tax if you have it. Call it ~$3.5k-$5k to the IRS, maybe more with state. Your $60k spend needs a ~$63k-$68k gross draw once we layer premiums and minor stuff. Not awful, but it’s all ordinary income every year.
  • Case B: 50/50 Taxable + Roth (say $750k taxable brokerage / $750k Roth). Same $60k spend target. Take ~$35k from Roth (no tax), ~$25k from taxable in the form of qualified dividends/long‑term gains. For 2024, the 0% long‑term capital gains band for married filing jointly goes up to $94,050 of taxable income (15% band to $583,750), so if your other ordinary income is low, much or all of those gains can be taxed at 0%. Net: federal tax can be near $0-$1k. Same gross $60k withdrawal, but the after‑tax spend can be thousands higher than Case A. That’s real money. And yes, 2025 thresholds tick higher with inflation.

Quick aside: the 0%/15%/20% qualified dividend and long‑term gains rates are still policy, and you can manage into those bands. This year, I’ve had clients harvest gains up to the top of the 0% band, then stop. Sounds fussy; it works. The market’s up, you lock in basis, and you don’t increase your tax bill.

RMDs and the “future you” tax problem

  • RMDs begin at age 73 under current law. If you let a big pre‑tax IRA ride, say, $1.5M compounding for a decade, your RMDs later can shove you into higher brackets + trigger Medicare IRMAA. I’ve seen folks jump from mellow 12% years into a 22%+ situation almost overnight at 73.
  • Partial Roth conversions in low‑income years can smooth this. Convert up to the top of your target bracket (say the 12% or 22% band) in your 60s before RMDs start. It’s “pay tax now to lower lifetime tax later.” Unsexy. Effective.

Medicare IRMAA gotchas

  • IRMAA surcharges use a two‑year lookback on MAGI. One big conversion can bite you for two years of higher premiums. For 2024 premiums (based on 2022 MAGI), the first MFJ IRMAA tier started at $206,000; higher tiers kicked in at $258k, $322k, $386k, and $750k. 2025 thresholds are a bit higher, but the point remains: model it explicitly before you convert. I keep a simple bracket table in the spreadsheet, right next to the tax brackets. Saves headaches.

Under 65? ACA credits change the game

  • ACA premium tax credits hinge on Modified AGI. The American Rescue Plan/IRA enhancement caps the benchmark premium at no more than ~8.5% of MAGI through 2025, and it removed the hard 400% FPL cutoff (credits phase out instead). For reference, 400% of the 2024 FPL for a household of two is $81,760 (FPL: $20,440). ACA eligibility for 2025 coverage references the 2024 FPL. Keep those rails in mind.
  • Sequencing matters: spend taxable cash first (harvest gains to the top of the 0% band), then tap Roth for the rest, and avoid big ordinary‑income spikes from IRA withdrawals or conversions while on ACA. That can preserve credits and lower your gross withdrawals needed to net the same after‑tax, after‑premium spend.

Putting it back into the $1.5M question

  • If it’s mostly pre‑tax, your $52.5k-$60k “pre‑tax” spend from earlier becomes more fragile. You’re exposed to ordinary brackets, future RMD inflation, and IRMAA. Build a tax line item that grows.
  • If it’s a mix of taxable + Roth, you can pull the same lifestyle with fewer taxes today and fewer landmines later. Manage gains to the 0%/15% bands, park conversions in years that won’t trigger IRMAA, and be mindful of ACA if you’re not 65 yet.

Rule of thumb I use with real clients: the same $60k lifestyle can require ~$63k-$70k gross from all‑IRA money, but as little as ~$58k-$60k gross from a smart taxable+Roth mix, before state tax. Not perfect, but directionally right.

Last bit: don’t ignore what markets are handing you right now. With cash still near the high‑4s and dividend yields modest, your taxable account throws off income on its own. Harness it, but steer it through the brackets. It’s boring, and yep, it works.

