TIPS and I Bonds: Protecting Your Money From Inflation

How inflation eats a fixed income

Before getting into TIPS and I bonds, it helps to see why inflation matters so much.

Let's say you retire with $50,000 a year in income that doesn't adjust for inflation. If prices rise 3% a year:

• After 10 years, your $50,000 buys what about $37,000 buys today.
• After 20 years, it buys what about $28,000 buys today.

That's a significant loss of buying power, without a single dollar leaving your account.

Social Security benefits get an annual cost-of-living adjustment tied to inflation. But many other sources of retirement income don't adjust, or don't adjust fully. That gap is where inflation-protected investments can help.

I bonds: how they work

Series I Savings Bonds are savings bonds you buy directly from the U.S. Treasury. Their interest rate has two parts:

1. A fixed rate, set when you buy the bond, which stays the same for the life of the bond.
2. An inflation rate, which resets every six months based on changes in consumer prices.

The two combine into what's called the composite rate.

What I bonds are paying now

I bonds bought from May 1 through October 31, 2026 earn a composite rate of 4.26%, according to TreasuryDirect. That combines a 0.90% fixed rate with a 3.34% annualized inflation rate.

New rates will be announced November 1, 2026. The fixed rate is the part that matters most for long-term holders, since it stays with the bond for up to 30 years, while the inflation portion changes every six months.

The rules

• Where to buy: Electronic I bonds are sold through TreasuryDirect.gov. As of January 1, 2025, you can no longer buy paper I bonds with your tax refund.
• Purchase limit: Individuals can generally buy up to $10,000 in electronic I bonds per calendar year.
• Minimum holding period: You can't cash them in for the first 12 months.
• Early redemption penalty: If you cash them in before five years, you give up the last three months of interest.
• Interest life: I bonds earn interest for up to 30 years.
• Floor: The composite rate can't go below zero, so the bond's value won't decline even if there's deflation.

How I bonds are taxed

• Interest is subject to federal income tax but exempt from state and local income tax.
• You can generally defer federal tax until you cash the bond in or it stops earning interest.
• Interest may be tax-free if used for qualified higher education expenses, subject to income limits and other rules.

What I bonds are good for

• Money you won't need for at least a year
• Part of an emergency fund you're unlikely to touch soon
• A safe, inflation-protected place for savings over the medium to long term

The main limitation is the $10,000 annual cap, which makes I bonds hard to use for large amounts of money.

What to watch on November 1

The Treasury announces new I bond rates on November 1 and May 1 each year. The November 2026 announcement will set two things for bonds bought from November through April:

• A new fixed rate, which stays with those bonds for their entire life
• A new inflation rate, based on how consumer prices changed over the previous six months

Some analysts who follow I bonds closely have suggested the fixed rate could move higher this fall, given how much real yields on TIPS have risen in 2026. But the fixed rate is set at the Treasury's discretion, and there's no guarantee.

If you're considering I bonds, it can help to compare the current fixed rate with what's expected, since the fixed rate is the part you keep for up to 30 years. For bonds you already own, the new inflation rate will apply at your bond's next six-month reset.

TIPS: how they work

Treasury Inflation-Protected Securities are bonds issued by the U.S. Treasury that adjust for inflation in a different way.

• The principal adjusts with inflation. When consumer prices rise, the bond's principal value increases. When prices fall, it decreases.
• Interest is paid on the adjusted principal. TIPS pay a fixed interest rate twice a year, but it's applied to the inflation-adjusted principal, so interest payments rise with inflation too.
• At maturity, you receive the greater of the inflation-adjusted principal or the original principal. That means you won't get back less than you started with, as long as you hold to maturity.

TIPS come in 5-year, 10-year, and 30-year maturities when issued, and can be bought at auction through TreasuryDirect or through a brokerage account. They can also be bought and sold in the secondary market before maturity, where prices change daily.

What TIPS are paying now

TIPS yields are quoted as real yields, meaning the return above inflation.

