Quick Read – Reinvestment risk silently erodes retirement income when a CD matures and rollovers drop from 5% to 3%, permanently cutting fixed-income earnings. – With the Fed rate down to 3.75% and the yield curve flattening, rolling short-term CDs likely locks you into…
ogressively worse rates over time. – A five-rung CD ladder with maturities spaced one year apart smooths income, avoids rate-guessing, and matches each rung to actual spending needs. – Retirees hear that certificates of deposit are boring, bulletproof. They are boring
They still carry a hidden risk. The risk hiding inside a CD is that it does exactly what it promised, matures on schedule, and hands your money back into an interest-rate environment that has moved against you. On the Investing for Beginners Podcast, co-host Andrew Sather put it plainly. “If I’m making a financial plan that I’m going to make 5% of my money from now until I die, that might work for these first 3 years of your CD.
But if interest rates change in 3 years and now you got to put the money back in another CD and maybe now you only earn 4%.” That gap between what you planned on and what you actually get is reinvestment risk. It is the single most underpriced danger in a retiree’s “safe” bucket. What reinvestment risk actually is Reinvestment risk is the danger that when a CD or bond matures, the rates available to reinvest are lower than what you originally earned.