FIRE With 5% Bonds: What High Yields Change for Early Retirees
Safe money pays real interest again. Here's what that changes and what it doesn't.
TL;DR
- The 10-year TIPS yields 2.91% above inflation, the highest since 2008. In 2021 it averaged −0.91%.
- At that yield, a 30-year TIPS ladder pays out about 5% a year, adjusted for inflation and guaranteed. That beats the 4% rule without any stock market risk, but nothing is left at the end.
- Stocks are expensive: the Shiller CAPE is around 40, close to the 1999 peak. The real return on bonds is now higher than the earnings yield on stocks.
- The useful move: lock in the bridge years (early retirement up to pension age) with bonds held to maturity, and keep stocks for the decades after that.
For most of the 2010s, the bond part of a FIRE portfolio was dead weight. It was there to cushion crashes, and it lost money after inflation while it waited. That's over. Safe money pays real interest again, and if you're within ten years of quitting, it changes the math.
The numbers right now
US Treasury yields from FRED, closing 29 September 2026:
| Instrument | Yield | 2021 average |
|---|---|---|
| 3-month T-bill | 4.25% | 0.04% |
| 10-year Treasury | 5.26% | 1.45% |
| 30-year Treasury | 5.59% | 2.06% |
| 10-year TIPS (real) | 2.91% | −0.91% |
| 30-year TIPS (real) | 3.29% | −0.20% |
| 10-year breakeven inflation | 2.35% | 2.36% |
The September 10-year TIPS auction cleared at 2.653%, the highest for that term since October 2008. The market has climbed since then.
The row that matters is TIPS. A Treasury Inflation-Protected Security adjusts its principal for CPI, so the yield is what you earn after inflation, backed by the US government. Retirement spending rises with inflation, so this is the number that funds it.
What a 3% real yield buys
A TIPS ladder is a set of bonds with one maturing every year. Each year's bond pays that year's spending, adjusted for inflation. Hold every bond to maturity and price swings don't matter. The Bogleheads wiki describes the standard version.
How much a ladder pays out each year depends only on the real yield and how long it runs. The table shows the yearly inflation-adjusted withdrawal as a % of the starting portfolio, spending it to zero. It assumes one flat yield; a real ladder uses each maturity's own yield.
| Real yield | 30 years | 40 years | 50 years |
|---|---|---|---|
| −0.9% (2021) | 2.9% | 2.1% | 1.6% |
| 0.5% | 3.6% | 2.8% | 2.3% |
| 1.95% (2024–25) | 4.4% | 3.6% | 3.1% |
| 2.9% (now) | 5.0% | 4.3% | 3.8% |
For comparison, Morningstar's 2026 safe withdrawal rate is 3.9% for 30 years, at 90% success, and it needs a stock-heavy portfolio to get there. Right now you can lock in 5.0% for 30 years with no market risk at all.
The catch is the money left over. The 4% rule usually ends with more than you started with: in most historical runs, the portfolio grew. A ladder ends at exactly zero. You trade the chance of a big inheritance pile for certainty.
Stocks look less attractive by comparison
The Shiller CAPE for the S&P 500 is around 40, its second-highest reading on record. Only the late-1999 peak of 44 was higher. Flip that around and you get a cyclically adjusted earnings yield of about 2.5%, a rough guide to long-run real returns from stocks.
That's below the 2.9% on 10-year TIPS. For most of the last 20 years stocks easily beat safe bonds on this measure. Today a risk-free bond pays more than the rough estimate for stocks.
This is not a signal to sell. CAPE has been "too high" for most of the past decade while stocks kept compounding, and it says almost nothing about the next one or two years. What it does tell you is that taking stock market risk with money you'll need in the first decade of retirement is poorly paid right now.
What to do, by FIRE stage
Still accumulating (10+ years out)
- Mostly nothing. A 30-year-old's portfolio should be mostly stocks no matter what bonds pay. You're buying for 2050s returns, not next year's.
- Cash finally earns something. T-bills at 4.25% beat inflation. Your emergency fund should be in a high-yield savings account or T-bills, not a 0.5% bank account.
- Check your mortgage rate. The 30-year fixed rate is 7.28% (Freddie Mac, 1 October 2026). If yours is near that, overpaying it is a guaranteed 7%, which beats every Treasury. If you locked in 3% in 2021, keep it and put spare cash in T-bills.
