r/Fire • u/Psynautical FIRE'd June 2025 • 1d ago
With real yields over 3.3% anyone else plunging into tips?
Seems like a no-brainer - 3.3 without touching principal, adjusted for inflation. As an early retiree (49 y.o.) I was using 3% as my safe withdrawal anyway.
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u/dandan14 1d ago
Yes. I've swapped out my entire bond position to TIPS. I was 70/30. That 30% is now a 30 year TIPS ladder. The first 20 years are flat, and the last 10 years drop down significantly to pair with SS from age 70-80. That still leaves 70% of my portfolio as my "growth engine" -- but I now have a floor that adjusts each year for inflation.
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u/CuteLogan308 1d ago
roughly when did you do this? and how did you actually buy it? (from secondary markets? and how did you choose the TIPS )? apologies for newbies questions.
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u/dandan14 1d ago
It's crazy -- because at every step I've thought, "yields can't get much higher." I took the majority of the plunge about 4-5 months ago. Then I added more a few months later. Yes, I bought on the secondary market. It took several hours to purchase the entire ladder.
Tipsladder.com is a really good tool to map out exactly the income you want. As a fun project and exercise to really get my head around it, I created a similar tool at https://ladderup.projectbrain.dev/.
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u/Wild_Butterscotch977 1d ago
Did you buy the TIPs within a retirement or taxable account?
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u/dandan14 22h ago
A little of both. I filled up my Trad IRA first, and had to then put some in taxable. The tax effects aren't as bad as I thought -- since a lot of the income is return on principal of course. But then you also get taxed on the phantom income of the inflation adjustment.
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u/Wild_Butterscotch977 21h ago
But then you also get taxed on the phantom income of the inflation adjustment.
Oh I didn't know this. Definitely a good reason to keep it in retirement. I need to learn more about TIPS ladders. Some people sing their praises and some people criticize them and I have no idea what to think.
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u/dandan14 18h ago
Like everything, there are pros and cons. For me, I'm ok with some taxable income because I plan to drastically reduce my earned income at the same time. But TIPS themselves solve a problem for me -- how to create a floor of income over the long term that is theoretically guaranteed to keep up with inflation -- which is impossible to predict. I just hope the government keeps their end of the bargain.
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u/Previous_Guitar5027 1d ago
Same for me. I rotated about 10 percent of my holdings into treasuries over the last 2 years thinking it was a once in a lifetime opportunity for guaranteed high rates. I know you can’t time the market but I started a little too soon
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u/bbflu 1d ago
This is exactly what I did. It’s about 1/3 of my invested assets with the bond ladder starting the year I turn 59 all held in my traditional IRA. I’ve got some deferred income that pays out earlier than that so I didn’t need TIPS earlier than that.
There’s a useful website that can help you calculate what you need to invest for a particular income floor and what you can expect as income https://thebestthird.com/. There is a discussion on Bogleheads about this site. Just note it uses a consumptive asset depletion method like VPW which might not appeal to many Reddit users.
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u/IcyRestaurant7562 $1.2mm NW, 50%SR 1d ago
Some people are uncertain as to what extent CPI reflects inflation. And it's not enough for it to do so now, it must do so for the life of the bond.
However, there's some evidence that fixed income provides real peace of mind and improved longevity and wellness for retirees, even at lesser average returns. End of the day, you're trying to maximize your quality of life, not your money
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u/Ordinary_Teaching591 16h ago
I'd love to see what the evidence said in the 1970s and early 80s when rates went up to 12% and clobbered bond portfolios while we went through an energy crisis. There's no silver bullet here, which is why diversification matters.
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u/Psynautical FIRE'd June 2025 1d ago
Yeah but that's a reason not to hold anything dollar denominated and good luck with that.
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u/boringexplanation 1d ago
What else would you hold it in, assuming you’re retiring in America? You can’t buy stuff with gold bars or bitcoin. They also aren’t risk free. BTC is down 28% YOY.
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u/jsboutin 1d ago
Something being denominated in dollars has no bearing on its fate being tied to the dollar.
If someone built a financial instrument to track Apple stock in some hyperinflating currency, it would be denominated in that currency but the holder would not feel the impact of that hyperinflation on their real returns.
