The Pros and Cons of Building a TIPS Ladder for Retirement Income

A TIPS ladder is just one way to generate income during retirement. We'll look at two scenarios where a TIPS ladder may make sense, and then discuss the pros and cons.

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#retirement #tips #robberger

ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.

[VisitorsWelcome]

I followed your instructions in a previous video to buy a TIPS ladder paying $10, 000 per year, increasing with inflation. Then I bought an annuity through Fidelity paying $10, 000 per year, increasing 3% annually to offset inflation. If I die before getting back what I paid, the insurance company pays my heirs the difference. If the company goes bankrupt, my state guarantees all annuities up to $500, 000. Thanks Rob!

[RogerMKE]

We did this last fall when real rates were above 2.5%. It is comforting to know that our basic expenses are guaranteed for 30 years. Discretionary spending will be covered by the risk portfolio.

[tatianastarcic]

Retirement isn’t an end goal, but a journey best secured by careful and consistent investments.

[mrb]

Fantastic video Rob. It offered just the TIPS I needed. 😉

[MDE]

You did a TIPS presentation only a year ago. Nice way to address concerns about likely inflationary policies of the next administration without getting into politics.

[cathya]

Great and timely video! Could you look at another scenario? I am not concerned with longevity risk. What if I replaced all of my bonds in a 75/25 portfolio with a Tips ladder? How do those returns look versus just leaving in a bond fund? Does this answer change with a 60/40 portfolio?

[jwilli]

Another idea I've seen that strikes me as reasonable is to build a TIPS ladder matched to projected RMDs. That way you are taking the RMDs using guaranteed returns. Put the remaining assets in qualified plan into stock/bond portfolio as your risk portfolio.

[davidpeters]

What about using TIPs for a sizable part of the bond portion of a 60/40 portfolio? Nominal bonds underperform in inflationary environments. It seems you could reduce risk compared to 100% nominal bonds for the bond portion of your portfolio.

[fishynut]

Another very informative thought provoking discussion! Thanks

[bobbyz]

My case I bought a 8 yr TIPS ladder to my minimum expenses from yr 62 to 70. I plan to claim SS at 70. The rest of the money I can invest more aggressively (if needed) as I don't need it till age 70.

[jeffh]

Thank you Rob, but after you discussed a 5-year ladder to bridge retiring until SS, I was expecting the equivalent SPIA period-certain comparison, similar to earlier when you compared to lifetime annuity. I went with a bridge SPIA starting last year and was hoping for your take.

[mikephilpot]

We (my wife and I) went with the annuity (SPIA) instead of a TIPS ladder for our retirement.

For us, the TIPS ladder could only last ~16 years for the initial investment vs a joint lifetime SPIA.

We also got a cash refund rider to return any unused principal to our kids if we both pass before the payouts exhaust it.

The TIPS ladder sounds great with inflation adjustments, but all that means is we are just guessing at how big inflation will be to carry our budget out over the most years possible at the income level we are targeting.

If we guess wrong, (and we will), we end up with a shortfall or an overage that we didn’t count on and could have used earlier in retirement.

With the annuity, the income is guaranteed and perfectly hedged to our lifetimes.

And if or when the amount becomes too low and we don’t feel Social Security and our equity portfolio aren’t keeping us funded for our goals, then we can purchase another SPIA to “rebalance”.

Anyway. Great video as always Rob. Thx. ❤

[sixstringsdaddy]

A good happy medium for ladders used as a bridge to social security: match your expected SS amount even if for many, you expect to spend more than SS alone.

[JoshawnWilliams-sb]

I’m 55 from southeastern Ohio but worked overseas all my life. I have savings of $1, 000, 000 and I'm ready for retirement, only concerned about the soaring inflation. Is this enough to retire comfortably, or do I need some sort of money management?

[steveclarke]

TIPS rookie question here. When buying TIPS, will you have to pay accrued interest charges for bonds that are not new issues (most of them I suspect). That would raise the purchase price of the ladder, would it not?

[Jaws-]

Great video, love your channel, Rob. What are your thoughts on just investing in VTIP ETF?

[ChristopherJeffreynx]

"Building wealth is like climbing a mountain; investing is the steady ascent, retirement is the summit."

[gretchenbartosch]

What are the taxes (Florida) on TIPS and does the yearly TIPS income go towards RMD's?

[CarlZ]

Great video. Very informative as per usual. Question: Buckeyes football in the foreground. Did you play for them?

[josh]

What should we do if we are in scenario 3 with most of the money in taxable accounts?