By Dr. Jim Dahle, WCI FounderI had a reader recently ask me a question about Treasury Inflation Protected Securities (TIPS), and when I went to send him a link to an article about them, I realized I had never written one dedicated solely to TIPS. And that's despite having 10% of my portfolio (half of our bonds) invested in them for many years.
Here's the question:
“Can you talk more about TIPS ETFs and whether these are something I should consider (presumably in a tax-protected account?). I've read on TIPsWatch that these funds have actually failed to keep up with inflation. However, I just don't understand TIPs well enough, and I know not to invest in things I don't understand. Therefore, I don't see myself building a TIPS ladder. Truthfully, the more I read, the more confused I get. And given the variety of opinions I read, I'm starting to conclude that if I buy things like a TIPs ETF or individual TIPs that I'm actually taking on risk because I don't know what I'm doing!”
What Is a TIPS?
A TIPS is a Treasury Inflation Protected Security. It is a type of Treasury bond, i.e. a loan to the government. However, instead of getting a guaranteed nominal rate of return and then your principal back from the government, like you would with a regular old (nominal) Treasury bond, you get a guaranteed real (inflation-adjusted) rate of return with TIPS. Note that there is no guarantee that your TIPS (much less a mutual fund or an ETF that owns TIPS) is going to “match” inflation over any time period other than the full time period of the bond. And it's never going to beat inflation (as measured by the Consumer Price Index for Urban consumers or CPI-U) over that full-time period—especially once taxes are assessed if it is held in a taxable account. TIPS are considered riskless (obviously the government could default) in the long run, but they can be quite volatile in the short term.
More information here:
How Does a TIPS Work?
The Department of the Treasury explains:
“As the name implies, TIPS are set up to protect you against inflation. Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS can go up or down over its term. When the TIPS matures, if the principal is higher than the original amount, you get the increased amount. If the principal is equal to or lower than the original amount, you get the original amount. TIPS pay a fixed rate of interest every six months until they mature. Because we pay interest on the adjusted principal, the amount of interest payment also varies. You can hold a TIPS until it matures or sell it before it matures.”
The fixed interest rate (coupon rate) on a TIPS is never less than 0.125%, but it's possible to buy one with a negative real yield either at a Treasury auction or on the secondary market. The minimum purchase is $100, and they can be purchased in any increment of $100. There are maximum purchase amounts when bought at auction too, but these limits are so high ($10 million+) that they are unlikely to affect a white coat investor.
The entire return on TIPS is taxed every year—whether it is from an interest payment or an increase in value—at ordinary income tax rates on your federal tax return. However, those earnings are state tax-free. The taxation of additional principal (added to the original principal due to inflation)—which you have not yet received and which is often referred to as phantom income—is a bit of a hassle, and it's one reason why many investors prefer to own their TIPS inside tax-protected accounts if at all possible (even though they lose out on that state tax benefit by doing so). TIPS are considered one of the less tax-efficient asset classes out there.
TIPS are currently available at auction in terms of five years, 10 years, and 30 years. You can buy a TIPS of many terms on the secondary market through a brokerage.
If you own a TIPS, you get an income distribution twice a year. If you bought a TIPS in October 2024, you would get paid in October and April of 2025, 2026, 2027, 2028, and 2029. In October 2029, you would get your principal adjusted upward with inflation returned to you.
When trying to understand how TIPS behave in varying market conditions, the most important thing to realize is that, just as the value of a nominal bond goes up and down with changes in nominal interest rates, the value of a TIPS goes up and down with changes in real interest rates. Since there is little to no creditor risk with these bonds, all of the volatility is due to the term (interest rate) risk. This varies with both nominal interest rates and expectations of inflation.
Where and How Do You Buy TIPS?
TIPS can be purchased in four different ways.
#1 Treasury Direct Auctions
TIPS can be purchased at auction directly from the government through the TreasuryDirect website. This is the least expensive method but probably the biggest hassle. These auctions are held in the following months:
5-year TIPS
- Original issue: April, October
- Reopenings: June, December
10-year TIPS
- Original issue: January, July
- Reopenings: March, May, September, November
30-year TIPS
- Original issue: February
- Reopening: August
Your money is generally transferred to the Treasury from your bank account on the last day of the month.
#2 At Auction Via Your Brokerage
TIPS can also be purchased at auction indirectly via your brokerage firm. Commissions vary, but they are generally quite reasonable. This may be the easiest and most convenient method to purchase individual TIPS, especially within a retirement account or a Health Savings Account (HSA) that allows for the purchase of individual securities.
#3 On the Secondary Market
Existing TIPS that have not yet matured are not quite as liquid as nominal Treasuries, but as bonds go, they are still very liquid and can be bought and sold any day the market is open through your brokerage. This would allow you to buy a 1-year or a 4-year or a 26-year TIPS if you so desired. This is the most flexible way to buy individual TIPS since you can purchase them at any time, not just at the time of an auction or an auction re-opening.
#4 Via a TIPS Mutual Fund or ETF
If you don't want to hassle with buying individual TIPS yourself or are investing in an account that does not allow you to do so, consider a TIPS mutual fund or ETF. There are many very inexpensive, passively managed TIPS funds of various maturities and durations. While only TIPS will be in the fund, there will be TIPS of a variety of vintages. For example, the Vanguard Short Term Inflation Protected Securities ETF (VTIP) owns 27 different TIPS.
How Is a TIPS Different from an I Bond and Which Is Better?
While both a TIPS and an I Bond are inflation-protected securities issued by the US government, a TIPS is a Treasury and an I Bond is a type of savings bond. They work differently, and each has its pluses and minuses as discussed in I Bonds vs. TIPS. Which is better depends on the interest rates at the time of issue, the movement of those interest rates during the period you own the bond (unknowable), and your personal goals for the money. `
Some advantages of TIPS include:
- Can be purchased in essentially any amount (there are significant limitations on I Bond purchases)
- Can be resold immediately (no requirement to hold for one year and no loss of interest for the first five years like I Bonds)
- Can be easily packaged into mutual funds and ETFs and made available in retirement plans
- Initial TIPS fixed rates are set by a market mechanism (the auction), not government fiat like an I Bond
- TIPS can be sold to anyone, not just the government
- TIPS can be easily laddered (see below)
- TIPS go up in value when interest rates fall
Some advantages of I Bonds include:
- They grow in a tax-protected way; no tax is due until they are sold
- They have better deflation protection than TIPS in that their principal never goes down in value: the value of a TIPS will never go below the original value, but you can lose the increase in value from previous years
- I Bonds used for higher education can be sold tax-free for low earners
- At times, I Bonds can have very high interest rates (as high as 9.62% at one point in 2022)
- I Bonds, like cash but unlike TIPS, don't go down in value when interest rates rise
More information here:
I Bonds, TIPS, S Corps, ETFs, and 403(b)s
Should I Buy Individual TIPS or a TIPS Bond Mutual Fund/ETF?
Some investors think it is silly to pay even a tiny fee to a mutual fund manager who is just going to buy TIPS for free from the government. In addition, when you buy individual TIPS, you know exactly when they are going to mature and how much (at least on a real basis) you are going to receive when they do. In exchange for the convenience and flexibility of a mutual fund or ETF, investors must pay a fee (generally very low) in the form of an expense ratio and face some additional risks.
The first risk is faced by any investor, whether an individual or fund manager, who must invest additional money into the asset class in the future. This is reinvestment risk. You might be forced to reinvest at lower interest rates when rates fall. When rates rise, you might lose principal if you try to maintain the same duration for your bond portfolio because you will be selling bonds that have lost value prior to their maturity. An individual bond held to maturity does not have that risk.
There is an additional risk unique to fund investors—the risk that other investors in the fund will panic-sell and force the fund manager to sell bonds while their value is low and lock in principal losses for the remaining investors. These risks should not be particularly concerning to the individual long-term investor, but if you are worried about them, the work-around (buying individual TIPS) is not too time-consuming, expensive, or risky.
While I think bond funds are appropriate for corporate bonds, mortgage bonds, and municipal bonds, I do see buying individual Treasuries (including TIPS) as completely reasonable. In fact, Katie and I own TIPS both directly through TreasuryDirect accounts and indirectly via the Schwab TIPS ETF (SCHP) in some retirement accounts.
What Is a TIPS Ladder?
A TIPS ladder, like a CD ladder, just consists of a series of TIPS with different maturities. For example, someone who wanted to invest $3 million in a 30-year TIPS ladder might put $100,000 into a 1-year TIPS, $100,00o into a 2-year TIPS, and so on until they get to a 30-year TIPS. When each TIPS matures, the proceeds are either reinvested into a new 30-year TIPS or spent for living expenses. Near retirees and retirees often construct TIPS ladders to reduce the risk of having to reduce their real spending amount each year in retirement.
Naturally, a 30-year TIPS ladder does nothing to protect you from running out of money if you live longer than 30 years. You would need a Single Premium Immediate Annuity (SPIA) to insure against that risk, but inflation-adjusted SPIAs are no longer available on the market. The closest thing you can find to buying one is to delay your Social Security benefits to age 70.
Why Didn't TIPS Keep Up with Inflation in 2022?
Many TIPS investors were frustrated in 2022 when inflation reared its ugly head and TIPS didn't provide outsized returns. They actually lost money. Remember that TIPS are bonds, and when interest rates go up, the value of a bond goes down. When nominal interest rates go up, the value of a nominal bond goes down. When real (after-inflation) interest rates go up, the value of an inflation-indexed bond such as a TIPS goes down. Real interest rates went up about 4% in 2022, so nobody should be surprised to see the value of a TIPS go down (way down for long-term TIPS) in 2022. I Bonds, with their principal guarantee, performed much better that year. TIPS still outperformed nominal Treasuries of comparable duration during the period of unexpectedly high inflation, although the outperformance wasn't dramatic.
- VTIP — Vanguard Short Term TIPS ETF (duration 2.37 years): -2.96%
- VGSH — Vanguard Short Term Treasury ETF (duration 1.88 years): -3.86%
The short term Treasury fund lost more than the short term TIPS fund despite having less term risk.
- SCHP — Schwab TIPS ETF (duration 6.71 years): -12.02%
- IEF—IShares 7-10 Year Treasuries ETF (duration 7.22 years): -15.16%
With similar durations (although IEF did have slightly more term risk), the TIPS ETF outperformed significantly. The biggest issue for all bonds in 2022 was the term (interest rate) risk. This is easily seen when you look at long bond funds.
- LTPZ — PIMCO 15+ Year US TIPS ETF (duration 18.8 years): -31.68%
- VGLT — Vanguard Long Term Treasuries ETF (duration 14.9 years): -29.35%
Had the duration of VGLT been the same as the PIMCO fund, it likely would have had losses of 40% or more. I looked but could not find a Treasury fund with a similar duration to compare to LTPZ.
If an investor had mistakenly thought that TIPS would protect them from losses during a time of high inflation or cause the portfolio to “keep up with inflation,” it is easy to see why there was so much disappointment. TIPS held to maturity guarantees you a real rate of return, but they are only riskless assets in the long term. In the short term, they can be pretty risky—especially the longer-term ones owned in a fund where the other investors tend to sell low in a bond market downturn.
More information here:
Inflation Is NOT Good for the Wealthy
Why You Must Adjust for Inflation in Long-Term Planning
The Bottom Line
While half of our bonds are inflation-indexed (TIPS and I Bonds), investing in TIPS is still optional for you. If you don't understand how they work, don't invest in them. But as a major asset class, I think it is worth taking a little time to understand the workings of nominal bonds and TIPS, their slightly more complicated cousins. If you're going to invest in bonds, you should give serious consideration to the bonds that address perhaps the most serious long-term risk (inflation), such as TIPs.
What do you think? Do you invest in TIPS? Why? How? Do you like them better than I Bonds?
Hi Dr. Dahle,
Thanks for the good article on TIPS. Very helpful.
In the article you mentioned that “inflation-adjusted SPIAs are no longer available on the market”. That is partially true, but only half true. While there are not (to my knowledge) SPIAs available that automatically adjust based on CPI, there are definitely SPIAs available with fixed cost-of-living adjustments ranging from 1% to 5%. A friend of mine bought a SPIA with a 4% annual inflation adjustment. When inflation is 2% or 3% he wins. When inflation is more than 4% he loses. But every year he gets a 4% raise in his monthly payment. That should keep up with (or even beat) inflation in most years. So, I thought it might be helpful to let the readers know that that is available, and perhaps future references to SPIAs and inflation adjustments can be a bit more correctly nuanced, rather than saying that “inflation-adjusted SPIAs are no longer on the market” which leads people to think that the SPIAs are only available in the form of a flat nominal monthly payment for the entire term.
Thanks.
Better than nothing I guess, but not much help if inflation goes to 20% for a few years.
True, but I don’t think anybody is expecting inflation to go to 20% for a few years. If that happens there will be much more serious problems. Even when it spiked in the late 70s/early 80s it was relatively short lived and peaked at 14% in 1980. I was in university then and my tuition doubled in 4 years. Ouch!
But in my opinion nobody reading this blog should have an annuity as 100% of their financial assets, and probably no more than 30%. The rest of their portfolio (plus SS) should hopefully keep up with inflation. I personally don’t have any annuities other than future SS and my current small pension. I’m hoping that my stock and real estate portfolio keep up with or beat inflation, along with the pension & SS. Only time will tell.
That’s exactly the point. TIPS contain an insurance policy against unexpected inflation. If you expected it, nominal treasuries would be yielding 24%. The future can be worse than the past.
Another option is that Blackrock offer fixed maturity tips etf products (confusingly called ibonds). Essentially being able to buy individual tips like they are etfs for a small management fee. A benefit is that, for taxable accounts, there is no phantom income because all the income (both inflation and coupon) is paid out with the dividends. Another benefit is for people who can’t buy the individual bonds themselves. (as an aside, they have these same products for other types of bonds too).
A discussion of pros and cons by the tipswatch blogger is here https://tipswatch.com/2024/05/30/ishares-launches-its-2034-target-date-tips-etf/
I agree that the Blackrock offerings are worth considering. They start with IBIA, but last only up to ten years.
I have always had traditional bond funds as part of my asset allocation, but added iBonds, IPS ETFs, SPIAs, and now a 23-year TIPS ladder. Okay, I’m officially old now!
great point on fixed maturity TIPS etf’s from Blackrock. It would seem to me this is the way to go, at least up to 10 years, in order to have principal protection and an easier to manage TIPS ladder than going through Treasury Direct.
Wealthy Doc I was wondering about your asset allocation and why on top of traditional bond funds you added iBonds, TIPS etf’s, SPIA’s and then the TIPS ladder? do you still have equities to fund you once the TIPS ladder goes defunct? did you consider a DIA once the TIPS ladder ends? did you find the TIPS ladder worked well in 2022 when other TIPS that weren’t maturing for awhile tanked? Or did you find you had to sell other assets low as the SPIA and matured TIP did not meet 2022 expenses? It seems like you are in the bottom left corner of Wade Pfau’s RISA quadrant, correct?
Rikki,
Your conclusion is reasonable, but I scored in the upper right quadrant (Total Return Approach). I don’t adhere to “barbell investing,” but I do invest heavily in both riskless and risky assets.
I’m not making general personal finance or AA recommendations here. In my case, I have unique reasons (e.g., negligible Human Capital, longevity concerns, asymmetry of building wealth post-fat-FI vs. downside risk). I still have significant assets invested in global stocks, U.S. commercial real estate, etc., for upside gains. Riskless assets cover my floor of living expenses.
Lastly, I have multiple income streams, so my TIPS ladder may never end. If I don’t need to spend it, I can extend it each year.
Let’s talk more sometime. Maybe at the next WCICON?
dude would love to attend WCICON- family responsibilities though and stupid work couldn’t fit it in this year 🙁
WCICON26 is going to be in a fun place. Let’s make it happen, Rik. You can bring Mer and everything.
Thanks for sharing. Still not sure what to do with those. I guess they’re useful in some sort of account that lets one buy ETFs but not individual TIPS.
awesome article as always Jim! despite getting bopped on the head you haven’t missed a beat!
you imply with your last sentence that TIPS are in your portfolio to hedge against LONG term inflation, but I’m not sure how well this works in retirement during drawdown where the bond portion of your portfolio should be more ballast for equities, and equities are already your LONG term inflation hedge. I guess TIPS adjusts for LONG term inflation differently, but it still is a bond so its overall lower returns I would rather just own equities. the main disappointment with TIPS is like you said, you thought that it protected against SHORT term inflation where if your equities tank, and nominal treasury bonds also tank because of rising interest rates in a high inflation enviorment, you would have expected higher correlation of TIPS to inflation and BOOM- your don’t have to sell stocks and nominal treasury bonds low. But we just learned in 2022 this doesn’t happen 🙁 TIPS are more correlated to nominal treasury bonds and interest rate risk and have minimal to no correlation to rising SHORT term inflation.
So in the end, if the game you’re trying to play in your portfolio is to have non-equity assets to act as ballast to equities, it doesn’t seem TIPS offer much protection compared to nominal treasury bonds. Am I missing something?
It seems TIPS are best used as a liability matching strategy, not as a portfolio diversifier, guaranteeing a real amount of spend when the TIPS mature, correct?
Sorry Jim, I’m just trying to make sure I understand why it seems to me TIPS are a poor diversifier to my asset allocation when the game I’m trying to play is for bonds to provide ballast to my equities.
Rikki,
You made great points.
IPS aren’t mandatory, but they are a distinct asset class. It provides some diversification. Your nominal bonds won’t do well in inflationary environments.
seems TIPS don’t do well in inflationary enviornments either, because the Fed jacks up interest rates in response to said inflation in the short term 🙁 that’s what shocked everybody in 2022- you though TIPS would do well in an inflationary enviorment, not matter what interest rates were doing! They are sold as inflation protection (it’s in the freakin name) but do not truly protect against all types of inflation, only LONG term inflation when the TIPS mature.
TIPS just don’t seem to provide the diversification I’m looking for when constructing an asset allocation where bonds should act as ballast to my equities. even with it’s inflation protection feature, TIPS are still too highly correlated to nominal treasuries not sure if adding them really has a place in my portfolio
If you’re really bothered by interest rate risk like what showed up in 2022, then use short term TIPS or just individual bonds.
Excellent and comprehensive discussion of TIPS. I came by to also make two points, one of which has already been made, that you can buy, from multiple vendors, fixed maturity TIPS ETFs. Using these, you can easily create your own ladder without having to go and buy the individual bonds.
The other point I wanted to make is that there are some articles online regarding the difficulty accessing the treasury direct site. This occurs when one loses one’s password or is otherwise locked out. It has also been a problem when the owner passes away, and there are assets in treasury direct. There are people who have had estate resolution nightmares, lasting years. As a result, I have sold the remaining savings bonds and am attempting to transfer TIPS, from treasury direct to my Fidelity account. Apparently, this also takes months, requires medallion signature guarantees., etc. One can easily buy these bonds at treasury auction throughyour Schwab/Fidelity account, and this is what I would recommend. You can also sell them from your brokerage account, which you cannot do on treasury direct.
I agree Treasury Direct may be the worst when it comes to IT and customer service. But you can buy individual bonds at Vanguard, Fidelity etc. You don’t have to buy them from Treasury Direct. I suspect I’ll close our TD accounts in the future.
So when TIPS values plummeted in 2022, if you own individual TIPS in a ladder and keep till maturity that doesn’t really affect you much right? Only if you have to sell low or someone is selling low for you in a mutual fund. In fact if you own them in taxable, since value went down do you claim phantom losses?
I don’t have TIPS yet but max out iBonds currently. But I could see a strategy where you do a ladder, get regular interest payments of some amount. At term you get at least your money back and hopefully would get more back if they go up right? If you do them that way they are a very very low risk asset correct?
I just want to make sure I understand.
The TIPS lost value during that time, but if you hold to maturity, you got what you contracted for when you bought them….the original yield plus inflation. The idea that “you only lose money if you sell” isn’t really accurate. But many do prefer that to a fund for sure where it’s easier to “permanently” lose capital, especially if your fellow fund holders all bail before the TIPS recover their value.
tipsladder.com is an awesome website that helps you create a tips ladder.
Excellent article! My current employers’s 401(k) plan has limited (and high cost) options in their bond fund offerings and I cannot buy individual TIPS in the account to create a ladder. I have considered using my Roth IRA through Schwab to build a ladder, but have been hesitant as my understanding was that you should place investments that have higher growth potential into a Roth account for the tax benefits and keep low growth, investments, like bonds, in traditional 401(k) and IRAs. I’d appreciate anyone’s opinions on whether they think it would be a good idea to put a TIPS ladder into my Roth account. Thanks.
Sure. Just put fewer of them in than if you were putting them in a tax-deferred account. The accounts are really the same thing once you adjust for taxes.
I’ve never thought of the accounts in that way. Thanks for the insight.
https://www.whitecoatinvestor.com/my-two-asset-location-pet-peeves/
TIPS are one of the worst reasonable investments, suitable only for extremely conservative investors. They don’t even do well in inflationary periods, like 2021-2022, because they are still bonds which get hit when interest rates rise. It’s difficult to construct a portfolio where the addition of TIPS improves metrics like safe withdrawal rate or rate of return
All of us are extremely conservative with a small part of our money, no? TIPS work well for that part.
And you’re using the wrong tense in your last sentence. You meant to use “improved” not “improves”.
My crystal ball is cloudy, but I expect the next 50 years to be generally similar to the last 50.
TIPS perform well with rising inflation and falling interest rates. My crystal ball says the likelihood of that happening is functionally zero.
> extremely conservative with a small part
Agreed. Since it’s a small part it doesn’t really matter what you do. Savings accounts are sufficient. If doing more provides some psychological benefit, go ahead, but don’t expect it to actually improve any metric.
