How to Use CD & Money Market in Retirement Planning

Investing for retirement often means balancing risk and reward. You want to grow your nest egg as much as possible, but you also want to keep your money safe and make sure the funds will be there when you need them most. Using a mixture of asset classes, including stocks, bonds, mutual funds and fixed income investments, is one way to achieve both goals. Incorporating ultra-safe investments like CDs and money market accounts into your retirement portfolio can also be a sound strategy.

Step 1

Determine the number of years you plan to work until retirement. As the expected date of your retirement approaches, you will want to move money into fixed income investments like CDs and money market funds. Having that liquid money available gives you cash to live on in retirement, while allowing you to keep the rest of your nest egg invested for further growth.

Step 2

Contact the administrator of your IRA or other retirement plan to see what types of fixed income investments are available. Most 401k plans include a stable value fund, which is similar to a money market fund. If you have a self-directed IRA, you can use it to purchase bank CDs, money market accounts and other fixed income investments.

Step 3

Direct the administrator of the retirement plan to sell some of your stock and mutual fund holdings and use the proceeds to invest in CDs and money market funds. If you have online access to your account you can make the changes by logging on to the trading menu. Otherwise you can contact the administrator by phone and request the paperwork you need to make the change.

Step 4

Review your retirement plan statements carefully to determine the amounts you hold in stocks, bonds and fixed income investments. Make sure the fixed income portion of your account has at least three to five years' worth of living expenses. This will allow you to ride out the bumps in the stock market with the rest of your nest egg, without feeling pressured to sell when stock prices fall.

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