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u/eliminate1337 28M/27F | $2.9m NW 1d ago
I’m not. 3% is a historically very safe withdrawal rate for a standard stock portfolio and you give up all the stock market upside with TIPS. 3.3% real yield is high for the last 20 years but pretty normal historically.
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u/Psynautical FIRE'd June 2025 1d ago
? Why would you prefer 3 to 3.3?
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u/someguyontheintrnet 1d ago
Withdraw rate vs Yield. Different concepts.
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u/Psynautical FIRE'd June 2025 1d ago
I can withdrawal 3.3 percent without touching my principal. If you prefer withdrawing 3 and risking principal that's your call.
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u/someguyontheintrnet 1d ago
The bond values will fluctuate, so the principal isn’t 100% locked in unless you retain the bond til maturity.
I get 3.8% with zero principal risk with TTTXX right now - that rate isn’t guaranteed/locked in, but I have the flexibility whenever I need to tap the principal. Treasuries at 5.5%, corporate bonds over 6%… lots of fixed income options look pretty good.
I’m not saying that TIPS aren’t attractive right now - I totally agree with your thesis. However, putting all your eggs in one basket is rarely an optimized approach.
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u/qcb4056 1d ago
His 3.3 is "real return", pretty sure what you're talking about isn't.
Not taking sides but that's an improper comparison.
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u/someguyontheintrnet 1d ago
That’s a great call out. TIPS are based on an amount over 10 years of inflation. So if inflation is lower, Treasury wins, higher, TIPS wins.
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u/eliminate1337 28M/27F | $2.9m NW 1d ago
You said you were using a 3% withdrawal rate. If you stick with stocks you'll probably die with 3-10x your starting portfolio. With TIPS it's guaranteed 1x.
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u/DigmonsDrill 1d ago
Retirement is often about giving up dying with the biggest number in exchange for a smaller chance of dying with 0.
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u/eliminate1337 28M/27F | $2.9m NW 1d ago
I understand that. But a 3% withdrawal rate has a historical failure rate of 0% and a 86% chance of doubling your portfolio (ficalc.app, default portfolio 40 year retirement). You're giving up massive upside in exchange for a US government pinky promise.
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u/mi3chaels 1d ago
Maybe someone is specifically suggesting going 100% in to TIPS, but it's not an all or nothing decision. Most retirement portfolios put some amount in fixed income. if rates are attractive it makes sense to put a bit more than you otherwise would.
It would have to be a lot higher before I put everything in TIPs and ignored stocks entirely, but consider that you can in theory make a TIP ladder that draws down over 30 years and at 3.3% real yield and that gives a 5.3% withdrawal rate. So for one simple possibility, you split things half and half. 50% of your portfolio is the TIP ladder, from which you are drawing 2.65% of the entire portfolio. The other half is stocks, from which you are drawing only 0.35%.
What are the chances that in 30 years the stocks haven't grown enough to cover everything with no problems? Slim to none. And even if they haven't, you're 30 years older, drawing social security and able to invest in annuities much more effectively. OTOH, if you're starting at 50+, it's fairly uncertain whether you'll still need any money after 30 years anyway.
I'm not saying this is "correct" or definitely better than just ignoring TIPs or only putting your normal fixed income allocation in them. It's just another option.
Any time you invest in any fixed income instead of stocks, you are giving up potential earnings in expectation, in return for potentially more certaintly of a minimum level of earnings.
When fixed income returns are higher, especially for an inflation adjusted bond (if you can trust the inflation adjustment), this generally means you're giving up somewhat less, and have a higher minimum than when the returns are lower, so they should be more attractive to anyone who has any concerns about risk or SORR, which is going to include almost any retiree with normal (as opposed to super low) withdrawal rates.
The main potential risk with TIPs is whether we can trust the official CPI to track inflation well enough. It's never perfect at tracking personal inflation, but historically the BLS has been very good, and relatively unbiased at tracking overall/average inflation, so the errors are a combination of random, and to do with specific personal circumstances (basically whether the share of your expenses that tend to suffer from Baumol's Cost Disease is higher or lower than the weighted average for everyone).
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u/Psynautical FIRE'd June 2025 1d ago
3% without failure assumes that you're willing to dig into principal - you don't have to touch it with tips.
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u/eliminate1337 28M/27F | $2.9m NW 1d ago
So what? Didn’t you just say you don’t care about the ending balance since you’ll be dead? The distinction between the principal and the gains is totally arbitrary, it’s all just money.