All bonds do poorly in rising interest rate environments.
TIPS outperform nominals bonds when inflation is higher than it was expected to be.
Some think TIPS are a bum deal since interest rates generally go up when inflation goes up. If you fall into that camp, then try I bonds if you can buy enough of them to make a difference. Those who like TIPS love the fact that they are among the least risky investments out there, particularly individual TIPS help to maturity as a ladder.
We agree TIPS work well for extremely conservative investors. For typical investors, stocks (esp value) and real estate beat inflation. Traditional bonds are better than TIPS during deflationary recessions and bear markets, which happen regularly, and the main risk bonds are designed to mitigate.
“have beat” inflation.
I don’t know why you would say traditional bonds would beat TIPS during a bar market or a deflationary recession. That’s not necessarily the case. TIPS also benefit from falling interest rates and a flight to safety, although presumably nobody expecting deflation would buy TIPS so you’re probably right.
I don’t buy TIPS solely or even mostly to protect me in bear markets and deflationary recessions. I also buy them to reduce volatility of the portfolio, in case bonds outperform stocks, and to protect against higher than expected inflation. Lots of good reasons to buy.
If stocks and real estate don’t beat inflation over the long run, the correct investment is a bunker stocked with canned food and ammo, not TIPS.
TIPS are more correlated with stocks than long term treasuries. Swapping TIPS in place of TLT likely increases overall volatility
Again, you’re using the wrong tense. TIPS “have been” more correlated with stocks than long term treasuries since they showed up a couple decades ago is the proper way to phrase that, unless your crystal ball is less cloudy than mine.
Look, if you prefer to use long term treasuries as your bonds, knock yourself out. It’s your money. Make sure you can handle something like 2022 when TLT lost over 31%. I can’t handle that from the safe portion of my portfolio so I don’t invest in long term bonds. I much prefer the characteristics of short to intermediate term TIPS to those of long term nominal treasuries.
Performance of your total portfolio is what matters. Dividing your portfolio into subsets and looking at the performance of those subsets in isolation is a form of mental accounting, a common fallacy.
It might be a fallacy, but it doesn’t matter how awesome your portfolio is if you can’t stay the course with it and having weird stuff in your portfolio often makes it harder to stay the course. Many of us can’t tolerate the volatility of Bitcoin, despite what having it in a portfolio would have done over the last 15 years.
I believe there are no fees for buying a new issue individual TIPS at auction in a Vanguard brokerage account. I called Vanguard to confirm that last year. Unless that info was incorrect and there are hidden fees I am not aware of, it seems there is no downside to buying a new issue TIPS at auction at Vanguard rather than Treasury Direct?
Another bonus there (besides a preferred website) is that the coupons go into the Vanguard sweep account (earning 4% interest while they wait for me to reinvest) instead of whatever bank account is linked Treasury Direct (probably earning 0.1% and where they will probably get spent instead of reinvested). If anyone is aware of fees to buy a new issue at auction at Vanguard or has other reasons to use TD instead please let me know!
I think you’re right.
A TIPS ladder is a great stress-reducer. A retired person has 2 financial concerns, inflation and running out of money before dying.
It’s the closest thing a private person can have to a government-employee style inflation-adjusted guaranteed lifetime pension, with a nice advantage.
When I retired a couple of years ago, I bought a 30 year TIPS ladder with a good chunk of my qualified (IRA) money.
Every year, a TIPS bond matures, providing us with a chunk of cash to live on; it’s approximately my RMD. Unless I live to over age 100, I’ll never run out of inflation-adjusted income. The RMD and Social Security are more than enough to support our usual spending, leaving my Roth and other non-qualified accounts for any unusual expenses. So far, we have not touched the non-qualified money.
Downsides: (1) It took me a fair amount of studying to understand TIPS; tipswatch.com is a great resource.
(2) The value of your TIPS fluctuates daily, and you will “lose” thousands of dollars in paper losses when interest rates rise. This can be disconcerting even when the intent is to hold to maturity and the owner fully understands what is going on. I exclude the value of my TIPS when doing periodic financial reviews.
(3) You’ll never get rich buying and holding TIPS. This is not Nvidia.
(4) No TIPS maturing in 2036-39. I bought extra 2034 and 2035.
(5) Government and Fed policies can lead to TIPS not keeping up with real inflation.
The advantage of a TIPS ladder over a government pension is that in the likely event that spouse and I pass on before the last bond matures (we will be 100 that year), whatever funds are left go to the beneficiaries of the IRA.