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TIPS Bonds Offer Retirees Inflation Protection – Plus a Profit


Often overlooked by retail investors, TIPS, or Treasury Inflation-Protected Securities, are U.S. government-backed, fixed-income securities that offer inflation protection – and often more. After jumping 2% on all maturity lengths last month, TIPS yields are offering the best yields in more than 10 years.

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Treasury Inflation-Protected Securities Explained

TIPS are unique because their payout will change depending on inflation – specifically the consumer price index (CPI) – unlike traditional Treasury bonds.

The bonds are made up of two parts: the purchase price, or principal, and the yield. The yield is set when you purchase the bond but unlike other bonds the principal is adjusted for inflation every six months. When the bond matures if the adjusted principal is higher than the original price, investors get that gain. If the adjusted principal falls to less than the original price, the bondholder still gets their original purchase price. 

TIPs pay a fixed rate of interest every six months but those payments aren’t predictable because they will vary during the life of the bond to match the principal as it adjusts to match the rate of inflation at the time. According to, “The rate is fixed at auction and is never less than 0.125%.”

Interest from TIPS bonds is exempt from state and local taxes, but interest payments are subject to federal tax. 

How TIPS Yields Have Jumped

An electronic crawl showing bonds gaining value

During the week of Aug. 14 the guaranteed yield climbed to 2%, giving investors a guaranteed yield of 2% more than inflation for a duration of up to 30 years. The yield on a 10-year TIPS last month climbed more than 2% – a level not seen for that security since 2009.

As Brett Arends wrote at, “$1 invested in TIPS today is guaranteed to be worth $1.80 in real, purchasing power terms in 2053, regardless of what happens, come hell or high water. No inflation, deflation, depression, bear market, or panic will matter.”

How to Buy TIPS

You can purchase TIPS bonds through the government’s website, but be warned that setting up a TreasuryDirect account can be complicated and take time. You also can find TIPS mutual funds and ETFs. You can find a calendar of auction dates here.

TIPS are issued on a regular schedule with maturities of 5, 10 or 30 years. The minimum purchase amount is $100, while the maximum is $10 million (non-competitive bid) or 35% of offering amount (competitive bid). Buyers have the option to hold the bonds until maturity or to sell them early. 

Bottom Line

Stack of TIPS documents

Inflation protection is a major consideration for investors, who may need their retirement fund to support them for 30 years or more in retirement. TIPS are used by investors seeking long-term inflation protection for a portfolio of other investments, such as stocks, because these securities offer some downside protection that limits losses during periods when stock prices fall. Recently, the yield on TIPS reached levels not seen in about 14 years. 

Tips on Handling Inflation

  • One way to get help sorting out inflation-protected investments for retirement is to work with a financial advisor who can help answer your questions. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.­­
  • Use our free inflation calculator to determine the buying power of a dollar over time in the United States.

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