In an article for SmartAsset, Patrick Villanova CEPF discusses the pros and cons of investing for retirement in TIPS, Treasuries, and annuities. All of these are methods for retirees to generate income during their retirement. And, this is increasingly needed given that traditional pensions are being phased out of existence. 

TIPS are treasuries that are designed to protect against inflation. In essence, the yield is fixed, while the principal varies based on inflation. Some will create income through buying TIPS of different maturities, creating an income stream that is indexed to inflation. 

An annuity functions similarly but without the inflation component. Essentially, it’s a way to turn cash into an income stream. Treasuries are the most straightforward vehicle for saving, and it’s the benchmark that other methods are compared against. 

According to Villanova, the best strategy ultimately depends on a retiree’s lifespan and the rate of inflation. Assuming a moderate inflation rate of 2.5%, Treasuries would outperform annuities and TIPS slightly. If inflation returned to levels seen in the past decade, then Treasuries would perform the best. If inflation were to average 5%, then the TIPS strategy would handily outperform Treasuries and annuities.

However, annuities would handily outperform in the event that a retiree lives longer than 20 years. Given that the income of annuities is fixed, the value of this income would be diluted by higher levels of inflation. 

Finsum: Annuities, TIPS, and Treasuries are 3 of the most popular methods to create income during retirement. Patrick Villanova compares and contrasts each to see which is the best strategy for retirees.