Digital Nomad
Dryer sheet wannabe
An older relative in her 70s is looking at CDs now moving up to the 5% interest level.
Up to recently most of her money was in the stock market and she was doing a 3% withdrawal annually adjusted each year for her personal level of inflation. The rest of her money would come from Social Security.
Now she is tired of the volatile stock market and is strongly considering putting most of her money in 10 Year Certificate of Deposits and living on the interest. She found a non-callable 10-year CD that pays close to 5%.
Assuming her personal level of inflation is about 5% a year for the next ten years she could spend money in such a way as to manage the ever-increasing loss of the value of her principal and still not spend more than 3% of the original value of her funds adjusted to inflation a year and reinvest the difference. She would not spend the entire interest payment but would reinvest it to make up for the money being worth less each year going forward.
Can you do a sanity check and see if the math works on her plan?
Up to recently most of her money was in the stock market and she was doing a 3% withdrawal annually adjusted each year for her personal level of inflation. The rest of her money would come from Social Security.
Now she is tired of the volatile stock market and is strongly considering putting most of her money in 10 Year Certificate of Deposits and living on the interest. She found a non-callable 10-year CD that pays close to 5%.
Assuming her personal level of inflation is about 5% a year for the next ten years she could spend money in such a way as to manage the ever-increasing loss of the value of her principal and still not spend more than 3% of the original value of her funds adjusted to inflation a year and reinvest the difference. She would not spend the entire interest payment but would reinvest it to make up for the money being worth less each year going forward.
Can you do a sanity check and see if the math works on her plan?
Last edited: