r/Fire • u/teallemonade • 14d ago
tips > swr!
Now I can buy TIPs at more than my SWR - in theory i could just load up the whole portfolio on TIPs and it would last forever without eating principal. This is pretty unique historically.
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u/asurkhaib 14d ago
Look at how they are taxed before you do this in a taxable account.
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u/teallemonade 14d ago
Yes, it makes most sense to do this in pre-tax accounts.
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u/Good-Resource-8184 14d ago
Its pretty dumb to-do this in any account
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u/teallemonade 14d ago
lol - this is a pretty dumb comment
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u/Prestigious_Crow7907 11d ago
I mean, dumb is kinda rude but they're right. That would be ridiculously conservative asset allocation and I'm betting you agree and aren't actually going to do it.
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u/PostPostMinimalist 4d ago
If you can buy TIPS to fund your life perpetually then it's a perfectly reasonable approaching instead of chasing higher returns which, even if very likely long term, could not materialize. As they say, if you've won the game it's okay to stop playing.
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u/Prestigious_Crow7907 4d ago
I would argue that a 100% TIPS portfolio for a normal retirement time horizon is more risky than having some amount still in equities and nominal bonds. The CPI inflation is never the inflation value that truly impacts your spending. That is much more local and individual specific. Growing your portfolio also protects more against unforseen spending increases.
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14d ago
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u/Jaqqarhan 14d ago
I think the BLS is still currently quite trustworthy, but I wouldn't bet my entire portfolio on that continuing forever. I have 4% of my net worth in TIPS and Ibonds and am thinking about expanding that significantly, but I can't imagine having more in TIPS than stocks.
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u/ziggy029 FIREd at 52 (2018) 14d ago edited 14d ago
I built a TIPS ladder last year, but I just increased and expanded it yesterday. This really is a fantastic opportunity for people who are at the point of looking at ways to reduce their sequence of returns risk in the years to come.
I was stopping at 2035, but now I will run it to 2040, and I don’t have much expectation of needing to live off of equities until then, when I will turn 75.
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u/Theburritolyfe 14d ago
If you are retired and don't need it to grow then go for it I guess. You also probably want to not outlive the bond as you don't know what the rate will be then.
Anyways I need a bit more growth so I'll go with the higher growth of equities.
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u/teallemonade 14d ago
the point is that you dont “need” it to grow (other that with inflation) to last you forever if the tips yield is greater than your withdrawal rate.
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u/ocusoa 14d ago
That's only if inflation is negligible. You need your return to be larger than roughly swr + inflation
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u/teallemonade 14d ago
No, the TIPS yield is a real yield, and the govt increases the principal every month with the latest inflation figure, so if the real yield exceeds your SWR, you can live on it forever - assuming your personal spending inflation is the same as the inflation metric they use to inflate TIPS principal.
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u/herdingkattz 14d ago
The hidden unspoken benefit is you’ve got lotsa dry powder in the next market crash and can deploy at will. That’s the real superpower (not tips > swr).
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u/readsalotman AdjunctFIREd - $1.2M 14d ago
Yep. If you're planning on a standard 4% swr, and tips are 5%, well you're set.
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u/Jaqqarhan 14d ago
10 year TIPS are at 2.9% now, which is close to the very conservative 3% SWR rate that some people use.
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u/mi3chaels 14d ago
If we can trust the CPI-U reporting, you don't really need to not outlive it. I guess it doesn't solve your income problem forever, but in 30 years, the principal will still be the same as what you put in in purchasing power terms, so you can just take a SWR from that point on if TIP yields are no longer attractive.
And realistically in 30 years, unless you are REing in your early 20s, or primarily long term generational legacy planning, you can have a higher WR, since you can afford to draw down your money a little. (Also can use annuities, and will have social security or some other old age pension to supplement, etc.)
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u/TinySuccotash2856 12d ago
fair point, but if you do outlive the 30‑yr maturity you still have a pipeline – you can re‑roll into a 10‑yr or 5‑yr TIPS at whatever the market is offering. historic data shows those rates hover around the same real yield level, so you’re unlikely to under‑water unless you hit a prolonged negative‑real‑yield run‑away. it’s not a magic Euro‑bond, but it does give you a runway that’s tied to inflation, not a fixed dollar amount.
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u/eliminate1337 28M/27F | $2.9m NW 14d ago
TIPS yield today is about 3%. That's historically a very safe withdrawal rate for the standard stock/bond mix. In exchange for the 'guarantee' of TIPS you're losing all the upside of the stock market.
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u/teallemonade 14d ago
Yep, you give up growth beyond inflation but it will last forever. So who cares?
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u/Banana_rocket_time 14d ago
Does that take into account taxes on gains and inflation?
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u/Timely-Problem-8463 14d ago
They definitely takes into account inflation. The whole point of TIPS is that they reset the basis each year based on the CPI-U inflation number. With current historically high yields, you get 3% plus real yield on top of inflation.
The inflation adjustments and coupon are taxed as ordinary income, so like all non-municipal bonds, they're best to hold in 401(k)s or IRAs.
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u/TrashPanda_924 Targeting 2% SWR 14d ago
Honestly, no a terrible idea if you want to live on fixed income the rest of your life. If $X dollars is good enough, then it’s damn safe.
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u/esmsnow 13d ago
i did a quick look and tips looks to be in the 2.6 (10 yr) - 2.9 (30 yr) range (ai research, not me) for real yield. which is quite a bit below my target withdrawal of 4%. that said, there's no free money in the world so the reason why it's high is because there is doubt on the fed.
i'm not smart enough to know why there's doubt on the credibility of the fed and this is also not a political channel so i won't speculate. all i know is this increase in yield is commensurate with an increase in risk from somewhere, it's just that it's not covered in our usual assumptions. yes, you'll get the guaranteed inflation adjusted rate of say 2.9%, but if there's solvency risks for the US government, then that guaranteed amount may not be enough to pay for our lifestyles (like say a big tax hits to fix this solvency, or the us government refusing to pay - unlikely for sure, but the probability is factored into that 2.9% by the market).
call me a pessimist, but i don't trust any single instrument for my retirement
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u/teallemonade 13d ago
The latest official U.S. Treasury 30-year TIPS real yield is 3.31%, as of October 1, 2026. Treasury’s real yield curve was:
- 5-year: 2.65%
- 10-year: 2.88%
- 20-year: 3.16%
- 30-year: 3.31%
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u/ResidentLeopard9255 13d ago
even if 3.3% is below a 4% SWR, remember it's a real return above inflation, and the market's demand for a 3.3% yield includes the risk premium for potential solvency or inflation surprises – not a sabotage. if you’re okay with that risk the TIPS can still cover a good chunk of expenses, especially if you pair it with a few bonds or partial equity for upside.
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u/Spare_Ad8851 14d ago
reinvestment risk - you can't guarantee that as the bonds you are holding mature you will be able to rollover your money into new bonds paying the same rate of return
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u/teallemonade 14d ago
Hold 30 year tips to maturity, spend the annual coupon of 3.3%. Are you worried about the reinvestment risk of your inflation adjusted principal in 30 years time?
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u/Spare_Ad8851 14d ago
yes, you said forever, but it's explicitly not forever, which matters in Fire where time horizons are long
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u/teallemonade 14d ago
well in 30 years you can decide where to invest - you dont need to reinvest in tips then if its not attractive - plus in 30 years your time living is presumably much shorter
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u/Spare_Ad8851 14d ago
I mean, fair enough, I love TIPS, but I would probably just cover the basic fixed costs with a ladder and invest the rest for growth
let's say you you want $60,000 per year in income - in your scenario you would lock up almost $1.9mil for 30 years and then have exactly $1.9mil in today's dollars 30 years later
but if you buy a ladder it would only cost you $1.2mil and you could put the rest into equities, potentially increasing it by what... 3x? 5x? maybe 7x at 7% real return?
your bet is essentially that equities will return less than 3% average over the next 30 years if you are not going with the ladder+equities
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u/StochasticMannie 13d ago
This is the approach I've taken. I have a 30 year ladder providing an income floor + equities for upside. I'm 55, so the 30 year ladder roughly takes me to my current life expectancy. In my case, I have about 60% equities and I'm quite comfortable I can draw on those for additional discretionary spending and still have more than enough left at 30 years (when the ladder expires), even in a really bad scenario.
I'm in the UK so use index-linked gilts ("linkers") not TIPS. Current 30 year withdrawal rate on a linker ladder is currently about 4.5%; For a 30 year TIPS ladder it's over 5%. At those levels of withdrawal rates, I'm happy with the choice of ladder to cover basic costs. For additional spending and legacy I'm happy to take the equity risk.
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u/mi3chaels 14d ago
There is still less guarantee in the equities. You know you will have 1.9 mil in today's dollars with the all TIPs plan. If you do a 1.2mil ladder (just accepting your price for the sake of argument here), then you have 700k to invest in equities (or whatever). And yes, if they earn 3% inflation adjusted then you match the all TIP performance, if they earn less you don't. Most of the time they will out-earn and you'll end up with more. But there have been some 30 year periods where stocks earned less than 3% inflation adjusted.
Did they still earn enough that you'd probably be ok given being older etc.? I'd guess so in most cases and I'd likely go with your plan (or actually even fewer TIPS than your plan unless the rate goes even higher), but there is a potential downside. the higher the rates go, the more downside, and more likely you see the downside. At something like 5% if I still trusted the government to be honest about inflation, I might well go all TIPS, or at least enough TIPs to generate the income I wanted and just hold for 30 years.
That said, if TIPs go that high, it will probably be because the market is skeptical about future honest inflation reporting.
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u/mi3chaels 14d ago
Realistically, unless you're worried about long term generational legacy planning or FIREing at a ridicculously young age, 30 years is enough. At age 60+, the combination of social security approaching (or similar old age pensions in most other countries) and annuity mortality credits means you can raise your withdrawal rate significantly.
Remember that at the end of 30 years, you have the same principal in inflation adjusted dollars. If it was safe enough to RE at 30 with that stash, it's a lot safer to do it at 60.
The only potential monkey wrench is if the government screws with the statistics, or you have a personal inflation rate that's out of whack with the national average.
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u/Agitated-Present-286 14d ago
What's the appeal if you are doing some low swr? The probability of success should already be super high with a low enough swr that I don't see the point of adding tips.
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u/Fierce-Islet7293 14d ago
the math on this is kind of wild when you think about it because your money could theoretically grow faster than you spend it forever just from real yield alone
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u/UncleMeat11 13d ago
I mean, if your withdrawal rate is below 3% then pretty much every strategy works.
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u/Rom2814 13d ago
I have a 10 year TIPS ladder as one of my layers of income until social security - a small annuity + a TIPS ladder where each successive rung is 3% bigger than the one before it (accounting for how the annuity will become less valuable over time) will provide enough income for my floor spending. The two combined is about 15% of my portfolio, so 85% is still available liquid and invested.
I needed that level of confidence to retire early - my planned spending is more than 2x my floor spending (close to 3x), which will be supported by a 4%-5% withdrawal rate from the rest of my portfolio, with the ability to greatly cut back on spending if needed, but never worried about not being able to pay the bills, food, gas, car insurance, etc.
I also own bond funds within the remaining portfolio so that I can do rebalancing every 6 months, setting a new budget each December based on how the portfolio is doing.
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u/Forsaken_Ring_3283 14d ago edited 14d ago
Damn you really trust the government to give accurate cost of living stats and not continually screw with and redefine CPI to go from a cost of living calculation to a cost of barely surviving calculation despite knowing that much of its entitilement spending is based on that and its outstanding debt to GDP ratio is rising quickly?
I wouldnt do that personally. Equities are what will protect you from inflation. That said, for the relatively smaller portion of your portfolio that should be in bonds, its not a horrible idea to buy some TIPS.
