A TIPS ladder is a portfolio of Treasury Inflation-Protected Securities bought with staggered maturity dates so that one bond comes due each year (or every other year), producing a predictable stream of inflation-adjusted cash for a set period. Retirees use it most often, because it turns an unknown future inflation rate into a known real-dollar spending plan. You choose how much inflation-adjusted income you want per year, buy a bond for each year you need it, and hold each one to maturity.
How the Underlying Bond Works
TIPS are U.S. Treasury bonds whose face value moves with the Consumer Price Index for All Urban Consumers (CPI-U), the non-seasonally adjusted measure published monthly by the Bureau of Labor Statistics.1TreasuryDirect. TIPS/CPI Data When prices rise, the principal rises with them. The coupon rate is fixed at auction, but because it is applied to the adjusted principal, the dollar amount of each semiannual interest payment grows during inflationary periods and shrinks during deflationary ones.
At maturity you receive the greater of the inflation-adjusted principal or the original face value.2TreasuryDirect. Treasury Inflation-Protected Securities (TIPS) That floor means a long deflationary stretch cannot reduce your original investment. The Treasury issues TIPS with 5-year, 10-year, and 30-year maturities.3TreasuryDirect. Understanding Pricing
Why Ladder Them
Laddering spreads your money across bonds maturing in different years. If you need inflation-protected income for 20 years, you buy bonds maturing in years one through twenty. Each maturity is a rung. When a rung matures you spend that principal or, if you want to extend the ladder, buy a new long-dated TIPS at the far end.
The advantage is that no single reinvestment moment controls your outcome. If real yields are unattractive the year one rung comes due, only that rung is exposed; the others keep earning whatever real yield they locked in at purchase. Committing a lump sum to one maturity, by contrast, creates a single binary bet on rates at that exact date.
A ladder also eliminates the guesswork of selling early. Because you hold each bond to its stated maturity, interim price swings do not touch you. You collect the inflation-adjusted principal on the scheduled date, and that is the number you planned around. Hold-to-maturity discipline is what makes the strategy genuinely low-risk rather than only theoretically so.
Building a TIPS Ladder
Set Your Annual Real-Income Target
Decide how much inflation-adjusted income each rung should produce. Most people building a ladder are covering a specific spending gap, such as the years between early retirement and Social Security, or a known future sequence of expenses. If you need $40,000 per year in today’s dollars for 30 years, that is your target per rung.
Choose the Spacing
Annual rungs produce the smoothest cash flow. Biennial spacing cuts the number of bonds in half but requires each maturing bond to fund two years of spending. For ladders covering 10 to 30 years, annual rungs are usually worth the extra bookkeeping.
Plan Around Gap Years
The Treasury does not issue a new TIPS for every calendar year, so a full annual ladder is never quite achievable in practice. Some years have no maturing bond available on the secondary market. In those years you either use a bond maturing in an adjacent year and sell part of it early, or carry extra cash from a neighboring rung. One published example of a 30-year ladder found that certain bonds had to cover two or three years of spending because no TIPS existed for the maturity dates in between. These gaps are unavoidable and mean the ladder is never a perfectly even annual payout.
Buy the Bonds
TIPS are sold in $100 increments with a $100 minimum.2TreasuryDirect. Treasury Inflation-Protected Securities (TIPS) You can buy at auction directly through TreasuryDirect.gov or through a brokerage account that offers new-issue auctions and secondary-market trading. TreasuryDirect charges no fees, but the interface is clunky and you cannot sell early through the platform. A brokerage account gives you access to older TIPS on the secondary market, which is usually necessary to fill specific maturity years when building out a long ladder.
Because purchases come in $100 blocks, rung payouts will not be identical to the penny. A $40,000 target may produce rungs of $39,900 or $40,100. The variation is trivial.
Check Real Yields Before You Buy
Two numbers set the price of the certainty you are buying: the real yield and the breakeven inflation rate. The real yield is what TIPS pay above inflation. As of early 2026, the 10-year TIPS real yield sits around 2%, meaning you earn roughly 2% per year on top of whatever inflation turns out to be. When real yields are meaningfully positive, TIPS offer genuine compensation. When they are negative, as they were for much of 2020 through 2022, you are paying for inflation protection and your total return after inflation is negative.
