Dirk Cotton's "Retirement Cafe" blog had a recent article advocating an ~10 yr bond ladder (the same strategy could be applied with CDs) as a solution to providing guaranteed 'floor income.' Although he doesn't use the term "sequence of returns risk", it seems that's what he's addressing, at least for the early retiree. He discuses the 60yo - 70yo retiree and the 65yo -74yo retiree.
My current plan is a ~4 yr ladder for the same reason; floor income and sequence of returns risk protection early in retirement. But, this made me wonder whether I should lengthen my ladder to provide more sequence of returns risk mitigation (10 yrs seems like almost a guarantee of being able to ride out a big bear), especially early in retirement.
Would like to hear others' thoughts, pros/cons and strategies. The link and an excerpt are below.
The Retirement Cafe
I like a 10-year ladder with the capital for future rungs held in stocks until needed. That way I avoid the worst interest rate risk and lower risk-adjusted return of long bonds and add some upside potential from the stocks. I keep cash to cover the first year of the ladder and use high-quality, short-term bond funds for years 2 and 3.
There are any number of ways to create a rolling bond ladder, or a single long ladder, or a combination of a ladder and fixed annuity, depending on your resources and your attitude toward risk.
But this is how I roll.