Saving During Retirement Means Maximizing Returns on Your Fixed Income

There is a wealth of information, guidance and advice about the importance of saving for retirement. Experts have pointed out that most Americans will live at least 20 years in retirement and the amount of adequate savings to live a comfortable lifestyle is estimated to be about half a million dollars. This is good information to keep in mind during retirement planning. But, what happens after retirement when you are living on a fixed income? How can you save during retirement?

Many individuals 60 and older focus on preserving their assets. Once on a fixed income you can easily calculate how much money you can spend each month. You may also find ways to cut expenses and stretch the purchasing power of your income. Being conscious of your spending is a great idea, but it's only one side of the coin.

Retirees can and should look beyond preserving assets, and look for ways to maximize their investments. This is especially important if you have followed the most common retirement planning advice and invested upwards of 80 percent of assets in cash instruments and fixed-income assets.

There are several ways to maximize retirement income, or, in other words, there are techniques for saving during retirement. And one of the safest methods is using a strategy called, Certificates of Deposit Laddering.

Certificates of Deposit (CDs) are stable, principal-protected investments that offer a guaranteed return, making them ideal investments for seniors. With a CD Laddering strategy, you invest in several CDs with different terms, benefiting over time from the higher yields of longer term CDs without sacrificing liquidity or periodic access to your money. In short, investing in longer term CDs can help maximize returns, which is particularly important when you rely on a fixed income.

How does CD Laddering work? Here's a simple example:

An investor has $60,000 available for CD investments and wants access to part of the cash annually. This investor can open a one-year CD for $60,000 at a one percent Annual Percentage Yield (APY). Or, the investor could open three separate CD accounts of $20,000 each, creating three rungs on a CD ladder. (Note: The CD terms and interest rates were chosen for simplicity and are not representative of current rates.)

Rung 1: $20,000 CD with a one-year term at a one percent APY
Rung 2: $20,000 CD with a two-year term at a two percent APY
Rung 3: $20,000 CD with a three-year term at a three percent APY

When the Rung 1 CD matures at the end of the first year, the investor has access to these funds, while the other two accounts move up a rung on the ladder. The two-year CD now has one year left until maturity and the three-year CD has two years left. If the investor does not need the newly mature funds for expenses, the funds from the mature CD can be used to purchase a new three-year CD. If they do this, after two years, all three rungs will be at a three-year maturity, with one maturing each year.

Of course, finding CDs with the best yields can make CD Laddering even more successful. Many financial institutions and other organizations offer information about the rates and terms of available CDs.

CD Laddering is one solution to saving during retirement. It may or may not be the right strategy for you. Countrywide Bank®, a division of Treasury Bank, N.A., member FDIC offers an online laddering calculator at www.countrywidebank.com that can help with the decision-making process.

Whether CD laddering works for your personal situation or not, thinking about and exploring this strategy puts you in the mindset that you need to be in-finding the best way to maximize returns on your fixed income assets.

About The Author
James S. Furash is President and Chief Executive Officer of Countrywide Bank, a division of Treasury Bank, N.A., and a member of the Countrywide Financial Corporation (NYSE:CFC) family of companies. CFC holds total assets in excess of $128 billion at yearend 2004 and is a member of the S&P 500 and Fortune 500. As the number one mortgage originator and servicer in the country, CFC has a workforce of more than 40,000 serving the needs of customers from more than 600 locations throughout the U.S.

As co-founder, Furash helped develop Countrywide Bank's distinctive business model, which leverages the existing infrastructure of parent company, Countrywide Financial Corporation. The unique low-overhead strategy has proven highly successful, and the Bank, with $41 billion in assets and $20 billion in deposits as of yearend 2004, is ranked among the largest 25 banks in the nation.*

Furash is responsible for overseeing all operational activities for the Bank, as well as strategic planning, establishing financial objectives and administrative oversight. He is also charged with assuring the development and implementation of strategic initiatives and actionable programs that sustain the organization's steady expansion and ensure profitability.

Furash brings nearly twenty years of banking and consulting experience to the company. He previously co-founded Monument Financial Group, LLC, and headed the acquisition and strategic advisory practices of the firm, where he worked with large financial services companies to develop and implement various banking strategies.

Prior to founding his own company, he was involved in all aspects of the financial services industry, including commercial lending, capital markets, consumer lending and retail banking. From operations to consulting, he has a successful track record in developing successful financial services businesses.

Furash received his Bachelor of Arts degree in economics from the University of Virginia and his M.B.A., with a dual concentration in finance and marketing, from The Wharton School, University of Pennsylvania.

*As measured by SNL Datasource.