TIPS Ladder: How to Build an Inflation-Protected Bond Portfolio

How a TIPS Ladder Works

A TIPS ladder works by buying TIPS bonds that mature in different years. For a 30-year ladder, you buy TIPS maturing each year from year 1 through year 30. When the year 1 TIPS matures, you receive the inflation-adjusted principal, which you can spend as income or reinvest. The remaining TIPS continue to provide inflation-adjusted returns. The key advantage is that the real yield is locked in at purchase — if you buy TIPS at a 2% real yield, you will earn 2% above inflation for the life of each bond, regardless of what happens to interest rates or inflation. This makes TIPS ladders uniquely suited for retirement income planning because they eliminate both inflation risk and interest rate risk for the portion of the portfolio dedicated to specific spending needs. Bond ladder strategy overview.

Building a TIPS Ladder: Step by Step

Step 1: Determine the ladder size and duration. Decide how much income you need and over how many years. A retiree needing $20,000 per year in real income for 20 years needs a ladder of TIPS maturing each year with a total face value of $400,000.

Step 2: Calculate the required TIPS purchases. Use a TIPS ladder calculator (available at TreasuryDirect or through financial websites) to determine how much face value of each TIPS maturity to buy. Because TIPS are sold at auction and trade at varying prices, you need to adjust for inflation accruals and real yield.

Step 3: Buy the TIPS. You can buy TIPS at auction through TreasuryDirect or on the secondary market through a broker. The secondary market offers more maturity choices but has bid-ask spreads. Buy TIPS in a tax-advantaged account to avoid the complexity of OID (original issue discount) tax treatment on inflation adjustments.

Step 4: Manage the ladder. As each TIPS matures, use the proceeds for income or reinvest in a new TIPS at the longest rung to maintain the ladder. In retirement, the most common approach is to spend the maturing bonds as income, allowing the ladder to shrink over time. Retirement income planning with TIPS.

TIPS Ladder vs TIPS ETFs

A TIPS ladder provides predictable real income at specific dates — you know exactly when each bond matures and how much inflation-adjusted principal you will receive. A TIPS ETF (like TIP or SCHP) has no maturity date and provides continuous exposure to TIPS with varying durations. The TIPS ETF's share price fluctuates with real yields and inflation expectations. In 2022, TIP fell 12% when real yields rose, even though inflation was high. A TIPS ladder held to maturity would not have experienced this loss because each bond is held to its maturity date. TIPS ETFs are simpler — you buy one fund and it handles reinvestment and rebalancing. TIPS ladders are better for investors who need specific real income at specific times, particularly for retirement spending. Many retirees use both: a TIPS ladder for the first 10-15 years of retirement income and a TIPS ETF for longer-term inflation protection. Compare TIPS and I Bonds for your portfolio.

Tax Implications of TIPS Ladders

TIPS have unique tax treatment that makes them most appropriate for tax-advantaged accounts. Each year, you pay federal income tax on both the coupon interest and the inflation adjustment to principal (called OID — original issue discount). This means you pay tax on income you have not yet received in cash, creating a "phantom income" problem. In taxable accounts, you may need to use outside cash to pay the tax on the inflation adjustment. State and local taxes are exempt on TIPS interest, the same as other Treasuries. For these reasons, TIPS ladders are best held in IRAs, 401(k)s, and other retirement accounts where the phantom income is not an issue. If you must hold TIPS in a taxable account, consider a TIPS ETF instead, which distributes the OID as cash dividends. Tax-efficient placement of bonds in your portfolio.

When to Build a TIPS Ladder

The best time to build a TIPS ladder is when real yields are high. Real yields above 2% have historically been excellent entry points. Real yields below 0% (as they were from 2020 to 2022) mean you are guaranteed to lose purchasing power after taxes. As of 2026, real yields on TIPS are approximately 1.5-2.5%, offering attractive real returns. The decision to build a ladder also depends on your stage of life: pre-retirees with 10+ years until retirement may prefer TIPS ETFs for simplicity, while retirees needing predictable real income benefit most from the ladder structure. For investors under 50, TIPS are less critical because their portfolio is dominated by equities and their human capital provides inflation protection.

What is the minimum investment for a TIPS ladder?

The minimum for building a TIPS ladder depends on the number of rungs and TIPS minimum purchase amounts. TIPS are sold in $100 increments at auction through TreasuryDirect or through brokers. A 10-year ladder with $1,000 per rung requires at least $10,000 minimum. However, because TIPS trading spreads are wider for small quantities, a practical minimum is $50,000 to $100,000 — $5,000 to $10,000 per rung for a 10-rung ladder, or $2,500 to $5,000 per rung for a 20-rung ladder. Below $50,000, the transaction costs and bid-ask spreads become proportionally expensive. For smaller portfolios, a TIPS ETF is more cost-effective and provides similar inflation protection.

How do I buy TIPS for a ladder?

TIPS can be purchased at auction through TreasuryDirect or on the secondary market through any major broker. At auction, you place a non-competitive bid and receive the yield determined at auction. The Treasury auctions 5-year, 10-year, and 30-year TIPS on a regular schedule. Through a broker, you can buy existing TIPS with specific maturity dates that match your ladder's rungs. The secondary market offers more precise maturity matching but has bid-ask spreads of 0.1-0.5% depending on the maturity. Most TIPS ladder builders use the secondary market because they can choose exact maturity dates. Fidelity, Schwab, and Vanguard all offer TIPS trading with no commission.

How does deflation affect a TIPS ladder?

TIPS have a deflation floor: at maturity, you receive the greater of the inflation-adjusted principal or the original face value. During deflation, the principal decreases, and you receive less interest. However, at maturity, the deflation floor guarantees you get back at least your original investment. This means TIPS have asymmetric protection against deflation — you can lose some interest income during deflationary periods but your principal is protected. This feature makes TIPS superior to nominal Treasury bonds in a deflation scenario. In a severe deflation, TIPS outperform nominal bonds because the principal floor protects your purchasing power while nominal bonds are fully exposed to deflation's economic consequences.

Should I use TIPS or I Bonds for my ladder?

Both TIPS and I Bonds provide inflation protection, but they have different characteristics. TIPS are better for building a ladder because you can buy them with specific maturity dates up to 30 years. I Bonds have a $10,000 annual purchase limit per person, cannot be redeemed in the first year, and have a 3-month interest penalty if redeemed within 5 years. I Bonds also have a variable rate that changes every 6 months based on inflation. For a true ladder with predictable maturity dates, TIPS are the better choice. I Bonds work better for annual savings that you plan to hold for 10+ years. Many investors use both: a TIPS ladder for retirement income and I Bonds for ongoing inflation-protected savings.

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