MONEY: Creating a ladder
You walk in on January 2nd with your 16k$ and buy A one year, two year, three year, and a four year cd for 1k$ each. You also buy a Ninety day, One Hundred Eighty day, and a Two Hundred Seventy day cd for 4k$ each.
MONEY: Deploying a CD ladder isn’t easy
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And, if your account goes over the FDIC insurance cap, I’ll set up the overflow with my competitor down the street.
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Well, picking up from where I left off, it’s very easy to flow over the FDIC 100k limit. So one has to plan ahead to avoid this problem. For example, in the example of a five year quarterly cd ladder, one has 20 slots to fill. Assuming the 100k limit, then one is limited to 100,000/20 or 5k$. If you do a five year twelve month cd ladder, then the limit is $1,666.66. So, you’ll be using different banks to avoid that.
Now if one wants to have say 100k in retirement income, that’s 5% of 2M$.
(Before you do a Redd Fox — clutching your heart and exclaiming this is the big one — recognize that this is not much in terms of inflation and costs in retirement. Not when a ride on the NJ Turnpike is going to cost 50$! Argh!)
So, how does one develop a 2M$ ladder? And, how do you grow into your own “annuity”?
2M$ across a 20 rung (4 Quarter by 5 years) comes out very neatly to 100k$.
So you need 20 DIFFERENT FDIC banks for your CDs at full capacity. You are always taking the interest, so you never rollover the entire cd.
Since most folks I know don’t start with 2M$, how do you do this organically?
I suggest that you start with one bank and target your deposits with an eye to the magic 100k five year cd. So assume that you can “save” 5k/year, then it’ll take you 20 years to get to that 100k target. (Don’t be discouraged! Make a game of it.) Each year you buy a five year cd for your 5k, rollover interest, and as you “range in” on your goal tune your maturity to have it all come due at the same time.
Do it in your IRA and it’s tax deferred.
The more you save the faster you get there.
Seem “easy” in terms of the financial injineering!
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