The breakeven is the gap between a nominal Treasury yield and the TIPS real yield for the same maturity. It represents the inflation rate at which both investments produce the same return.4Federal Reserve Bank of San Francisco. TIPS Liquidity, Breakeven Inflation, and Inflation Expectations If the 10-year nominal Treasury yields 4.5% and the 10-year TIPS yields 2%, the breakeven is 2.5%. TIPS come out ahead only if realized inflation runs above that number.
For a ladder investor, breakeven matters less than for a trader, because the point is to guarantee inflation-adjusted spending, not to beat nominal Treasuries. Still, checking real yields tells you the cost of that guarantee. At a 2% real yield the cost is modest. At a negative real yield it is steep, and building the ladder gradually over months or years reduces the risk of locking in a bad entry.
Ladder of Individual Bonds vs. TIPS Fund
A broad TIPS mutual fund or ETF holds bonds across many maturities and constantly rolls them. If you withdraw money in a given year, you sell shares at the market price on that day. When real rates rise, TIPS prices fall, and you can end up selling at a loss large enough to offset the inflation protection you paid for. A ladder avoids this because you hold each bond to maturity and collect the full adjusted principal regardless of interim prices.
The usual arguments for bond funds do not carry much weight here. Diversification adds nothing when every holding is a U.S. Treasury obligation with identical credit quality. Liquidity is beside the point if you never plan to sell early. Credit monitoring is irrelevant when the borrower is the federal government.
Target-maturity TIPS ETFs are a middle ground. Each fund holds TIPS all maturing in a single target year and distributes its net asset value to shareholders in that year, mimicking the payout of an individual bond. You can build a ladder from a series of these ETFs. The trade-off is an annual expense ratio that individual bonds do not carry; you get easier purchasing in smaller dollar amounts and professional handling of coupon reinvestment.
Taxes and Where to Hold It
The biggest tax problem with TIPS is phantom income. Each year, the inflation adjustment to your principal counts as taxable income even though you do not receive the cash until the bond matures. The IRS classifies the adjustment as original issue discount and requires you to include it in gross income for the year it accrues.5Internal Revenue Service. Publication 1212 – Guide to Original Issue Discount (OID) Instruments
In practice, if you own $100,000 in TIPS and inflation runs at 3%, your principal grows by about $3,000 and you owe federal income tax on that amount even though the money is still inside the bond. Your semiannual coupon payments are also taxed as ordinary income. Both are exempt from state and local income tax, like interest on any Treasury obligation.6Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation
The phantom income problem makes TIPS a poor fit for a taxable brokerage account, where you end up writing checks to the IRS for money you cannot spend yet. Inside a traditional IRA, tax on both the coupon and the inflation adjustment is deferred until withdrawal. Inside a Roth IRA it is eliminated. Most ladders belong in a tax-advantaged account whenever there is room.
Risks and Limitations
Early Sales Can Sting
If you hold every rung to maturity, market prices do not affect you. If life forces you to sell early, real interest rate risk is real. TIPS bid-ask spreads are wider than those on nominal Treasuries, and older seasoned TIPS trade less liquidly than newly issued ones.7Federal Reserve Bank of San Francisco. TIPS Liquidity and Breakeven Inflation An early sale of a mid-ladder bond can mean accepting a worse price than a comparable nominal Treasury would fetch.
Negative Real Yields
Inflation protection is not free. You pay for it in a lower yield than comparable nominal Treasuries. When the real yield is negative you are guaranteed to lose purchasing power even after inflation adjustments. The ladder does not override bad entry prices; it only spreads them out.
Gap Years
Because no TIPS matures in some calendar years, a 30-year ladder will contain stretches where one bond funds two or three years of spending. Some years will produce a bit more or less than your target. The mismatch is manageable but real.
Your Inflation May Not Be CPI-U
TIPS track CPI-U, which reflects average urban consumer spending.1TreasuryDirect. TIPS/CPI Data Your personal inflation rate may differ if your spending concentrates in categories like healthcare or housing, which often outpace overall CPI. A retiree whose costs are dominated by medical care may find that TIPS adjustments lag behind the actual erosion of purchasing power. The protection is real but imperfect.
What About I Bonds
Series I savings bonds also adjust for inflation, but they cannot substitute for a ladder. The purchase limit is $10,000 per Social Security number per year, which makes it impossible to build a meaningful multi-year income stream from them. I Bonds also do not trade on a secondary market. They are redeemable after 12 months with a three-month interest penalty, and penalty-free only after five years.8TreasuryDirect. Comparing TIPS to I Bonds For small supplemental inflation protection they are excellent. For a structured multi-year income plan, TIPS are the only realistic option.