A CD Ladder Could Be a Perfect Investment for Retirees. Here's Why


If you are retired, you could find building a CD ladder beneficial. This safe investment can help you maximize your returns, while reducing the chances your retirement accounts run dry while you’re still relying on them.

Not sure what a CD ladder is or why it’s a good idea to have one? Here’s what you need to know.

A CD ladder is the perfect investment for retirees for a simple reason

As you probably know if you’re a senior, you need money in your golden years to supplement Social Security, which replaces only about 40% of pre-retirement benefits. This money likely will come from your savings, including cash in investment accounts.

You don’t want to have to take money out of those investment accounts during a downturn, though. If you do, you have to sell stock and lock in losses. This puts you at greater risk of running out of money. That’s why you shouldn’t have too much of your portfolio invested as a senior. You need to be more conservative.

Since it’s typically a bad idea to have money invested that you’ll need in the next five years or so (since you won’t have time to wait out market downturns if things go wrong), you should have around five years’ worth of money out of the market. This cash should be accessible to live on in case of a prolonged market slump.

Putting a good portion of this money in a CD ladder can help you to still earn competitive returns, without taking risks, and while ensuring it’s readily available when you need it.

Why does a CD ladder work so well for retirees?

Why is a CD ladder a great choice for seniors? Here’s how it works.

Let’s say, for simplicity’s sake, that you need $120,000 to cover your living expenses for the next five years. Here’s what you do:

  • You keep $20,000 of this money in a savings account. If you need it, you can take it out right away. Pick a high-yield savings account and you can still likely earn above 5.00% APY right now.
  • You put $20,000 into a CD that matures in one year (Find one here on our list of the best 12-month CDs)
  • You put $20,000 into a CD that matures in two years (Pick from our list of the best 2-year CDs)
  • You put $20,000 into a CD in three years (Pick from the best 3-year CDs)
  • You put $20,000 into a CD in four years (Pick from among the best 4-year CDs)
  • You put $20,000 into a CD in five years (Pick from among the best 5-year CDs)

With this approach, at any given time, you’ll have a year of liquid savings to cover expenses until your next CD matures. You won’t have to break a CD term early, even if the worst happens and you must live entirely on your cash savings because of a market downturn. But the rest of your uninvested money will be safe in an FDIC-insured account that earns a generous return.

Don’t pass up the chance to build a CD ladder at the perfect time

This strategy can work well in most situations because CD rates tend to be higher than savings account rates. But now is an especially great time to implement it.

CD rates have been hovering around the 4.00% to 5.00% range for all term lengths. This is unprecedented in recent history (thanks to the Federal Reserve repeatedly raising rates to fight higher inflation). These high rates are guaranteed for the duration of the CD term (unlike with a high-yield savings account, which has a variable rate that will fall if the Fed begins to lower rates).

If you start a CD ladder now, you can keep earning this competitive return on a relatively risk-free investment for at least the next five years. This is especially important now, as the Fed has signaled an intent to lower rates later this year. You can make the most of the money saved for a rainy day without putting it at risk, thereby giving you more to live on if you need it.

Start building your ladder soon before the Fed lowers rates. You won’t regret it.

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