How a TIPS Ladder Can Create Reliable, Inflation-Protected Retirement Income

Understanding how much you can safely withdraw in retirement is one of the most difficult financial decisions people face. You’ve probably heard about 3%, 4%, or even 5% withdrawal rates, and the truth is that all of them can be “right” it just depends on the question you’re trying to answer. The ideal withdrawal rate changes based on how long you expect your money to last, how much risk you want to take, how the market behaves, and what type of portfolio you’re using. For some people, relying on market returns is fine. For others, securing a guaranteed income floor is far more important.

That’s where Wade Pfau’s TIPS ladder approach comes in. TIPS Treasury Inflation-Protected Securities are government bonds that adjust with inflation. With current yields near 4.6%, they give retirees a way to lock in real, inflation-adjusted income instead of hoping the market cooperates. The strategy builds a 30-year ladder, meaning you buy TIPS that mature one year at a time throughout retirement. As each one matures, it provides that year’s income, adjusted fully for inflation. By structuring it this way, you neutralize sequence-of-returns risk the danger that early market losses could permanently damage your retirement income plan.

Building a TIPS ladder is surprisingly simple once you understand the structure. Picture 30 envelopes one for each year of retirement. Into each envelope goes the exact amount of money you’ll need in that year, based on today’s dollars and adjusted automatically for inflation through the TIPS themselves. Coupon payments from earlier bonds help fill future envelopes, reducing how much you must invest upfront. The result is 30 years of predictable cash flow with purchasing power that doesn’t erode.

The TIPS ladder has meaningful strengths. You remove uncertainty around market volatility, you know your income needs are covered for decades, and you’re protected against inflation—something traditional bonds do not offer. But it’s not perfect. A ladder intentionally spends down principal, which may not suit those focused on legacy planning. And if markets outperform, you may miss higher potential returns because the money allocated to the ladder is not invested in stocks.

Here’s how it plays out in practice. Imagine you have a $1 million portfolio, and TIPS are yielding 4.6%. Your first-year inflation-protected “paycheck” would be $46,000, with every future year adjusted upward based on inflation. As long as the ladder is built correctly, the purchasing power of that $46,000 stays intact for the entire 30 years.

Of course, most retirees won’t put every dollar into a TIPS ladder, nor should they. Whatever isn’t used to build the income floor can be invested based on your risk tolerance. Some may choose a conservative 60/40 portfolio for stability, while others may opt for an 80% or even 100% stock allocation for long-term growth. Whatever the mix, the key is rebalancing annually to maintain the intended risk level.

This is ultimately a safety-first strategy. By guaranteeing that the essentials are covered housing, healthcare, food, insurance you free yourself from worrying about market swings or inflation shocks. The remainder of your portfolio can be invested for growth without the fear that a downturn will jeopardize your ability to pay the bills. For many retirees, that blend of security and flexibility is exactly what makes the TIPS ladder so compelling.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.