As of September 24, 2026, the 10-year TIPS had a real yield of about 2.85%, and the 30-year was near 3.21%, according to the U.S. Treasury. That means a 10-year TIPS bought that day and held to maturity was priced to earn roughly 2.85% a year above inflation.

For context, real yields on TIPS were near or below zero just a few years ago. Today's levels are among the highest in years, which has drawn a lot of interest from retirees and people planning for retirement.

How TIPS are taxed

• Interest and the annual inflation adjustments to principal are generally subject to federal income tax each year, but exempt from state and local income tax.
• In a taxable account, that can mean owing tax on the inflation adjustment each year even though you don't receive that money until maturity. This is often called phantom income.
• Because of that, many people prefer holding TIPS in tax-advantaged accounts, like IRAs.

Price risk before maturity

Like other bonds, TIPS prices move when interest rates change. If real yields rise after you buy, the market value of your TIPS falls. If you hold to maturity, you receive the inflation-adjusted principal. If you sell early, you could get more or less than you paid.

TIPS funds, which hold many TIPS and don't have a maturity date, can lose value when real yields rise, as many did in 2022.

Breakeven inflation: TIPS vs. regular Treasuries

Here's a useful way to compare TIPS to regular Treasuries.

On September 24, the 10-year TIPS real yield was about 2.81%, and the market's breakeven inflation rate was about 2.27%. The breakeven is roughly the difference between a regular 10-year Treasury yield and the 10-year TIPS real yield.

It's the inflation rate at which the two would end up with about the same return:

• If inflation averages more than about 2.27% over the next 10 years, TIPS would do better than a regular Treasury.
• If inflation averages less, the regular Treasury would do better.

In plain terms: buying TIPS is a bet that inflation will be higher than the market expects. Or, more practically, it's insurance against inflation surprises.

TIPS vs. I bonds: side by side

How to buy them

I bonds. Electronic I bonds are sold only through TreasuryDirect.gov. You open an account with your Social Security number and bank information, choose an amount, and buy. You can buy for yourself and, in some cases, for others, like a child or as a gift, subject to the annual limits.

TIPS. You have a few options:

• At auction through TreasuryDirect, holding them in your TreasuryDirect account
• At auction or in the secondary market through a brokerage account, including inside an IRA
• Through TIPS mutual funds or ETFs, which hold many TIPS but don't have a maturity date and can fluctuate in value

Each approach has trade-offs in convenience, flexibility, and how price changes affect you.

A hypothetical inflation-protection mix

Here's a simplified, hypothetical example of how someone might think about inflation protection. It's illustrative only, not a recommendation.

Let's say a recently retired teacher has a pension, will claim Social Security in a few years, and has $400,000 in savings.

• Social Security, once claimed, adjusts for inflation every year.
• Their pension is based partly on service after July 1, 2011, so a growing share of it may not rise with prices.
• To bridge the years before Social Security, they consider a small TIPS ladder covering the gap between their pension and their spending for those years, so that part of their income keeps pace with inflation.
• For part of their emergency cushion, they consider I bonds, buying within the annual limit, since they're unlikely to need that money in the first year.
• The rest of their savings stays in a diversified mix of stock and bond investments aimed at long-term growth.

The goal isn't to protect every dollar from inflation. It's to make sure the essential parts of the plan, the spending that has to happen no matter what, keep up with rising prices.

How retirees use inflation protection

Covering essential expenses

Some retirees use TIPS to cover a portion of their essential expenses for a set number of years, so that part of their spending is protected from inflation.

TIPS ladders

A TIPS ladder is a series of TIPS that mature in different years, each covering one year of spending. For example, a retiree might buy TIPS maturing in each of the next 10 or 20 years. Each year, a rung matures and provides inflation-adjusted money for that year's spending.

With real yields near their highest levels in years, TIPS ladders have gotten renewed attention as a way to create predictable, inflation-protected income.

Bridging to Social Security

Some people retire before claiming Social Security and use a TIPS ladder to cover the years in between, letting them delay Social Security for a larger lifetime benefit.

