Purchasing a CD Ladder in a Retirement Account

I just purchased a CD ladder inside my 401(k) account. I know this sounds strange but I have my reasons. I’ll explain my logic.

Last November I sold our 401(k) holdings in VEU, an equity index ETF that holds stocks around the world, excluding the U.S. This so far has turned out to be a good move. I sold it at $41.40. Today it is trading in the $38.50 range with lots of volatility in between.

I also sold our shares in VTI, a U.S. stock index ETF. The wisdom of that decision is open to question. I sold it at $61.44. It now trades in the $67 range, after falling then rising to as high as $72, again with lots of volatility in between.

I used some of the cash from these sales to buy LTPZ, a medium-long duration TIPS fund. That was a good decision, as it has gained 6.25% since we bought it.

I parked the remaining cash in a money market fund operated by TD Ameritrade, the brokerage in which our self-managed 401(k) account is held. My intention was to find another investment that made more sense for us. I have looked hard and often but could not find anything that appeared to be immune to what was continuing to transpire in Greece and the rest of the EU.

The problem is that the money market account provides a yield near zero. So today I moved some of that cash into a short-term CD ladder. The CDs mature at 3, 6, 9, and 12 months, with coupons from 0.3% to 0.55%. TD Ameritrade makes it easy to do this, offering pre-defined CD ladders selected according to desired maturity. These are not the best rates available compared to direct deposit CDs but they are significantly better than money market rates. These are brokered CDs but are still insured by the FDIC.

I will continue to evaluate alternatives as these laddered CDs mature. My issue is that even with our current high cash allocation, the retirement income tools I use tell me that we are highly likely to achieve our retirement income goal. So why should I take more risk right now, at age 61, in a volatile market with the EU in crisis and another debt ceiling showdown ahead?

Have any of you set up a CD ladder to hold any retirement savings?


  1. Bill Marshall says

    If you flip a coin, usually you think of two possible outcomes – heads or tails. But there is a third – it can land on edge. This “unstable equilibrium” will not persist, and will convert to one of the “stable equilibrium” solutions. I think economic conditions right now are like the coin on edge — with heads for inflation, tails for deflation. If the stable solution turns out to be inflation, TIPS are great investments; if the stable solution turns out to be deflation, CDs are great investments. Not knowing the future, you diversify. This is a long “yes” answer to the question; a significant portion of our retirement savings right now are in CDs. I’ve gone with 3-4-5 yr terms, because I think it will be that long before we know which way the coin will fall.

  2. Doris says

    As my husband’s retirement draws near, we have already decided together that this would be the avenue he would employ when his rollover from his plan is completed. In the economic environment of today, it just makes sense to keep your assets as safe as possible. It is money, that fortunately, is not needed immediately—our pensions and SS payments have taken care of our primary expenses. My retirement money, which is invested in the TSP plan (I am a federal retiree)is staying put until I have to withdraw at age 701/2. Yes, some of it is in the stock market for growth but most is in the G fund (treasuries). Hopefully, once the doom and gloom of the world’s economies straitens out, we can abandon our “toe in the water” approach and feel more secure in our investment philosophy.

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