The last 5 years before FIRE
This is where high yields matter most. The biggest risk to an early retirement is a crash in the first few years, called sequence-of-returns risk. A ladder covering the first years takes that risk off the table for the spending it covers.
Example: you retire at 45 on $40,000 a year and a pension starts at 55. A 10-year TIPS ladder covering those bridge years costs about $343,000 at a 2.9% real yield. In 2021 the same ladder cost about $421,000. Today's yields save you $78,000, roughly two years of spending.
Everything else stays in stocks and has 10 years to recover from whatever happens before you need it.
Already retired
- Don't panic-sell bond funds. They fell because yields rose. They now earn the higher yield. Hold one longer than its duration and the income roughly makes up the price drop.
- Consider replacing bond funds with individual bonds you hold to maturity for spending in the next 5 to 10 years. A fund never matures, so its price keeps moving. A bond pays you back in full on a set date.
- Look again at your withdrawal rate. If you started at 3.25% to be safe, a partial ladder may let you spend more without taking on more risk.
The trade-offs nobody puts in the headline
- Yields can rise further. If you buy at 2.9% and next year it's 3.5%, the price of your bonds falls. Held to maturity, that doesn't matter. Sold early, it costs you.
- Taxes. In a US taxable account, the yearly inflation adjustment to TIPS principal is taxed as income even though you don't receive it as cash until maturity. Hold TIPS in an IRA or 401(k) where you can.
- Inflation risk on regular Treasuries. The 10-year at 5.26% beats TIPS only if inflation averages under 2.35%. Over the last 10 years it averaged 3.4%.
- Ladders run out. The longest TIPS matures about 30 years out. A 45-year-old's retirement can last 50. Past year 30 you need something else, and that's stocks.
- Waiting is a bet too. If real yields fall back toward 1%, anyone who waited loses the chance. If they climb to 3.5%, anyone who bought early wishes they hadn't. Nobody knows which. Locking in only the bridge years means you don't have to guess with the rest.
Model it before you buy it
The Fire Planner doesn't build bond ladders. It does let you set a custom growth rate for each asset. Add a separate "TIPS ladder" asset at a 2.9% real return, sized to cover your bridge years, and set your stocks to a more modest rate than the historical 7%. Then run the stress tests and look at how much the market-crash scenario changes when the first decade is already funded.
If you're spending half a million dollars or more on a ladder and the tax side is unclear, that's a good reason to pay a fee-only advisor for an hour. Choosing the bonds is easy. Getting the account placement wrong can cost more than the advice.
Frequently Asked Questions
Not as a market-timing bet. High yields change what bonds pay you for holding them, not whether stocks will fall next year. The useful move is narrower: fund the spending you can't cut, especially the first 5 to 10 years of retirement, with bonds you hold to maturity, and leave the long-horizon money in stocks.
Rising yields push bond prices down, which is why funds fell. The flip side is that the fund now earns the higher yield going forward. If you hold a fund for longer than its duration (listed on the fund's page, often 5 to 7 years for a total bond fund), you have roughly made back the price drop through the higher income. Selling locks in the loss and gains nothing unless you switch to something that fits your timeline better, like individual bonds held to maturity.
For spending in retirement, TIPS. Your expenses rise with inflation, and TIPS principal does too. A nominal Treasury at 5.26% beats a TIPS at 2.91% only if inflation averages less than the 2.35% breakeven the market is pricing. Holding some of both is a reasonable hedge if you can't decide.
Not on its own. The longest TIPS matures about 30 years out, and a ladder spends its principal to zero. At today's real yields a 50-year ladder would only support about 3.8% a year, and you'd have to buy the far rungs later at unknown prices. Use a ladder for the bridge years and keep stocks for the long tail.
The mechanics do. The UK has index-linked gilts, the euro area has inflation-linked bonds from France, Germany and Italy, and Canada and Australia issue their own. Real yields differ by country, so check your local market. Buying US TIPS when you spend in another currency adds currency risk the inflation protection doesn't cover.
Compare your mortgage rate to what a Treasury pays. A 7% mortgage paid down is a guaranteed 7% return, better than any Treasury today. A 3% mortgage from 2021 is the opposite: keep it and park spare cash in T-bills at over 4%.
See what a funded first decade does to your plan.