Whether you’re currently an Arizona retiree or looking to retire in 2016, it pays to know all your options when living on a fixed income. Most financial institutes provide a variety of options to build your retirement income fromcertificates of deposit (CDs) and annuities to mutual funds and more. But if you have a bit more to invest creatively, there’s a fixed income strategy that can provide you with higher yields known as laddering your bonds. Here’s what you need to know about bond ladders as retirement income.
Strategic buying:Laddering starts with buying a portfolio of bonds or CDs at staggering maturities, whether it's over several months or years. As the bonds or CDs mature, purchasers can then reinvest the proceeds into debt instruments that best fit their income needs. Cash would then be available on a regular basis over that investment period versus being locked up in a longer-term bond or CD.
Interest rate locks: A bond ladder can provide some protection against rising interest rates. If rates increase, you can purchase higher-yield bonds or CDs with the income from the debt instruments already in your ladder. Many investors decide to build a bond ladder because it can help manage the risks of changing interest rates and customize a stream of income.
Invest in help: Creating and maintaining a bond ladder does take some time and effort. Many investors may be better off having a trusted financial advisor do the ladder construction and risk management for them. Having a professional bond manager handle the fixed-income allocation takes some of the stress out of the process. For clients with limited assets, some advisors create ladders out of target-maturity Exchange Traded Funds (ETFs). You can hire a fund manager to navigate for you, but there’s a fee attached so shop smartly for the best rates.
Building a bond ladder can lead to a stable foundation of retirement income, but it is not without its risks or rewards. To learn more about utilizing bond ladders as retirement income, contact your local financial institution. And if you’re looking to put your booming retirement income towards an Arizona retirement home, contact Sharon Mason today!
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