A 58-year-old investor who dislikes annuities is seeking dependable retirement income. The concern is common among people nearing retirement who want steady cash flow without locking into an insurance product. A TIPS ladder offers one alternative worth examining.
TIPS are Treasury Inflation-Protected Securities backed by the U.S. government. They adjust principal with inflation, protecting purchasing power over time. A ladder spreads maturities across multiple years to create scheduled income.
Building a ladder involves buying TIPS that mature in each year income is needed. When each bond matures, the investor receives principal plus inflation adjustments. This creates predictable payments without an annuity contract.
The approach can make a portfolio more conservative as retirement nears. It reduces exposure to stock market swings while preserving inflation protection. Many retirees use ladders to cover essential expenses.
TIPS ladders carry trade-offs. Returns may trail other investments when inflation stays low. Early purchases lock in real yields that may look less attractive if rates rise later.
Liquidity is another consideration. Selling TIPS before maturity can mean losing value if market prices have fallen. Investors usually hold each bond until maturity to avoid that risk.
A ladder suits investors who want government-backed income and control over their holdings. It is not a guarantee of higher returns. Consulting a financial advisor can help match the strategy to individual needs.
