Sharkansky Backs 2.8% TIPS Ladders Over Annuities for Retirement Income

Q: If a TIPS ladder guarantees inflation-adjusted income, what happens to retirees who outlive their carefully constructed bond maturity dates?

They face longevity risk: a TIPS ladder only guarantees inflation-adjusted income through its last maturity date, not for life. If a retiree lives beyond the ladder’s end, the guaranteed cash flow stops unless there are other income sources or assets to continue funding spending. That is the main trade-off Sharkansky highlighted. A TIPS ladder is strong on inflation protection and cash-flow certainty over a chosen period, but weaker than an annuity on protecting against outliving the plan. An income annuity, especially a lifetime SPIA or deferred income annuity, pools longevity risk and keeps paying no matter how long the retiree lives. The cost is lower liquidity and, in many cases, weaker inflation protection unless the annuity includes a cost-of-living adjustment. In practice, retirees usually handle this by not relying on a TIPS ladder alone. They often pair it with Social Security, which is lifetime and inflation-adjusted, and may use stocks or other growth assets for later-life spending. Some also extend the ladder out 25 to 30 years, build it only to cover essential expenses, or add a deferred annuity or QLAC that starts payments in advanced age. So a TIPS ladder does not eliminate the risk of outliving assets by itself; it simply moves the problem to the end of the ladder. The planning solution is to combine it with lifetime income sources or reserve assets for the years beyond the final bond maturity.

1 articles · Updated · Morningstar · Aug 13

Long-term TIPS real yields near 2.8% make this a favorable moment to lock in a ladder that can fund retirement spending for up to 30 years, Stefan Sharkansky said.
Annuities can pay more through longevity pooling, but Sharkansky argued they fail to solve inflation risk because truly inflation-indexed annuities are not available, eroding purchasing power late in retirement.
A TIPS ladder lets retirees target a chosen real-income floor—such as $100,000 a year including Social Security—by matching maturities, principal and interest payments to annual spending needs.
Individual TIPS held to maturity are central to that approach because they provide known inflation-adjusted cash flows, while TIPS funds and ETFs still fluctuate with interest rates and cannot support equally certain withdrawals.