TIPS is short for Treasury Inflation Protected Securities. TIPS are government bonds that have their principal indexed to inflation. The coupon rate remains unchanged, but as the principal adjusts according to the rate of inflation, the actual interest payment--which is paid twice per year--changes. In this way, the owner of Treasury inflation protected securities is shielded from the erosive effects of inflation. While the principal is adjusted upwards in inflationary conditions, it does not fall below its original amount, even in deflation. TIPS interest is exempt from state and local taxes, but is subject to federal tax. TIPS are issued in 5, 10 and 30 year maturities and can be purchased direct through a Treasury auction or in the secondary market. It is important to note that the consumer price index (CPI) is the inflation benchmark used to adjust TIPS principal.
Submitted by tom on
$3 million in savings buys roughly $5,000 per month or $60,000 per year in inflation adjusted income.
This is inflation adjusted fixed income rather than annuity-based income.
Click here for more on TIPS and inflation adjusted retirement income.
Submitted by Anonymous on
Can someone please explain the basic differences between treasury inflation protected securities and I-bonds?
