TIPS

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.

AARP Offers Tips on Retirement Spending and Annuities

AARP has published a tip sheet called Money Matters that offers advice on spending down one's assets in retirement. The tip sheet addresses a number of areas, including: When to claim Social Security . Asset Allocation . Annuities. Withdrawal rates. The role of one's home in retirement planning . For each topic, AARP offers a description of common or current practices, conventional wisdom and their general guidance. With respect to annuities, AARP notes that most people pay very little...

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Buffett and Pictet Express Concerns About Inflation

Warren Buffett expressed his concerns about budget deficits and inflation risk in a recent New York Times op-ed piece. Asset managers at Pictet and Cie which is Switzerland's largest private bank also have concerns about inflation in the United States, and they are backing this view with part of the $60 billion in fixed income assets that they manage. Pictet is committed to periodic purchases of treasury inflation protected securities (TIPS) in light of their inflation thesis. Recent and...

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Study Highlights Need for Bonds in Retirement Portfolios

The Center for Retirement Research at Boston College has released a study that highlights the need for a greater focus on the use of bonds in retirement. The study indicates that 86 percent of households approaching retirement hold a bank account, while only 33 percent own stocks directly and only 7 percent own bonds directly. The author suggests that the focus on safe, highly liquid accounts that provide a guaranteed return of capital is short-sighted and often risky. The notion of a return on...

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TIPS and Deflation

Submitted by tom on Sat, 07/18/2009 - 11:59

This forum topic should serve as a continuation of the comment on treasury inflation protected securities that is here.

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Listen to Zvi Bodie When it Comes to Retirement Planning

Zvi Bodie is absolutely one of the most honest and refreshing voices in finance and economics. Professor Bodie also happens to be an advocate of life-cycle investing.

A recent interview with Bodie is highly recommended and available in U.S. News & World Report.

Highlights from the interview include:

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