(04) TIPS Ladder

Objectives

Essential Expenses Plus

Portfolio Overview

Understand the basics of TIPS (Treasury Inflation Protected Securities)
Protect retirement income using a TIPS Ladder
Demonstrate TIPS Purchase

Portfolio Overview

Essential Expenses Plus

Portfolio Overview

Growth As much as appropriate — based on risk capacity and risk tolerance — invested in a broad, low-cost total stock market index
Liquidity Reserve 6–12 months of current spending needs held in cash or cash-like investments
Protection Reserve 5–7 years of essential spending funded through a TIPS ladder to help protect purchasing power and reduce the impact of major market downturns

Essential Expenses Plus

Essential Expenses Plus

Essential Expenses Plus

Food
Utilities
Housing
Healthcare
Transportation
Taxes
Plus limited dining out
Plus limited travel

Calculating Expenses
Embedded Social Security bridge

TIPS Overview

www.tipsladder.com (advanced)

Essential Expenses Plus

Shock absorbers
Issued at $1,000 face value
Adjusted for inflation every day
Held to maturity
Reliable
Predictable
Currently 52 available
TIPS Ladder
Other expenses (major trip, car)

Purchasing TIPS Ladder

www.tipsladder.com (advanced)

www.tipsladder.com (advanced)

Catalog
Choose same maturity month and day for ease of management
Choose lower coupon if more than one available
Divide annual rung amount by TIPS adjusted principal
Recommended to keep to 10 years or less
Hold in tax-advantaged account

www.tipsladder.com (advanced)

www.tipsladder.com (advanced)

www.tipsladder.com (advanced)

Use www.tipsladder.com for more advanced planning

Treasury Inflation Protected Securities (TIPS)

TIPS are used in the portfolio as protection during stock market downturns
Bond funds are avoided because their values fluctuate with external factors such as interest rates and market sentiment
Bond funds are not used for diversification purposes
Instead, 5 to 7 year TIPS ladders are incorporated to cover the gap in essential expenses not met by secure income sources
Porfolio allocation (stocks to bonds) is derived from income protection