Re: Why does a retiree buy a 20-year TIPS ladder?

NiceUnparticularMan wrote: Sat Nov 22, 2025 8:10 am

Ferd Burfel wrote: Sat Nov 22, 2025 1:11 am

Among all of the great things this forum does, it does I think do a disservice by encouraging the absurd idea that one can know their expenses, real or nominal, 20 years (or 30 years) in the future. Or that the current real rate will definitively be sufficient to address those. Based on this shaky foundation, people are then encouraged to build TIPS ladders to give themselves certainty. There is no such certainty about the far future

So I agree with you about the limits of what we can know at horizons like that. I disagree, though, that the argument for possibly using a TIPS ladder as PART of your long-term investment plan depends on certainty at those horizons–including because TIPS ladders are liquid. And in actual practice, I think at least almost all the people here actually using TIPS ladders only use them as part of a multi-faceted plan.

That said, the fact I tend to see TIPS ladders that way undoubtedly helps explain why I am so sanguine about using ladders of ETFs as convenient. I actually do think the tracking math works out better than some seem to realize, but more importantly, I more or less assume any plan is going to be subject to some flexibility, modification, and so on anyway.

You left out important words from my prior post, including “Not to belabor the point but one’s definition of risk is personal, is it not? While I understand that people claim they will not pay attention to the value of their ladder when the volatility of those holdings are gyrating all around, I doubt I would feel that way. The risk I care more about is the current value of my portfolio, not that if things go against me nearly 20 years from now I will have a real cash flow shortfall. Too many things can and will happen between now and then to spend time worrying about such. Everyone wishes some level of certainty in retirement but the rest is uncertainty.”

So the part of this statement I would encourage you to reflect on is caring about the current liquidation value of your portfolio when you have no intention of actually liquidating and spending it today. That is the myopic loss aversion part.

To the extent you are articulating comfort with not knowing exactly what will be happening in 20 years, I do not mean to be discouraging that part of what you are saying.

To maybe put this in more concrete terms, consider the following options:

(1) Use TIPSladder to calculate a 20-year TIPS ladder. Say it costs $X. You have $1.5X, so you put the other $0.5X in stocks.

(2) Put all $1.5X in VTIP, planning to roll it (you need more than $X to cover the lower initial rate and reinvestment risk);

(3) Put something like $0.3X in VTIP (that’s about the first 5 years of a 20-year ladder), $1.2X in stocks, and plan to transfer stock proceeds into VTIP periodically to keep it around $0.3X real, or until you change your mind.

If your point is you are comfortable with the flexibility that (3) might require and so prefer it to (1), then great.

My point involving MLA was about people here who implicitly prefer things like (2) to (1), not (3) to (1).

There is no way to know your expenses so far into the future, there is no way to know if current real rates will be sufficient then, and there is no way to know if people can withstand the significant portfolio volatility that holding longer term TIPS will entail.

So again I agree with your first two points, but I don’t think that means a TIPS ladder can’t be a part of your plan. Like I am not deeply concerned about the Option 1 person above who has $X in a 20-year TIPS ladder and another $0.5X in stocks. That to me is a fairly conservative but still quite robust long-term plan.

On the other hand, I again do not think we should be encouraging each other to care about things that don’t actually matter, like short-term changes in liquidation value for portfolios we are not planning to liquidate in the short term. So I don’t take MLA as a given, I treat it as a problem we should be trying to help each other avoid.

By using a fund and not locking myself into a real rate for life as TIPS ladders do

Just noting again TIPS ladders are in fact liquid. This is an important consideration versus, say, annuities.

I will maintain the flexibility to take whatever real rates are in the future to deal with whatever future expenses arise and not have the portfolio volatility until then to live through.

And again to sum up, from my perspective valuing long-term flexibility is good, but fearing irrelevant short-term losses in liquidation value is something we should be helping each other avoid.

As always, a well thought-out post. Some of your posts have so much in them my head starts to hurt but they do not yet require I re-read it 10 times like a post from #cruncher

A few final thoughts and we don’t need to keep kicking this around, I think we have stated the points well enough and can let this rest.

1. In my situation, our pensions will deal with all our expenses and then some. I spent the morning trying unsuccessfully to figure out what to spend portfolio dividends on in retirement. So while perhaps not unique, I doubt that is the case of the typical TIPS ladder builder, who needs to have this secure real income stream. Because of that, I look at the value of TIPS not from an income stream perspective but from a portfolio preservation perspective. VG has shown that TIPS funds have a place in a retirement portfolio in their TD funds and I concur with that use.

2. I think it is personal to each investor whether current liquidation value of their portfolio is important. Personally, my instinct when an investment is down for any period is to TLH and re-start with a similar fund. I am sure I could not sit idly by and watch my TIPS ladder melt down without doing something. I am not going to cash, not changing my overall market exposure but I might shorten up my duration. So having an up-to-date liquidation value is important as it allows you to react to market conditions. I don’t consider short-term losses (months, not days) to be irrelevant because of this.

3. I would guess if I thought about it I am more like #3 in your example, as five years to me seems like the extent of what one can really see regarding their upcoming expenses. I think the #1 versus #2 in your example was my discussion above with #cruncher. If that occurred, it still would not be of concern (as discussed above) because a real shortfall over a long period of time is easily manageable from many angles and sources.

Again, thanks for your insightful comments.