CD Laddering

This post was originally published in December 2013.

During the course of previous discussions, we have identified three general stages in an individual’s investment lifecycle: building a fiscal foundation (conducted during your 20s and 30s), accumulating wealth (occurring between the early 40s and mid-50s), and pre-retirement, the five-year period prior to your desired retirement age.

During the pre-retirement stage, debt is eliminated and a plan – considering the withdrawal rate (e.g. the 4% rule) and the order of withdrawal from the various retirement accounts – to draw down the retirement nest-egg is developed.

CD Ladder

With a sufficient nest-egg in place, debt eliminated, and an understanding that the nest-egg has to be drawn down in a manner to ensure that it will last 30+ years if necessary, the question then becomes, “how can I turn my retirement savings into a reliable retirement income and what type of investments should be held during the retirement period?”

Two weeks ago we talked about one potential option. Income funds. These types of funds are geared toward individuals already in or entering retirement. As the name suggests, an income fund is a type of mutual fund that emphasizes current income, either on a monthly or quarterly basis.

These funds attempt to meet the objective of providing steady income throughout retirement by holding some combination of government, municipal, and corporate debt obligations, preferred stock, money market instruments, and dividend-paying stocks.

Develop Your Withdrawal Plan [RetirementSavvy]

Last week we looked at annuities as an option for turning your retirement savings, your nest-egg, into a reliable retirement income stream. There are basically three types of annuities: variable, fixed, and equity-index. These can either be immediate (you make a single lump-sum payment and set the starting date for the payout to begin sometime in the very near future) or deferred (you build your retirement savings over a period of years, deferring when you begin to receive the income).

This week we take a look at an option – CD laddering – which on its own should not necessarily be the sole option for generating an income stream, but can nicely augment income funds and annuities.

With a Certificate of Deposit (CD) ladder, an investor divides a desired amount of money into equal amounts. That money is then invested in CDs, each with different maturity dates. The benefit of a CD ladder is that an investor can combine the high rates of long-term certificates with the liquidity of shorter term certificates.

An important idea behind CD laddering is that the investor must ensure that the cash requirements – when it will be most needed – align with the CD maturity dates. An emergency fund must be maintained so that in the event of unforeseen occurrences or emergencies, money is available and will not require a CD to be redeemed early. Early withdrawals will result in penalties, negating the benefits of the laddering scheme.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. I’m really enjoying the design and layout of your blog. It’s a very easy on the eyes which makes it much more enjoyable for me to come here and visit more often. Did you hire out a developer to create your theme? Exceptional work!

  2. Another great post, SavvyJames. I don’t think people put a lot thought into how they will have the money dispersed. You give them several options to do this. There would be nothing worse than living high on the hog for the first five years of retirement, then just social security for the last 20 years of your life!

    • Thanks for the feedback, Karen. You are absolutely correct in the recognition that there has to be a well thought out plan for drawing down a nest-egg. Acquiring wealth over 15, 20, 25+ years is only one part of the equation. As we have discussed here at RetirementSavvy in the past, drawing down the nest-egg takes careful consideration of factors such as which type of investments to hold in retirement, the withdrawal rate, and the order of withdrawal from the different account types (e.g. taxable, tax deferred, tax exempt).

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