I launched a financial discussion group with my BFF this month. While I think a lot about how to manage money in retirement, I’ve taken very little action. Our goal is to hold one another accountable, learn about investing at this stage in our lives and report on the results.
One task I’ve been meaning to complete and have ignored for years is building a liquid asset (e.g., CDs) ladder. A CD ladder takes your emergency fund (6 months to 1 year of living expenses) and invests it in liquid assets with varying maturities. For example, take $25K and buy 5, 4, 3, 2 and 1 year CDs of $5k each. They will have varying interest rates because of the different maturities. As they mature, you reinvest in new CDs of the same timeframe and just keep rolling. It’s better than having the whole sum in one CD or not invested at all and there’s a small amount of earnings on money that hopefully just sits there. Another note is it doesn’t have to be a huge sum. CDs sell usually for about $1,000 so if you have $5k, you can build your ladder and when the CDs mature, add to the original amount until you reach your emergency fund target.
Another task is to simplify my investments by consolidating them in fewer places. This means less tracking and paperwork each month and makes it easier to see the overall picture. I had kept a couple IRAs separate for some time, thinking I would have been drawing on them before I was 59 1/2. There is a special tax provision that let’s you take IRA money before that age without paying the 10% penalty for early withdrawal. Well, that ship has sailed and there’s no need to keep them separate except to track the historical returns. And history is just that – the past! So I’m consolidating the IRAs.
The hardest task is to actually make some investments. I’ve committed to buying over time to get to the portfolio mix target I have in mind. More on that later.