Sequence risk and 2025 markets: building a paycheck that can bend

Here’s the elephant: your first 5-10 years do most of the damage if markets wobble. That’s sequence risk. If you retire into a drawdown and you’re selling shares to fund groceries, you lock in losses and your portfolio has a smaller base when the rebound finally shows up. We’ve seen it, repeatedly. The S&P 500 dropped roughly 45% from 2000-2002 and about 57% from Oct 2007-Mar 2009, and a plain 60/40 lost about 16% in 2022, its roughest calendar year in decades. None of that is a prediction. It’s me reminding you that bad clusters happen more often than our brains want to remember.

So use today’s rate environment to your advantage. Cash still sits in the high‑4s and high‑quality short bonds throw off real yield for the first time in, what, a decade-plus. Higher starting yields are not a magic trick; they just make bonds pull their weight again. The 2010s were a headwind for fixed income, Bloomberg U.S. Aggregate annualized only ~3-4% across much of the decade with yields starting around 3% and sliding lower. Compare that to now: earning ~4-5% on short duration is normal again in 2025. That shifts the balance for a 60/40 or 50/50 mix in your favor because the “40” actually contributes return rather than just ballast.

Mechanics that work in real life:

  • Keep a 2-5 year “safety sleeve.” Hold roughly 24-60 months of planned withdrawals in cash and short‑duration bonds. If you’re targeting $60k/year, that’s $120k-$300k, laddered across money markets, 6-24 month Treasuries, and a short bond fund. When equities fall, you pay yourself from the sleeve and stop selling stocks. When stocks recover, refill the sleeve.
  • Use flexible withdrawal rules. Guardrails are my go‑to: set a centerline (say 4.2% of portfolio), then give yourself 20% bands. On a $1.5m portfolio, that’s a baseline ~$63k; bands are ~$50k-$76k. If markets are strong and you drift above the upper band, give yourself a raise; if they’re weak and you breach the lower band, trim back. You can pair that with an inflation cap in bad years (e.g., max 1% COLA after a down year) or run a floor‑ceiling method, no less than $48k, no more than $72k, in real dollars. Over‑explaining a simple thing here: the point is to avoid reacting to every headline while still being responsive. Okay, done.
  • Rebalance with intention. After good equity years, sell some winners to fund the next year’s draw and top up the sleeve. After poor equity years, pull from the sleeve and let stocks heal. Rebalancing isn’t exciting, but it’s basically the discipline that keeps you from buying high/selling low.
  • Consider partial guarantees. A small immediate annuity or a deferred income annuity (DIA) starting in your 70s can take pressure off withdrawals. Example: carving $150k-$250k from a $1.5m nest egg to start a DIA at 70-75 can cover a $10k-$18k annual floor (quotes vary by age, rates, and features). You still keep most assets in growth, but you blunt the worst sequence paths.

And here’s where my energy spikes a bit, because it’s boring and it works. Markets hand you yield; you lock it into your paycheck design. The safety sleeve buys time. The guardrails keep you honest. The rebalancing rule tells you what to sell when. You don’t need a perfect forecast, just these levers.

Context that matters this year: we’ve already lived through a bond reset (2022’s Bloomberg U.S. Aggregate at about −13%, the worst on record) and then a repair phase with higher coupons. That higher starting yield today statistically improves forward 5-10 year bond returns compared to the 2010s, which supports a more balanced 60/40 or 50/50 without feeling like you’re donating return. And if inflation has another flare‑up? The guardrails plus the sleeve usually absorb a year or two of noise without forcing equity sales at bad prices.

Quick rule of thumb I use: if the portfolio falls 15%+ in year one or two, freeze inflation and lean on the sleeve for 12-24 months. Revisit only at the next annual guardrail check. You’ll hate the patience in the moment, but the math likes it.

But yes, some years will still feel lousy. That’s fine. Sequence risk is about surviving the bad cluster without nuking your plan. A paycheck that bends, 2-5 years of safety cash, flexible withdrawals, methodical rebalancing, and maybe a partial annuity, beats one that breaks.

