If you find yourself asking a question similar to: 

“My TIPS ladder has a real rate of return of 2.2%, but MaxiFi’s default is different. Should I change the Safe Rate of Return in Settings?”

For most users, the answer is no.

MaxiFi’s default assumptions are specifically designed to provide a reasonable long-term estimate for conservative investments, including Treasury securities and TIPS. In most cases, leaving the defaults unchanged will produce results that are very close to using your ladder’s exact return.

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How MaxiFi Uses the Safe Rate of Return

The Safe Rate of Return is not intended to represent the exact yield on every investment you own.

Instead, it serves as a planning assumption for assets expected to have relatively low risk, such as:

  • Treasury securities
  • TIPS
  • CDs
  • Money market funds
  • Other conservative investments

This assumption helps MaxiFi estimate how those assets may grow over time as it builds your lifetime spending plan.

Why Your TIPS Ladder May Have a Different Return

Every TIPS ladder is unique.

Your ladder’s real return depends on factors such as:

  • When the bonds were purchased
  • Prevailing interest rates at the time
  • The mix of maturities
  • Current market conditions

For example:

  • A ladder purchased several years ago may have a lower real yield than one purchased today.
  • Two investors with identical cash flows may have different internal rates of return because they purchased their ladders at different times.

That difference is normal.

Why We Usually Recommend Leaving the Defaults

Although your ladder has its own actual yield, MaxiFi already accounts for changing market conditions in another important way. As interest rates change:

  • The market value of your bond holdings changes.
  • MaxiFi reflects those changes when you update your account balances.
  • The software’s default Safe Rate of Return assumptions are periodically updated to reflect current long-term Treasury and TIPS yields.

These effects tend to offset one another over time.

As a result, using the default assumptions while periodically updating your account balances generally produces results that are very close to using your ladder’s exact rate of return.

For most households, the difference is small enough that it has very little impact on the overall financial plan.

Can I Enter My Own Safe Rate of Return?

Yes.

If you’d like to use your own assumptions, you can enter a custom Safe Rate of Return in Settings & Assumptions.

Some investors calculate the real internal rate of return (XIRR) for their TIPS ladder using tools such as tipsladder.com and choose to use that value.

While this can provide a more customized assumption, keep in mind that your TIPS ladder is often only one portion of your overall portfolio.

If the rest of your conservative assets have different expected returns, a single custom rate may not actually represent your entire portfolio any better than MaxiFi’s default assumption.

When Might It Make Sense to Customize the Safe Rate?

You may wish to consider a custom assumption if:

  • Nearly all of your conservative assets consist of a TIPS ladder.
  • You have a strong reason to use a specific planning assumption.
  • You’re performing sensitivity analysis to see how different assumptions affect your plan.

Even then, remember that changing the assumption is unlikely to produce dramatically different planning results.

Frequently Asked Questions

My brokerage says my TIPS ladder lost value. Did I lose money?

Not necessarily.

If you plan to hold your TIPS until maturity, changes in market value caused by interest rate movements generally do not affect the amount you’ll receive at maturity.

Like other bonds, TIPS fluctuate in market value as interest rates change, even though their principal is adjusted for inflation.

Why doesn’t MaxiFi use my ladder’s exact yield automatically?

Because MaxiFi models your financial plan, not the individual securities within your portfolio.

Rather than tracking the yield of every bond, MaxiFi uses long-term planning assumptions designed to provide reasonable results across a wide range of conservative investments.

Will changing the Safe Rate dramatically change my plan?

Usually not.

Small differences, such as 2.2% versus 2.4% real returns, typically have only a modest effect on long-term planning results.