International Financial Planning Day was this week, and there's rarely been a better time to set up a TIPS ladder

Unlike the stock market, whose future returns are anything but assured, a TIPS ladder's payout is guaranteed.

Wall Street loves to make things seem more complicated than they need to be.

International Financial Planning Day, which occurred this week, is an especially good time to remember this. Unscrupulous financial planners want us to believe we can't, by ourselves, secure our financial security for retirement - and therefore we need them to do it for us.

That's just not true, especially now, given the recent surge in TIPS yields. TIPS, of course, are the Treasury's Inflation Protected Securities, and their quoted yields are above and beyond inflation. The 10-year TIPS is currently trading at a 3.0% real yield - nearly double where it stood 12 months ago. The 30-year TIPS is yielding 3.4%, versus 2.5% one year ago. Because of these high yields, each of us can fairly easily create a guaranteed retirement income that significantly exceeds what financial planners had for years insisted is the most we could realistically expect - a 4% inflation-adjusted withdrawal for 30 years.

This 4% rate traces to a 1994 article by William Bengen in the Journal of Financial Planning. He arrived at that rate by calculating the lowest inflation-adjusted withdrawal rate that could nevertheless have been sustained by a 50% stock/50% bond portfolio in the worst 30-year period in U.S. history. This withdrawal rate, which Bengen referred as the SAFEMAX rate, has been controversial ever since, however. More recently, he's argued that you can do better than 4% by diversifying into other classes. Others argue that a 4% rate is anything but safe or assured. One study, co-authored by University of Arizona finance professor Richard Sias, argued that a true SAFEMAX rate would be closer to 1.9% than 4.0%.

High TIPS yields change this calculus. The key is to construct a ladder of TIPS that mature over the next 30 years - something we can do by ourselves in about an hour. The excellent free website TipsLadder.com shows you which TIPS issues to purchase and how many. Currently, according to this website, such a ladder supports an inflation-adjusted payout rate of 5.2% per year until 2056. So long as the federal government doesn't default, this payout rate is guaranteed.

This 5.2% payout rate is almost as good as the stock market's long-term inflation-adjusted return, which is 6.1% annualized, according to Santa Clara University's Edward McQuarrie. But, unlike the stock market, whose future returns are anything but assured, the TIPS ladder's payout is guaranteed.

A TIPS ladder therefore gives up only a small fraction of the stock market's potential in return for sleeping like a baby. Why wouldn't you take that risk?

Longevity risk

One answer to this question from many financial advisers is that clients often want to hedge against living longer than 30 years in retirement - outliving their money, in other words, also known as longevity risk. Advisers often recommend that these clients purchase annuities, which are insurance products that are complicated, hard to compare and have high commissions. Fortunately, there's a simple and commission-free way of using a TIPS ladder to satisfy concern about longevity risk.

The solution is to allocate only a portion of your retirement assets to a 30-year TIPS ladder and invest the remainder in a broad stock-market index fund that you don't touch for 30 years. This approach extends the life of your guaranteed income to over 40 years.

To illustrate, consider taking 75% of your retirement assets and investing them in a 30-year TIPS ladder. For a million-dollar portfolio, that means $750,000 would purchase the ladder, which would support an inflation-adjusted payout rate of $40,000 per year - the same payout rate you would get from using $1 million to purchase an inflation-indexed 4% annuity (if they existed, which they don't).

The remaining $250,000 would be invested in an index fund such as the Vanguard Total Market Index ETF VTI. McQuarrie reports that, based on the past 230 years of U.S. stock-market history, there is a 99.1% probability that the stock market over the next 30 years will produce at least a 2.0% annualized real return.

This means that, after your 30-year TIPS ladder is exhausted, your stock index-fund position would be worth enough to support at least 11 more years of a 4% inflation-adjusted withdrawal rate. For a 65-year old retiree, that means his retirement income security is set until at least he's 106.

It's also worth noting that this TIPS ladder-plus-stock-index-fund strategy has a big advantage over an annuity: Your heirs will inherit the balance of your portfolio if you die before 30 (or more) years have passed. With an annuity, in contrast, your heirs get nothing once you die (unless you purchase an annuity with a guaranteed payout for the first several years and you die within those first several years, in which case the annuity's payout rate will be lower than without such a guarantee).

This TIPS ladder-plus-stock-index fund is not the only way you can take advantage of current high TIPS yields to easily, without commissions, and by yourself (or with minimal outside assistance) provide for your retirement income security. Two excellent articles that explore these other solutions include one from McQuarrie and another from Allan Roth, the founder of Wealth Logic, an advisory firm.

Happy International Financial Planning Day!

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

-Mark Hulbert