is TIPS ladder a good idea for me?

[earlierme]

Hello, I was Googling TIPS ladder and came across one of the posts in this forum.

I am retired but not yet eligible to collect SS.
I can start as early as next year.
I receive a miniscule $208 pension a month.
I work at TJMaxx for another ~$2500/year pre-tax.

I have ~16% of my assets in TIPS mutual funds.
I have ~14% of my assets in short-term individual T-Bills of various durations but all less than 6 months.

I am wondering whether I should be building up a TIPS ladder as those T-Bills mature.
Or is investing in SCHP (Schwab US TIPS ETF) sufficient?

 

[FlaGator]

If you're going for TIPS, don't do a fund. BTDT, have losses to show for it.

If rates go up from here, they are losers, look at the recent past. Buy individual issues direct from your discount broker to lock it in.

And if you don't think rates can go up from here, look at the 10 yr and related mortgage rates over the past few months. The "Fed rate cut" did nothing for the longer end of the yield curve. Realtors are trying to explain that now

 

[earlierme]

If you're going for TIPS, don't do a fund. BTDT, have losses to show for it.

Uh, oh.
What do I do with the TIPS ETF I have now?
I should say that they are in IRA.

 

[FlaGator]

Uh, oh.
What do I do with the TIPS ETF I have now?
I should say that they are in IRA.

Well, I sold bond funds two years ago, and the TIPS fund ago year, both from the tIRA. Late on both, was hoping the TIPS fund would have some recovery, but wasn't seeing it.

So, I took the loses/missed gains and moved on. Everything has been in short term Treasuries since.

What I learned (anecdote of one) is that TIPS didn't perform as expected during rising rates and spiking inflation. And that MF holdings of them were oversold. Hard to know what to do next. The Fed can "lower rates" but the longer end of the curve isn't cooperating for understandable reasons.

For now, I'm glad I liquidated intermediate bond funds and TIPS and put the money in TBills. There will come a time to extend maturities, and I'll probably be a bit late on that. But not going back to TIPS, either in a fund/ETF or individual holdings. Current thinking is a combo of individual TBills and 2-5 year Treasuries/CDs.

 

[tulak]

What I learned (anecdote of one) is that TIPS didn't perform as expected during rising rates and spiking inflation. And that MF holdings of them were oversold. Hard to know what to do next. The Fed can "lower rates" but the longer end of the curve isn't cooperating for understandable reasons.

If you buy TIPS and hold until maturity, then who cares how they perform in the market?

I buy individual TIPS to get guaranteed, inflation-adjusted income. If I buy a 10-year TIPS for 50k today, I know it'll be worth the same 50k in 10 years from now. I don't know of any other investment that has that guarantee.

 

[FlaGator]

If you buy TIPS and hold until maturity, then who cares how they perform in the market?

I buy individual TIPS to get guaranteed, inflation-adjusted income. If I buy a 10-year TIPS for 50k today, I know it'll be worth the same 50k in 10 years from now. I don't know of any other investment that has that guarantee.

Agree, individual issues are the way to go.

 

[Koolau]

Agree, individual issues are the way to go.

Agreed.

How about some I-bonds as well? Taxes are figured differently so a good way to spread out your tax bill??

 

[Yoheadden]

I just watched this today. It explains how to set up a TIPS ladder and compares this strategy to an annuity.
Maybe it can help you.

 

[Koolau]

I just watched this today. It explains how to set up a TIPS ladder and compares this strategy to an annuity.
Maybe it can help you.

Thanks! Very enlightening. Heh, heh, doesn't help me make the decision, though.

 

[earlierme]

Agree, individual issues are the way to go.

So, liquidate the TIPS mutual fund FIPDX and TIPS ETF SCHP and buy individual TIPS ?

 

[FlaGator]

So, liquidate the TIPS mutual fund FIPDX and TIPS ETF SCHP and buy individual TIPS ?

Yes, that's what I do If putting money into TIPS. FWIW.

 

[FlaGator]

Agreed.

How about some I-bonds as well? Taxes are figured differently so a good way to spread out your tax bill??

All my bonds are in tIRA, so no tax considerations. Worth considering if yields are attractive.

 

[earlierme]

Yes, that's what I do If putting money into TIPS. FWIW.

I have decided against individual TIPS.

Would you elaborate more on what you are doing?
Are you buying T-Bills and T-Bonds in your tIRA? Do you have a bond ladder set up?

 

[FlaGator]

I haven't done a formal ladder. I took advantage of short term rates above 5% and kept buying ST Treasuries, 3-13 months. Did extend out to 2-3 years for a portion, and all holdings are above 4%. They will start maturing in the next 9-12 months. While I'm inclined to roll them over, haven't decided what I will do if rates in the 2-5 year range are dropping.

