Those who are just starting investing out can certainly afford to take more risks than those who are approaching retirement, as they will have more time to bounce back from any potential losses and still have decades to make their money grow. However, as you approach retirement, a salary revenue stream will no longer be coming in and you personally may not have the time needed for the stocks to rebound. That is why diversifying into CDs as you approach retirement age is a practical choice.
CDs are a timed investment. The money is put into a CD for a predetermined amount of time, a rate of return is guaranteed on the investment and as long as it is a bank or thrift union issued instrument of deposit, the principal will be guaranteed against loss by the FDIC. Having your money easily accessible, earning a steady return and protected against bank closures can ensure a financial cushion necessary for retirement.
Some experts advise that those approaching retirement age withdraw their other higher risk investments and then utilize a CD ladder (staggering CD investments to mature at set times) to plan for retirement. We’ve also created a CD ladder spreadsheet to make it easy for you). Some benefits of using a CD ladder are:
- Money invested in CDs are safe and will earn a higher rate of return than a traditional savings account
- The maturity dates are pre-planned and spaced out so you know when you can access your money again
- Using a CD ladder technique when planning for retirement provides automatic diversification of investments
- When your CDs mature, money can be withdrawn and deposited towards IRA contributions for the year
If you are thinking about retirement take the time to speak to your portfolio manager about using CDs for that goal. Or if you prefer doing it on your own, take the time to investigate all the CD Rates options out there.