Filling the COLA gap

If some of your retirement income doesn't fully adjust for inflation, TIPS and I bonds can help fill that gap.

A note for FRS members

The FRS Pension Plan provides a steady monthly benefit, but its cost-of-living adjustment depends on when your service was earned. For service earned after July 1, 2011, the Pension Plan generally doesn't provide a cost-of-living increase, while service before that date may earn a prorated increase. That means, for many members, a growing share of their pension may not keep up with inflation over a long retirement.

That's an important thing to understand when planning. Social Security's annual adjustments, plus investments designed to keep up with inflation, may matter more for your plan than you think. The MyFRS Financial Guidance Line, at 1-866-446-9377, can explain how the adjustment applies to your specific service.

What TIPS and I bonds don't do

• They don't guarantee growth above inflation beyond their stated rates. TIPS lock in a real yield if held to maturity. I bonds depend on the fixed rate you get.
• They don't match your personal inflation. Both use the Consumer Price Index. If your own costs, like healthcare or insurance, rise faster, the protection may not fully keep up.
• They're not a whole plan. Inflation protection is one tool. Growth investments, Social Security timing, and spending flexibility all play a role too.

What I'm not going to do

I'm not going to tell you whether TIPS or I bonds belong in your portfolio, or how much. That depends on your income sources, your timeline, your taxes, and how much inflation risk you're exposed to.

What I will say is this. When it comes down to it, inflation is a risk a lot of retirees underestimate, especially when part of their income doesn't adjust. Today's rates make inflation protection more attractive than it's been in years, and it's worth understanding your options.

Let's check your plan's inflation protection

The real question for retirement isn't just how much income you'll have. It's how much that income will buy 10 and 20 years from now.

That's something I help clients work through. We'll look at which parts of your retirement income adjust for inflation and which don't, how much inflation risk that leaves you with, and whether tools like TIPS, I bonds, or a TIPS ladder make sense in your plan. For FRS members, we'll look closely at how your pension's cost-of-living adjustment applies to your service.

I work as a fiduciary, which means I'm required to act in your best interest.

A plan that ignores inflation is a plan that shrinks every year.

Frequently asked questions

What is the current I bond rate?

I bonds purchased from May 1 through October 31, 2026 earn a composite rate of 4.26%, combining a 0.90% fixed rate and a 3.34% annualized inflation rate. New rates are announced November 1, 2026.

How much can I invest in I bonds?

Individuals can generally buy up to $10,000 in electronic I bonds per calendar year through TreasuryDirect.

What are TIPS?

Treasury Inflation-Protected Securities are U.S. government bonds whose principal adjusts with inflation. Interest is paid on the adjusted principal, and at maturity you receive the greater of the adjusted or original principal.

What is the current TIPS yield?

As of September 24, 2026, the 10-year TIPS real yield was about 2.81% and the 30-year about 3.17%, meaning returns above inflation if held to maturity.

Are TIPS or I bonds better?

It depends. I bonds have no price risk and tax deferral but a $10,000 annual limit and a 12-month lockup. TIPS have no practical purchase limit and can be held in IRAs, but their market prices move before maturity and they may create taxable phantom income in taxable accounts.

Can I lose money in TIPS?

If you sell TIPS before maturity, you could receive less than you paid if real yields have risen. If you hold to maturity, you receive at least your original principal.

Educational content only. Not individualized investment, tax, or legal advice. Rates are as of the dates cited and change regularly. Past performance does not guarantee future results. Benowitz Wealth Management is a brand of Joy Financial Group LLC, a Florida state-registered investment adviser. Consult a qualified tax professional regarding your specific situation.

Neither Joy Financial Group LLC nor Benowitz Wealth Management is affiliated with, endorsed by, or employed by the Florida Retirement System, the Florida Division of Retirement, the State Board of Administration of Florida, MyFRS, or any government agency. FRS members may obtain free, unbiased guidance from the MyFRS Financial Guidance Line at 1-866-446-9377.