Those of us who have paid the highest price for the economic recovery policies of the past eight years are the conservative savers seeking safe, dependable income.

The near-zero interest rates have forced retirees to either take on more risk than they want or draw on their savings. Neither is a palatable alternative.

Prudence dictates that some cash or cash equivalent be part of every retiree’s holdings. Some advisers recommend at least 10 years’ worth of expected living expenses derived from investments be held in cash, so that you don’t have to sell stocks during an inevitable big sell off in the market.

But that’s a lot of your savings to have in money market funds earning nothing. Still, whether it’s one or two or more years’ withdrawal needs, it’s a good idea.

Eventually interest rates will rise — they can’t go any lower. The “experts” have been predicting an increase for the past three years. Eventually they’ll be right.

So, given those expectations, where do you invest that cash? AAA and AA bonds are less risky than stocks. If you buy them at par — that is, their face value of $1,000 — you’ll get your money back when they come due. But in the meantime, it’s certain they will go down in value as interest rates rise.

That includes bond funds as well. Short-term bonds will go down in value less because they come due sooner, but they also pay less interest. And the bond world is not easy to navigate.

There’s a simpler, safer, lower-cost way to seek not only whatever current income is available, but to benefit by rising rates as well: laddered certificates of deposit, insured by the FDIC. What does that mean?

A CD is a loan to a bank, for as short a time as three months, up to three years, sometimes longer. FDIC insured means if the bank fails, the government will guarantee your CD (There are limits for each CD in your name).

It doesn’t matter who or where the bank is; it’s safe as long as it’s FDIC insured. New CDs are offered every week with no commission through most large brokerage firms.

Anticipating a trend of rising interest rates (they can only go up from here), but unable to guess when or how much they will change, the laddering of CDs gives you an easy way to benefit by that rising tide.

That means you start out with, for example, some six-month CDs, some one-year CDs, some 18-months, and some two-years. Six months from now the first CDs will come due, and you roll them over into new two-year CDs. Six months later the original one-year CDs come due, and you do the same with them.

So, as interest rates rise, you’re reinvesting at those higher rates. And if you need cash along the way, the nearest to come due can be easily sold.

Learn more from your brokerage firm’s fixed income department or on-line display of CD offerings.



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About the Author'

Norman L. Macht

A retired stockbroker, Norman L. Macht is a personal financial consultant residing in Escondido. Contact him via email at