Use certificates of deposit to help plan retirement financing

When your retirement date is five to 10 years out, it’s a good time to review the investments you’ve made. During this review, also look at new investment options and consider making a few changes to help protect and continue to grow your nest egg for your golden years.

You may already have a 401(k) or pension fund through your employer, where you have built up some savings. Often these funds are made up of stocks and/or bonds, which are heavily influenced by changes in the investment economy. You may decide that you need to add to your retirement savings with investment options that are a little more secure, like certificates of deposits.

Certificates of deposits, or CDs, are popular low risk, high yield FDIC-insured accounts that offer a broad range of maturities and yields. Short term CDs that last a couple of months to a year or two tend to have lower interest rates, while long term CDs that are set for seven to even 10 years offer higher rates. When setting up a CD for a retirement plan, make sure the term will end around the time you plan to retire.

It’s also a good idea to do some research before investing. Questions you should always ask include:

* Where can I get the best CD rates?

* When is the interest credited?

* What are the terms and fees?

* What services are offered?

* What is the minimum opening deposit and minimum balance required?

* What are the penalties if I need to withdraw my money before maturity?

Investing in multiple CDs that have different terms is also an option that can help you plan your retirement finances beyond just the first year. This is called CD laddering, and can provide you with liquidity and flexibility since you’ll have CDs that are always approaching maturity.

For example, establishing a short-term CD of three or six months might earn you lower interest returns on your money, but it also makes your money available to you on a short turnaround. Every time the CD comes due, you can take the entire amount of money, or take the interest earned and reinvest the capital. And if you don’t need money at that time, you can roll everything over into a new CD for another three or six months and repeat the process.

At the same time, if you invest in a long term CD of three or five years, you’ll earn higher interest. You’ll have the money (both interest earned and capital) available at the end of this longer term during your retirement, if needed. Or you can roll it over into another long term CD for future use. Laddering allows you to set two or more (if additional CDs are purchased) end dates when terms are up, giving you a known income during your retirement years.

For more information about CDs, visit

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