Frequently Asked Questions

Q: How do I set a withdrawal plan right now if I’ve got about $1-1.5M and inflation’s around 3%?

A: Start simple, then add guardrails. A reasonable base today is 3.5%-4.0% to start, given cash and high‑grade bonds are yielding ~5% and 4-6% respectively in 2025. Put 12-24 months of spending in T‑bills or a high‑yield savings account, hold the next 3-5 years in short/intermediate bonds (mix of Treasuries, TIPS, and high‑quality corporates), and keep equities for growth. Use a guardrail: if your portfolio falls more than ~20% from a high, trim next year’s withdrawal by 5-10%; if it makes a new high, allow a 2-5% raise (still inflation-aware). Rebalance annually, harvest losses for taxes when you can, and sequence your accounts for taxes: taxable first (harvest gains up to 0% bracket if applicable), then pre‑tax, then Roth last. It’s not fancy, but it’s sturdy.

Q: What’s the difference between retiring in 2021 and late 2025 if my portfolio size is the same?

A: Per the article, timing beats totals. In 2021, cash paid basically nothing (3‑month T‑bills averaged ~0.6% across 2010-2019) and you were leaning heavily on equities. In 2025, you’re stepping into ~5% cash, mid‑4% 10‑year Treasuries, and 5-6% high‑quality corporate yields. That means a 60/40 today doesn’t need stocks to do all the heavy lifting for withdrawals. Also, sequence-of-returns risk matters: the article notes 2022’s S&P 500 at about −19% and core bonds around −13%. Starting withdrawals right before a year like that can leave you ~20-25% behind a decade later vs someone who got good early returns, even if your long‑run averages match. So yea, same nest egg, different starting line.

Q: Is it better to hold more cash or more bonds for my first few years of retirement right now?

A: Given today’s setup (referenced in the article), T‑bills around 5% this year, 10‑year Treasuries in the mid‑4% range, and high‑quality corporates roughly 5-6%, I’d do a barbell for near‑term spending: 12-24 months in cash/T‑bills for certainty, then 3-5 years in short/intermediate bonds, including some TIPS since real yields have hovered near ~2% at times this year. That combo gives you known cash for bills and better term/rebalancing benefits than sitting entirely in cash. Keep duration modest (you don’t need to reach for 20‑year paper) and rebalance back to targets after equity moves. If we get another 2022‑style drawdown, that cash/bond sleeve lets you avoid selling stocks when they’re down.

Q: Is it better to delay Social Security to protect against sequence‑of‑returns risk?

A: Often, yes, if you’ve got the health and cashflow to bridge. Claiming at 70 vs 62 raises the monthly benefit by roughly ~77% (because ~70% of PIA at 62 vs ~124% at 70). That bigger, inflation‑linked check is a form of longevity insurance and reduces how much you must pull from the portfolio during bad markets. The trade-off in 2025: with 5% cash yields, the breakeven for delaying often lands in your late 70s; run the numbers with your tax brackets, IRMAA thresholds, and spousal benefits. A practical path: use your cash/bond bucket to fund spending and do partial Roth conversions in the gap years before RMDs and before you claim; if you want more downside ballast, consider a small SPIA in your mid‑60s (payout rates are stronger with today’s yields). Not perfect for everyone, but it’s a solid sequence‑risk buffer.

@article{is-1-5m-enough-with-3-inflation-why-timing-matters,
    title   = {Is $1.5M Enough With 3% Inflation? Why Timing Matters},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/is-1-5m-enough-3-inflation/}
}
Beeri Sparks

Beeri Sparks

Beeri is the principal author and financial analyst behind BankPointe.com. With over 15 years of experience in the commercial banking and FinTech sectors, he specializes in breaking down complex financial systems into clear, actionable insights. His work focuses on market trends, digital banking innovation, and risk management strategies, providing readers with the essential knowledge to navigate the evolving world of finance.