The Case for TIPS as the Real Risk-Free Asset

For anyone saving for retirement, the great enemy of a comfortable future is inflation — the silent erosion of purchasing power. Brett Arends, a financial commentator, makes a compelling case that the closest thing to a truly risk-free investment for American savers is the Treasury Inflation-Protected Security, or TIPS. Unlike a conventional 10-year Treasury bond that promises a fixed 4% coupon, a TIPS bond automatically adjusts its principal to reflect changes in the Consumer Price Index. The result: you know, in real terms, exactly what your money will buy a decade from now.

Arends points out that TIPS currently offer real yields — the return above inflation — that are unusually attractive by historical standards. As of June 2026, even short-dated TIPS were yielding over 2% in real terms, while 30-year TIPS were approaching 2.8%. “To me,” he says, “the interesting question isn’t why would you buy TIPS? It’s why would you buy nominals.” The default, his logic runs, should be an asset that eliminates inflation uncertainty entirely, not one that leaves you guessing.

The same underutilized logic extends to immediate income annuities. These are plain-vanilla contracts where you hand an insurer a lump sum and receive a guaranteed monthly payment for life, regardless of how long you live. Arends notes that for a 65-year-old woman shopping today, a no-step-up annuity pays out about 7.7% of the premium each year — nearly double the often-cited 4% safe withdrawal rate from a balanced stock-and-bond portfolio. Even after adding a 3% annual increase to help offset inflation, the starting payout sits at a still-attractive 5.6%. Yet sales remain tiny, a phenomenon economists call the “annuity puzzle.”

Why Investors Overlook Guaranteed Income and Inflation Protection

The Annuity Puzzle and the ‘Good Old Days’ Myth

People frequently lament the loss of traditional final-salary pensions, but as Arends observes, you can replicate a guaranteed lifetime income stream simply by purchasing an immediate annuity. The barrier is largely psychological: fear of losing control of a lump sum, worry about dying early and “wasting” the premium, and confusion with other high-fee products also labeled “annuities.” He points to immediateannuities.com as a straightforward marketplace where anyone can check real-time payout rates and dispel the notion that these are bad deals.

The Inflation Catch and the Step-Up Option

The biggest knock against fixed annuities is that payments don’t rise with the cost of living, so their real value can be crushed by persistent inflation. True CPI-linked annuities don’t exist in the US, but a fixed annual step-up offers a partial remedy. A 65-year-old woman locking in a 3% annual increase would start at $56,000 on a $1 million purchase, with payments growing thereafter. Arends admits he’s skeptical that official inflation will stay at the Fed’s 2% target long term. Governments, he argues, have a powerful incentive to let real inflation run hotter to erode the value of their debt, which makes a step-up that merely matches official CPI potentially inadequate. TIPS, in contrast, grow directly with the CPI, making them a cleaner inflation hedge.

A Neglected Asset Class

Both TIPS and simple income annuities are ignored partly because they seem boring. Yet the math is compelling. The real yields on TIPS today are among the highest in years, while annuity payouts have risen with bond yields. For a retiree seeking a floor of guaranteed income that keeps pace with the cost of living, a combination of TIPS and an escalating annuity offers a blueprint that is safer than a pure 4% equity-and-bond withdrawal strategy, with no sequence-of-returns risk.

How to Build an Inflation-Protected Retirement Income Stream

For savers and retirees ready to act on these insights:

  • Build an inflation-protected bond ladder. Allocate a portion of your fixed-income portfolio to individual TIPS bonds. Current real yields above 2% for maturities of three to five years, and near 2.8% for 30-year bonds, allow you to lock in known purchasing power for your spending needs.
  • Shop immediate income annuities as a paycheck for life. Use a transparent benchmark like immediateannuities.com to compare current payout rates. For a 65-year-old woman, a no-step-up annuity pays about 7.7%; a 3% escalating annuity starts at 5.6%. These quotes move daily with market yields, so monitor when you are ready to buy.
  • Match step-up rates to your inflation expectations. If you believe long-run inflation could exceed the Fed’s 2% target, favoring a 3% annual increase may offer more protection, even if the initial payout is lower. Remember that step-ups only guard against expected inflation, not an inflation surprise.
  • Don’t annuitize everything. Keep a liquid emergency fund separate to cover large unexpected expenses, so you aren’t forced to commit all your savings to an irrevocable contract.
  • Revisit the 4% rule. With annuity payouts significantly higher than a traditional withdrawal rate, consider whether the guaranteed income can serve as your spending floor, allowing the rest of your portfolio to be invested for growth and discretionary spending.