Retirees are looking for ways to manage market uncertainty and secure steady income as volatility and interest rate shifts persist.
Liz Miller, Summit Place Financial Advisors founder and president, joins Wealth to explain how bond ladders can help retirees lock in predictable cash flow and preserve wealth.
To watch more expert insights and analysis on the latest market action, check out more Wealth here.
With tariff uncertainty seemingly here to stay, investors are bracing for continued market volatility. For those near or already in retirement, this can be tricky to navigate. Could a strategy called bond ladders be a tactic to preserve wealth in uncertain times? Joining me now on this, we've got Liz Miller. She is the founder and president of Summit Place Financial Advisors. Liz, want to start by saying welcome back to the show, and also perhaps we can start by explaining what bond ladders actually are.
Absolutely. And it's a great question in this environment. So excuse me, a bond ladder is an investing strategy and fixed income. And the idea is that you buy bonds that mature at regular intervals, they get longer and longer. Hence, going up a ladder or building a ladder. So as one matures, you buy another one on top of the ladder further out. And it's a great strategy when someone needs some assured regular cash flows.
And so you started to to actually break into that, when do you know why or how to use a bond ladder?
Well, for retirees, bond ladders are a really great way to allocate their portfolio if they know they have the funds available, you know, as they do their analysis, as they work on a financial plan, they see that they have enough funds to provide the cash flow they're going to need. And when that's the case, a bond ladder can help sort of set it and forget it. A bond ladder set every month, every three months, every year, can meet known cash flow needs. So we have some clients that will create a bond ladder for taxes. So we have a bond that comes due March 31st every year, so they know they have the liquidity, the cash available if they're going to have to pay taxes.
And so, what about right now? Is now a good time to use bond ladders as you're kind of assessing the market environment?
Well, I like to say that if you're a retiree with regular cash flow needs, a bond ladder is always a good idea, because it just takes the stress away and you know you're going to have cash as you need it. When we think about overall investing strategies in the bond market, a bond ladder is best when you know interest rates are probably going to go up, because every time one matures, you buy the new one at a higher interest rate. Right now, we're in a a stable environment, but we know that the long-term trend is we think rates will go down. So for our retirees that don't have a regular need of that cash flow, we're using a strategy that's sometimes called more of a barbell, where we have short-term bonds that are taking advantage of current interest rates, and we're locking in some longer-term bonds, 7 to 10 years, 12 years for younger clients, where rates have just popped up recently and we can know that we can lock in for them very attractive rates close to 4% for many years to come.
So what is the suggested ladder allocation, given current rates, and kind of looking through how current rates can impact someone's portfolio?
So for a new retiree, the first thing you need to think about is, well, what are your cash flow needs? We like to make sure that people have at least three months of living expenses. So maybe what we would do is sort of create two ladders. Maybe we'd first create a ladder that is short-term CDs or short-term treasury bonds that come due every three months and make sure we have that liquidity for like the next three years. And then we would do a longer term back ladder where we would say, now let's start buying annual bonds. A bond that matures in 26, 27, 28, to keep supplementing those short-term bonds or CDs that give the retiree the cash they need to live on.
It seems like this is a mechanism, especially if you're just trying to preserve wealth that would help you kind of lock that in. Is that a correct assessment?
Absolutely. But if we were talking four or five years ago, I probably wouldn't be talking bond ladders with my clients because when interest rates were at 0-1%, we needed to make more money than that to live on. Very few people were going to be able to fund their retirement in that environment. But today where we have 4%, you know, there's a very good chance over the long run we stay ahead of inflation and we have a nice way to assure that we don't have to worry about where the next cash withdrawal is coming from.
Very key. Liz, thanks so much for joining us once again.
Thank you.