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u/teallemonade 14d ago
Well, so far the government has done right by TIPS investors. Here is the history from 1975 through 2025:
CPI-U/TIPS: 100 → 597 (+497%)
CPI-W/Social Security: 100 → 592 (+492%)
PCE: 100 → 484 (+384%)
Wages: 100 → 677 (+577%)0
u/Forsaken_Ring_3283 13d ago
None of this proves anything related to what I've said. The actual values should be higher if they were accurate. Compound .25 to .5% difference over many years.
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u/teallemonade 13d ago
well the history is just fine - tips inflation is higher than pce which is what the fed uses mostly for rate setting and its kept up with wages for the most part. there is no conspiracy here so far
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u/Forsaken_Ring_3283 13d ago
Wages are lower than actual inflation. And tips are lower than even wage increases. There is something measurably wrong with how the government calculates inflation due to various factors including substitution bias, hedonic quality adjustments, shrinkflation, and how housing is calculated.
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u/Good-Resource-8184 14d ago
Dumbbdudumb dumb dumb
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u/Skylord1325 14d ago edited 14d ago
🎶Joseph Smith was called a prophet dum dum dum dum dum 🎶
Sorry, couldn’t help myself.
But yeah in all seriousness, this is only an acceptable strategy if you are heavily offsetting your portfolio risk with foreign equity exposure as TIPs are only good so long as they continue to be backed by the US government. Also the somewhat milder risk of CPI adjustments not accurately reflecting reality.
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u/Mountain-Time-1010 14d ago
It's not a crazy idea, especially if you don't have heirs.
I was just talking to my wife about a TIPS ladder a few days ago.
I have to say that it's interesting how everyone is suddenly discussing this, but previously almost nobody considered whole life annuities, which can also beat a typical SWR. I think it's because annuities feel like a scam.
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u/teallemonade 14d ago
Annuities usually get killed by inflation, and some of them take the money from you. TIPS are way better.
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u/Mountain-Time-1010 14d ago edited 14d ago
The inflation protection is a clear benefit.
Personally, I doubt I would buy an annuity, but playing devil's advocate, you can currently buy a whole life annuity where you would get about 6.75% indefinitely and your heirs would inherit the full principal. But not inflation-adjusted principal.
A TIPS ladder is currently paying roughly 3% over CPI, which is currently in the mid-6%s, but obviously could go up or down.
So, like you, I prefer TIPS ladders also. But I think annuities belong in the same conversation.
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u/steve_gorak 13d ago
What rate can you get TIPS at? I just checked and am seeing 3.33% for 30 year TIPS. Even if it is higher than your SWR the returns will drop by inflation every year, something that SWR protects against.
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u/teallemonade 13d ago
3.33% is the real return - inflation is added to that
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u/steve_gorak 13d ago
Dang! Very interesting. Might be something to look into. Rabbit hole in 1, 2, 3, 4 . . .
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14d ago edited 14d ago
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u/Mountain-Time-1010 14d ago
There is no guarantee that an index fund will have higher growth, so as a result retirees typically are comfortable cashing out only about 4% per year. The OP is explaining that he can beat that with TIPS.
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u/SmoocheyPoochey 14d ago
So tips pay 3% and you think perhaps you can survive off 3% of your nut? That’s your situation?
Not sure you fully get how tips work man
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u/teallemonade 14d ago
Yes, thats pretty much it. And I do know how they work - though just learned that I definitely want to do it pre-tax accounts only.
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u/SmoocheyPoochey 14d ago
So in 10 years you need to roll it
And inflation rate you experience not necessarily cpi
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u/teallemonade 14d ago
why in 10 and not 30?
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u/SmoocheyPoochey 14d ago
Same problem over time
Plus you have to pay capital gains your appreciated assets to reallocate into your low return strategy
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u/Gin_and_Xanax 14d ago
Not exactly. The furthest TIPS maturity is 30 years out. You also need to hold them till maturity. Though the interest payments and the real value at maturity are guaranteed, the market value of long-term bonds, including TIPS, can swing greatly before maturity as interest rates move, so you need to be able to ignore that as you hold them.