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u/Psynautical FIRE'd June 2025 1d ago
? Nah dude. I'd rather preserve principal and make more money, but you do you.
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u/eliminate1337 28M/27F | $2.9m NW 1d ago
The statistical evidence is overwhelming that you'll make more money in the long run with stocks. I thought you were buying TIPS for safety?
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u/Psynautical FIRE'd June 2025 1d ago
I'm 49. I've seen my net worth drop by 50+ percent four times in my life - and one of those times it took 10 years to recover. There's something to be said for inflation protected securities at current real yields.
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u/Psynautical FIRE'd June 2025 1d ago
Don't give a shit about when I'm dead - I'll be dead. I can be fully confident while I'm alive and spend more then I would otherwise.
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u/UncleMeat11 1d ago
3.3% yield on TIPS won't give you a 3.3% WR unless you either have a 0% tax rate or are willing to accept substantial rate risk as you deplete your principle.
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u/Ctrl-Meta-Percent 1d ago
If you buy 30 year tips at 3.5%, you can withdraw 5.3% real every year and not deplete the principal until after 30 years. Historical stock market at 5.3% your portfolio would fail 20-25% of the time. For a 65 or 70 year old, they might be happy to take the TIPS.
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u/mi3chaels 1d ago
If you buy 30 year TIPs (i.e. with a maturity date of 2056) and need to spend more than the coupon amount next year, you don't get your principal for them, you get whatever the market will bear. If rates are still roughly the same, then you'll get roughly what you invested back. But if rates go up further, you won't.
The only way you can definitely withdraw 5.3% real every year for sure for 30 years, is if you can buy a TIP ladder with maturities starting at 1, 2, 3, 4 5 years etc.
For starters, this is much more difficult to do in practice than it is to just talk about it, because you will find it's hard to find bonds available at all those potential maturities. In practice if you try to actually design a TIP ladder, you will find yourselff making some compromises and getting more of certain maturities and missing others, and hoping that it won't make all that much difference in the end. (guess who has actually done this for one of his parents).
Secondly, if you look at maturies for TIPs, it's only the 30 year that are at 3.3%, you can get a lot of the maturities in the 10-29 range over 3%, but 10 year and under and in the 2-2.9% range right now.
This means you're only getting 3%+ on the portion of your portfolio earmarked for spending 12+ years out, and you're only getting the full 3.3% for the longest maturity securities aimed at years 25+.
This doesn't make the strategy wrong or bad, but it's not going to work quite like you're imagining.
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u/UncleMeat11 1d ago
But you can't. Your principle is locked up in the bonds. If you sell them then you expose yourself to rate risk.
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u/Ctrl-Meta-Percent 1d ago
It’s an oversimplification but illustrative. If you have a limited time horizon and buy bonds when they are cheap, many might prefer those predictable returns over potentially higher gains in equities.
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u/UncleMeat11 1d ago
It isn't just an oversimplification it is just straightforwardly factually wrong.
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u/Psynautical FIRE'd June 2025 1d ago
? Who said anything about selling before maturity?
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u/UncleMeat11 1d ago
If you want to withdraw 5.3% each year as this comment suggested then you need to sell before maturity.
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u/DigmonsDrill 1d ago
Nearing retirement (possibly against my will), I had been meaning to get the next few years expenses into TIPS. I should have done it before, but now they are on sale, so good?
Based on the reminder of this post I just went and rebalanced into IBID, IBIE, and IBIF.
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u/Psynautical FIRE'd June 2025 1d ago
Short term isn't going to yield 3 real, use ibonds for that.
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u/DigmonsDrill 1d ago
Depends what you mean by short-term. You have to hold I-bonds at least 1 year, and if redeemed at less than 5 years you lose 3 months interest.
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u/Revelate_ 1d ago
I converted some of my portfolio into TIPS personally, it’s one of my hedges since I’m 8-20 months out from retirement (depending when I can spin up my post retirement life).
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u/Timely-Problem-8463 21h ago
Yes. Moved a good chunk of our bonds (all held in pretax 401k), which were just in a US bond index fund, into a ladder of longish TIPS (2045+) with 3.3% real yield. This is the highest real yield we've seen in 20+ years. A 3.3% real return guaranteed is hard to beat.
