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Ask Dave

Should Retireds Move Investments to a CD?

Kurt and his wife are in their early 70s, retired, and have $136,000 in corporate bonds and $199,000 in mutual funds.  Since they are in their 70s, should they move their money from these investment sources into a CD?


Read what Dave says:
Your money will be more stable in a CD.  However, there are two kinds of risks.

1.    There is a chance that you will lose money if you leave it in mutual funds and bonds. 

2.    The other kind of risk is a risk of value due to inflation.  In your case, you’re only 70 years old and statistics show that you will most likely live 20 more years.  So, to only make 2% or 3% on your money in a CD while inflation is going up at 4% for the next 20 years, you’re losing money.  Don’t rule that out as a type of risk.

I don’t suggest you should move all your money to CDs.  I would live off the income you receive from your mutual fund investments.  Historically speaking, most downward slides in investments turn around in 12-18 months.  For you, it is the wrong time to get out of mutual fund investments. 

As for the corporate bonds, I’m not big on those because they entail almost as much risk as mutual funds without the good returns on average over a long period of time.  If you want to take some money from your bonds and put them in a CD, that’s fine, but I wouldn’t touch the mutual funds right now.