I recently received an email from a subscriber named Joe. He is two to three years from retirement and expects to have roughly $1.5 million in investable assets. His question was straightforward: “How much money can I actually spend without running out?”
That question comes up often. Most people in the $1 million to $2 million range are still guessing. Conventional advice leaves them uneasy. The old 4% rule is treated as a finished plan when it should only be a starting point.
This post lays out a clean, practical framework I use and recommend for people in that exact range. It is educational, based on current research and patterns that have worked repeatedly. It is not personalized financial advice. Every household is different. Run your own numbers with a qualified professional before setting a final plan.
Why the 4% Rule Alone Is Not Enough
Morningstar’s recent research places a fixed, inflation-adjusted withdrawal rate closer to 3.9% for a high probability of not depleting a portfolio over 30 years. Bill Bengen, the originator of the original 4% rule, has also discussed higher rates when flexibility is built into the plan.
The real problem is rarely the percentage itself. The bigger issue is the absence of a clear system that accounts for Social Security, taxes, healthcare costs, sequence-of-returns risk, and the fact that life does not stay flat.
A workable plan for someone with $1 million to $2 million needs more than a single withdrawal rate. It needs structure.
1. Start with the Real Income Floor, Not Just a Portfolio Percentage
The first mistake many people make is treating the portfolio as if it has to carry the entire load. Most households in this range also have Social Security. A typical single person at full retirement age might receive $25,000 to $35,000. A couple might see $45,000 to $65,000 combined, depending on earnings history and claiming strategy.
Use clean round numbers for illustration. A $1.5 million portfolio at a 3.9% withdrawal rate produces about $58,500 per year. Add $40,000 of Social Security and the combined gross is roughly $98,500 before taxes. A $2 million portfolio at the same rate produces about $78,000 from investments. With Social Security the total moves closer to $120,000 gross.
These are starting points, not promises. Once you know your non-portfolio income (Social Security plus any pension), the portfolio only has to fill the gap. That changes the required withdrawal rate dramatically. If Social Security and a pension already cover 40% to 50% of target spending, the portfolio can run at a lower, safer rate.
Every situation is different. Run your own numbers.
2. Use a Three-Bucket Structure to Reduce Sequence-of-Returns Panic
Most households with $1 million to $2 million still feel nervous about market drops, especially in the early years of retirement. A simple three-bucket approach addresses that concern without complex formulas.
Bucket 1 holds the first two to three years of portfolio spending. If you plan to draw $60,000 a year from investments, that means $120,000 to $180,000 in cash, short-term Treasuries, or high-yield savings. This is the money you spend first. Markets can drop 20% to 30% and you do not have to sell stocks at the bottom.
Bucket 2 covers the next five to eight years. It is made up of intermediate bonds, bond funds, or other conservative income investments. You refill Bucket 1 from here on a schedule set in advance.
Bucket 3 is the long-term growth engine—the remaining majority of the portfolio in diversified stocks and other growth assets. Leave it alone for a decade or more unless markets are strong and you are rebalancing.
The system is both mathematical and psychological. When markets are down you know exactly where the next few years of spending will come from. That knowledge alone reduces the urge to panic sell. Late starters who implement a version of this structure usually feel more in control almost immediately.
3. Follow a Tax-Efficient Order of Withdrawals
Having the money is only half the battle. The order in which you pull it can add or subtract tens of thousands of dollars over a retirement.
A sequence that works well for many households in the $1 million to $2 million range looks like this:
- Spend from taxable brokerage accounts first. This helps keep ordinary income lower so you can stay in favorable capital gains brackets and manage Medicare surcharges.
- In the years leading up to required minimum distributions, make partial Roth conversions. Convert just enough each year to fill lower tax brackets. This reduces future RMDs and creates more tax-free flexibility later. For many late starters this is one of the highest-value windows available.
- If the math supports it, delay Social Security. Use the portfolio or other income to bridge the gap. A higher delayed benefit becomes a larger inflation-protected floor with cost-of-living adjustments built in. Once you reach age 70 the benefit is maximized.
- Once RMDs begin, coordinate them carefully with other income so you avoid pushing yourself into higher tax brackets and higher Medicare premiums.