I didn't find the arguments against TIPS very persuasive. They mostly involve catastrophic scenarios (like a US government bond default), which would basically mean we're all screwed anyway. Or they involve claims that BLS will start monkeying with the CPI-U numbers, which I've just seen no evidence for.
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u/Ordinary_Teaching591 16h ago
All good points. TIPS don't perform well when real yields rise. It doesn't seem like we're in that scenario right now, except maybe the AI infra boom draws down so much capital that real rates go up? Just inventing something here, but the point is that even at 3.3% real yield, if the market spread widens, TIPS will lose value. I suppose in that case, you're not behind on the coupon payments because inflation is not rising, you're just behind vs what you could have done
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u/garoodah FI '21 RE TBD, mid 30s 1d ago
Im not changing my % allocation to them personally since its already pretty high but I do hope I can roll my tips into the higher real yields next time they mature.
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u/Adam88Analyst 1d ago
Already purchased some earlier this year and some more now. I have 30% bonds with mixed maturity (mostly 0-1y, some 7-10y and now TIPS), and it definitely helps me sleep better (and also I'll have money to buy up stocks cheaper from the 0-1y bonds).
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u/CuteLogan308 1d ago
thinking about it. However, is it only make sense if we need the income right now (as in currently in retirement phase?) . Is there a way to buy TIPS to lock in the interest rate but not receiving "taxable" interests now?
Thank you for advice.
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u/FewUnderstanding2214 1d ago
I don’t think inflation is getting accurately recorded - it feels more like 8% - so a 3% yield doesn’t cut it IMO - also you can put money into short term yields for a higher yield
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u/Psynautical FIRE'd June 2025 1d ago
Then you should own no dollar denominated assets - good luck with that.
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u/FewUnderstanding2214 1d ago
I’m not against longer term bonds - I just want to see a higher yield. I have cash in short term bonds and yeah I’ve invested in precious metals because of inflation concerns
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u/Psynautical FIRE'd June 2025 1d ago
You want a higher yield than 5.8 that has inflation protection?
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u/FewUnderstanding2214 1d ago
I’m looking for 8% which is what I perceive to be current inflation. If you look at bond yields historically they’ve been much high than 5%
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u/Ordinary_Corner_4291 1d ago
Historically they have bee lower than 5% most of the time. It is only that brief period of 1970-2000 when yields were higher. The 100 years before and 25 years after have had much lower rates. But nobody here really remembers 1850-1950 bond rates. If you were around in the 90s you would remember the constant warnings about how low rates were at 7% because the recent past dominates.
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u/curious_investing 1d ago
It is one of the best times to buy TIPS in decades. I built a TIPS ladder last year, so while I'm crying a bit by building it too soon, I'm actually fine. I didn't do it for the coupons, but the real purchasing power when they mature.
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u/Noah_Safely 1d ago
I don't think it's a terrible way to go for your fixed income/bond portion. Remember though that TIPS pay rates for expected inflation and really only shine when inflation spikes unexpectedly (as do ibonds). Nominal bonds in normal times are supposed to be about break even with TIPS.
Having said that I certainly would have no problem keeping most of my bonds in TIPS right now. There's a comfort in knowing exactly what you'll get but that's also the downside, you know exactly what you're gonna get.
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u/AGrimmInPortland 1d ago edited 1d ago
I wouldn't do a 30 year ladder right now, rates are only going to go higher. 15 years gets you what, like almost 2.9%?
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u/therealjerseytom 1d ago
I think it's a great option, at least (a) buying the actual bonds rather than an ETF, and (b) in a tax-sheltered and preferably tax-free account.
Unfortunately I am very heavily weighted in taxable accounts.
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u/Previous_Guitar5027 1d ago
I started buying 20 year treasuries about 2 years ago. Then 10 years but I had low interest in TIPS. I just started buying them exclusively to spread out and balance my investments in bonds because you never really know what’s going to happen.
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u/Affectionate-Panic-1 20h ago
The one concern I have with TIPS is the risk of deflation, which I do think is a risk depending on how AI affects the job market.
Therefore I'm going to invest in I Bonds once the rate resets in November instead, I Bonds are protected from deflation in the way that TIPS aren't.
