Why A TIPS Ladder May Be A Retiree’s Best Friend

Not long ago investors had to pay the U.S. government for the privilege of owning TIPS. The real yields, that is the yield after factoring in inflation, were negative. Last year, like a phoenix rising, real yields broke above 0%. Today the real yield on 10-year TIPS is about 2.50%. This offers some intriguing options for those in or near retirement.

Treasury Inflation-Protected Securities, or TIPS for short, are U.S. government bonds whose principal amount adjust for inflation. They are as close a sure thing as an investor can get. Of course, there is no free lunch. What an investor gives up with TIPS is the possibility of better returns with nominal bonds (should inflation end up lower than expected) or with more risky assets such as stocks. For many retirees, however, risk is a four-letter word.