The difference between a tax-aware plan and a random plan is often larger than the difference between a 3.9% and a 4.2% withdrawal rate. Professional modeling frequently pays for itself many times over.
4. Build Simple Spending Guardrails
A rigid fixed-percentage rule leaves money on the table in good years and creates stress in bad ones. A simple guardrail system solves both problems.
Set a target withdrawal rate—say 4%. Place a lower guardrail at 3.5% and an upper guardrail at 5%. Each year recalculate the current rate based on the new portfolio value.
If the rate drifts above the upper guardrail (markets fell), reduce spending by a predetermined amount, such as 10%. If the rate drops below the lower guardrail (markets rose), give yourself a raise of the same percentage. Adjustments stay modest and rules-based. You never have to guess.
Morningstar notes that flexible approaches can support starting rates meaningfully higher than a fixed 3.9% while still maintaining a high probability of success. Flexibility is a feature, not a bug.
5. Layer in a Secured Income Stream Many Plans Ignore
Even with buckets and guardrails, a traditional portfolio remains tied to sequence-of-returns risk. One practical way to reduce that dependence is adding a secured income layer backed by real estate rather than stocks and bonds alone.
Seller-financed notes generate monthly payments that do not move with the equity markets. In scenarios I have seen, a portion of capital allocated to performing notes or note-related cash flow has produced steady income in the 8% to 12% range (deal- and risk-dependent). That cash flow can cover a meaningful slice of living expenses. The traditional portfolio then only has to supply the remainder, which lowers the number of shares that need to be sold in down years.
This is not a replacement for a diversified portfolio. It is a complementary layer. Many late starters discover it after they already have $1 million to $2 million and want capital to work harder without additional stock-market exposure.
Due diligence is the key: payment history, property value, borrower strength, and proper documentation. The structure itself is straightforward—you become the bank instead of hoping the market cooperates every year. Results vary. Every note is different. Speak with qualified professionals to confirm any approach lines up with your goals and risk tolerance.
6. Account for Healthcare and Inflation—the Silent Variables
Even a clean spending plan can be derailed by healthcare costs that rise faster than general inflation. Build an explicit healthcare reserve or use an HSA if it is still available. Many people in the $1 million to $2 million range underestimate Medicare premiums, supplemental insurance, and potential long-term care costs over two to three decades.
Inflation is another reason a pure 4% rule feels incomplete. A plan that starts at $80,000 needs to grow. Bucket and guardrail systems handle this better than a rigid dollar amount because they recalculate against current portfolio value and actual needs.
Putting the Whole System Together
The perfect spending plan for $1 million to $2 million in investable assets is not a single percentage. It is a system:
- Calculate the income floor from Social Security and any pensions first.
- Determine the gap the portfolio must fill.
- Fund the first two to three years of that gap in cash (Bucket 1).
- Cover the next five to eight years with conservative income assets (Bucket 2).
- Keep the rest in growth assets (Bucket 3) and leave it alone for a decade or more.
- Withdraw in tax-efficient order and use the pre-RMD window for partial Roth conversions while staying inside target tax brackets.
- Apply simple spending guardrails so adjustments stay modest and rules-based.
- Consider adding a secured income layer such as performing notes to reduce reliance on selling assets when markets are down.
When these pieces work together, the $1 million to $2 million range stops feeling like a tightrope and starts feeling like a workable foundation.
The first time I modeled a plan like this for myself, the numbers looked better once I stopped treating the portfolio as the only income source and began thinking in layers. Anxiety dropped. Options became clearer. You are probably further along than average advice makes you feel.
Next Steps
If you want practical resources on alternative income strategies that fit late-starter realities, explore the rest of this site. Information on the broker program is also available for those interested in learning how notes can function as a complementary layer.
Small, consistent steps compound. The framework above is a starting point. Refine it with professional guidance that accounts for your specific tax situation, healthcare needs, and risk tolerance.
This content is for educational purposes only and does not constitute investment, tax, or financial advice. Note investing involves risk, including possible loss of principal. Past performance is not indicative of future results. Always perform your own due diligence and consult qualified professionals regarding your specific situation.
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