Fixed income is a cushion/ballast in my 70/30 allocation, so I'll likely keep doing what I have been.

My approach is a "bet" to at least do better than what I could earn in a MMKT. At best, I'll beat that by enough to make it worthwhile. I'm ahead of where I would have been with the bond and TIPS funds I was in before. Time will tell, but happy for now.

 

[Easman61]

Now that I've been retired for 2+ years, I'm loving the idea of more income. I'm considering Berger's approach in the above Youtube of a SPIA (or DIA) as a supplement to a tips ladder to cover at least fixed expenses (more likely even variable expenses, like vacations, etc.) above and beyond small pension and projected SS. Also, gives me an easily executable strategy to manage the income portion of my portfolio more effectively. For most of us that DIY, managing that portion of the portfolio is by far the most difficult part of investing. This is difficult for the pros, too, from what I've been told. I love the thought of guaranteed monthly income hitting the checking account each month from NY Life and the peace of mind that inflation protection would give me with the TIPS ladder. Also, pretty easy to come up with a strategy that facilitates bridge to delaying SS to age 70 - which I think is the best inflation & longevity protection one can have.

 

[Koolau]

Now that I've been retired for 2+ years, I'm loving the idea of more income. I'm considering Berger's approach in the above Youtube of a SPIA (or DIA) as a supplement to a tips ladder to cover at least fixed expenses (more likely even variable expenses, like vacations, etc.) above and beyond small pension and projected SS. Also, gives me an easily executable strategy to manage the income portion of my portfolio more effectively. For most of us that DIY, managing that portion of the portfolio is by far the most difficult part of investing. This is difficult for the pros, too, from what I've been told. I love the thought of guaranteed monthly income hitting the checking account each month from NY Life and the peace of mind that inflation protection would give me with the TIPS ladder. Also, pretty easy to come up with a strategy that facilitates bridge to delaying SS to age 70 - which I think is the best inflation & longevity protection one can have.

I see the advantage of having a certain amount coming in each month. However, you do pay a price for that. If you "do it your self" by taking a SWR from your stash, you can save the fees that an insurance company charges you to give your money back over time. Good luck on whatever way you choose to fund your retirement.

 

[SnowballCamper]

I'm just chiming in here to emphasize the hold to maturity attitude that some of us have learned in the recent years about the bond market. When interest rates rise in the bond market, the bond price goes down. This is because the existing bonds that are for sale have to match the interest rate of new issues...otherwise they wouldn't sell. The price drops sufficiently so that the remaining interest payments yield the current market yield. As a result, the price for any mutual fund or ETF that holds the bonds falls also. This is exasperated by fund holders who sell to avoid any more losses.

By holding individual bonds to maturity, the investor can avoid selling at a loss. The difficult part of this is predicting when you might need the cash and have to sell the bond. I think this is what happened to Silicon Valley Bank (probably with some leverage and other issues).

So right now, with short term treasury rates over 4%, I think this is really easy to manage, and I do it myself for part of my portfolio. I also think a TIPS ladder to generate a fixed income stream, that relies on maturing TIPS for the income, is a bulletproof strategy for secured income for someone who has "won the game" and wants out of the market.

While the SPIA proponents will tout the longevity risk that the SPIA addresses, none of them address inflation. Splitting the difference between a TIPS ladder and a SPIA doesn't cover either risk (inflation or longevity). The TIPS ladder could take care of SORR to get you to delay SS benefits for the larger and COLA benefit.

 

[pb4uski]

If you buy TIPS and hold until maturity, then who cares how they perform in the market?

I buy individual TIPS to get guaranteed, inflation-adjusted income. If I buy a 10-year TIPS for 50k today, I know it'll be worth the same 50k in 10 years from now. I don't know of any other investment that has that guarantee.

Wouldn't a 10-year $50k TIPS bought today be worth more than $50k even in 2024 dollars because it would have a positive real return of ~2%?

 

[pb4uski]

I have decided against individual TIPS.

Would you elaborate more on what you are doing?
Are you buying T-Bills and T-Bonds in your tIRA? Do you have a bond ladder set up?

Just curious about why you decided against individual TIPS... can you elaborate?

I have what I call a loose ladder. I keep an analysis of my bonds and one of those analyses is a maturity distribution. I have a spreadsheet that compares my actual maturity distribution with my target, which is evenly over 7 years. With dry powder from interest, calls or maturities I try to fill in any holes on the ladder if I can find an attractive bond maturing in that year.

 

[tulak]

Wouldn't a 10-year $50k TIPS bought today be worth more than $50k even in 2024 dollars because it would have a positive real return of ~2%?

Yes, it will. But I’m lazy and conservative, so I call it 50k and consider the extra a bonus.

Plus, interest is paid out throughout the lifetime of the TIPS, so the money might get redirected elsewhere. What’s important to me is return of inflation adjusted principle.