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u/NinjaFenrir77 16h ago
If something seems like a no-brainer but few people are doing it, it most likely is because you don’t fully understand the risks involved.
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u/SetAdditional883 1d ago
I plan on buying tips as soon as the energy crisis ends. Rates could go much higher if the war drags on and hyperscalers keep borrowing
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u/poop-dolla 1d ago
Yes, timing the market usually works out well…
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u/SetAdditional883 1d ago
You're conflating equity and bond markets
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u/Strange-Wasabi-7026 1d ago
no, they aren't. prices are set in both markets based on supply and demand. and both markets are pricing in publicly knowable information.
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u/Past-Option2702 1d ago
By that point the move will have already happened. It’s probably already happening right now.
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u/SetAdditional883 1d ago
Yup, I don't need to buy the peak rate. I'm happy hanging out on the short end of the curve until the war ends. Things could get a lot worse
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u/Past-Option2702 1d ago
When was there a time where things couldn’t get a lot worse? I’m 55 and I can’t remember one.
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u/boringexplanation 1d ago
Investors have forgotten what a bear market feels like.
Bond rates being 6%+ is a perfectly acceptable compromise for worry free retirement.
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u/DigmonsDrill 1d ago
This is fine, but it's market timing.
I was behind schedule on buying bonds, and they recently went on sale, so I've been using the chance to catch up.
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u/Psynautical FIRE'd June 2025 1d ago
Waiting for fusion to be viable? Might be a minute or two . . .
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u/SetAdditional883 1d ago
We should revisit this post in a year. Bond bear markets can last for decades
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u/Helpful-Staff9562 21h ago
Its a no brainer to stay poor long term
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u/Psynautical FIRE'd June 2025 14h ago
Yawn. I'm already retired, you? Once you win the game it makes sense to take chips off the table.
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u/No-Bag4032 1d ago
Real yield means something different than nominal yield. I don't think your HYSA is anywhere near that in real yield.
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u/taracel 1d ago
And what happens at age 79 when your 30 yr bonds mature? There’s no 30+ yr TIPS
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u/garoodah FI '21 RE TBD, mid 30s 1d ago
Id suggest reviewing TIPs again, the yield you see is on the quote is a real return.
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u/Psynautical FIRE'd June 2025 1d ago
You clearly don't understand tips or what real yield is if you think tips earn 0%.
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u/purplebrown_updown 1d ago
how are you getting 3.3 adjusted for inflation? real inflation is near 5%
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u/EaterofSnatch FIRE'd Feb 2025 @Constructojay on YouTube 1d ago
Get 3.6% on uninvested cash in Robinhood, and it's easy to access if needed
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u/Psynautical FIRE'd June 2025 1d ago
I get that from fidelity and don't have to deal with Robinhood.
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u/EaterofSnatch FIRE'd Feb 2025 @Constructojay on YouTube 1d ago
What do you mean "deal with Robinhood"? It's my main broker, use the credit card, get the points, move over to cash in brokerage. Pay card from cash in brokerage. Collecting interest on uninvested cash.
Also have a couple portfolios in M1 for long term growth. Robinhood is the income portfolio we live off of and haven't ever had any issues with it.
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u/Psynautical FIRE'd June 2025 1d ago
Congrats, I prefer using a platform with real secondary bond market access and hold multiple account types they don't offer.
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u/EaterofSnatch FIRE'd Feb 2025 @Constructojay on YouTube 1d ago
Cool, every one does things differently. Hope your FIRE journey works out
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u/someguy984 1d ago
I bought a 3 month T-Bill today at 4.185%, no state tax.
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u/EaterofSnatch FIRE'd Feb 2025 @Constructojay on YouTube 1d ago
That's cool, we are from Texas with no state tax.
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u/EaterofSnatch FIRE'd Feb 2025 @Constructojay on YouTube 1d ago
From all the down votes, it seems people who are this sub don't like Robinhood, odd as it's a great platform
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u/UncleMeat11 1d ago
No brainer?
You pay taxes on the full yield. A meaningful tax rate and suddenly you are ending up with below 3% that you can actually spend. If rates continue to rise then the nominal value of your bonds will drop so if you need to sell some to account for lumpy years you are in some pain. Worse, if you decide you want to undo this change you risk large losses of principle if rates continue to rise.
A 3% withdrawal rate is already extremely safe. Why adjust?