How to Build a CD Ladder for Retirement

Retirees often give certificates of deposit short shrift, and that’s unfortunate.

Leveraged properly, CDs can give people living on a fixed income the one financial necessity they need in retirement: a reliable income stream with low relative risk.

That’s especially true with CD laddering — Wall Street’s way of building a reliable interest rate-return staircase in their golden years.

[Read: How to Invest $100,000 for Retirement]

In a word, certificate of deposit laddering is an investment strategy whereby the investor purchases a series of CDs that mature over a staggered time period.

“CD laddering in retirement is a common way for retirees to generate yield — i.e., growth on their investment — with little risk and to time future expenses with the maturation date of their specific ladder strategy,” says Craig Reid, president of retirement and wealth at Marsh McLennan Agency, a White Plains, New York-based financial services firm.

Basically, CD laddering enables savers to take a lump sum of cash and divide it into smaller portions, purchasing multiple CDs at varying increments of time.

“For example, someone looking to invest a sum of $10,000 could split that into $2,000 lumps and invest in five fixed-rate CDs with terms of one, two, three, four and five years,” says Ben McLaughlin, president of SaveBetter, an online savings platform. “After just one year, the first investment amount (including accrued interest) is paid out and can then be invested again at the highest interest rate available. In the following year, the two-year term deposit is due, and so on.”

A Give-and-Take Proposition

Like any investment vehicle, investors usually give something to get something with CD laddering. In this scenario, the “give” is higher relative portfolio returns and the “get” is some much-needed market reliability.

“Markets go up and down and this roller coaster is stressful for many investors, especially those in or nearing retirement,” Reid says. “Many people want a smoother investment experience and CD laddering provides that with a low-risk strategy with fewer ups and downs.”

Cash savings are also important, especially in retirement, because there’s no investment risk. “Your CDs are federally insured and guaranteed to earn interest over time,” McLaughlin says. “This stability is paramount in retirement when most people are on fixed incomes.”

The trade-off for this low-risk strategy is investment return — or lack of it.

“With CD laddering, be prepared to underperform the market headline rates, but you’ll rest more soundly knowing you are earning a stated and guaranteed return based on the credit strength of the financial institution in which you invested your dollars,” Reid notes.

Liquidity can also be a downside with CD laddering. “In general, CDs lock in your money for the stated time period and you’ll be charged a fee to take your money out early,” Reid adds. “Another downside element to CD laddering is that interest rates are subject to change.

[Read: Best CD Rates.]

How to Build Your Own CD Ladder

The process for building a CD ladder in retirement is straightforward. That sequence starts with focusing on your portfolio strategy goals.

“Remember, the idea is to invest in several different certificates of deposit with varying levels of maturity, which will allow you to take advantage of the higher rates on long-term certificates while still keeping some funds accessible,” says Chris Moore, director of deposits and payment strategy at Alliant Credit Union in Chicago.

Then, build the ladder like you’d climb a ladder — step by step.

“Start by opening multiple certificates of deposit with staggered maturity dates, which will allow you to take advantage of higher rates on long-term certificates,” Moore advises. “Aim for certificate terms from 12 to 60 months and aim for CDs with the most competitive rates.”

As each CD matures, simply reinvest that money into a new CD with the longest-term length available, continuing the cycle until it’s complete.

With CD dollars essentially being locked in, make sure you have other liquid holdings accessible if you ever require emergency income to cover daily living expenses.

“Additionally, even though interest rates are rising, low-risk investments like CDs alone may not help you achieve your target portfolio outcome,” Reid notes. “You may need to invest in riskier assets like stocks and funds to accomplish your collective investment goals. Consider your overall risk tolerance and profile before selecting an investment strategy.”

One of the most common mistakes investors make with CD laddering is not fully understanding their income needs. “That can lead to locking up too much cash in a CD,” says Dawn Dahlby, CEO and founder at Minnesota-based Releve Financial.

Or, the retiree’s money can be locked up in a CD until maturity with no way out. “In that scenario, a retiree could potentially get a higher rate of return in another investment product they can’t access,” Dahlby notes.

Your best bet is to work with a trusted financial advisor or bank CD specialist to see which CD laddering strategy makes the best sense for your unique retirement income needs.

[See: Best Savings Accounts]

Good CD Deals Are Available Right Now

There’s no shortage of solid CDs with robust rates these days.

For example, the SaveBetter platform currently offers two high yield CDs at 5%-or-more returns: a 12- month CD from Western Alliance Bank at 5.01% and a 17-month CD from Bellco Credit Union at 5%.

“Those CDs are among the leading rates in the nation right now,” McLaughlin says.

Schwab’s CD OneSource also offers some great CD laddering deals, with 5.15% to 5.35% rate returns on CDs from one month to 18 months in duration.

It’s also a good idea to check with your own bank and credit union. They’ll want to help a current customer and you’ll have the familiarity and comfort of working with your own financial institution.

More from U.S. News

Tips to Cut Costs in Retirement

Expenses You Can Eliminate in Retirement

10 Retirement Lifestyles Worth Trying

How to Build a CD Ladder for Retirement originally appeared on

Clarification 03/20/23: A previous version of this story did not specify Craig Reid’s title. He is president of retirement and wealth at Marsh McLennan Agency.

More from WTOP

Log in to your WTOP account for notifications and alerts customized for you.

Sign up