Retirees' time short to devise cash plan

The Baltimore Sun

Already retired and sitting on a pile of short-term investments?

With lower interest rates likely coming soon, it's time to get your game plan together for squeezing the best yields out of your cash.

Up to now, it has been relatively easy because short-term rates have frequently been higher than longer-term ones, taking away the advantage of tying up money in longer-term instruments.

High-yielding money market accounts at banks and money market mutual funds offered by investment firms have been nearly as attractive - or even beat out - the yields on money locked away in certificates of deposit.

Once the Federal Reserve begins cutting short-term interest rates, however, those money market yields will drop.

Indeed, building a ladder of CDs that will mature as you need them for cash flow is one way to lock in today's rates. Depending on your situation, there may be other strategies to consider as well, financial advisers said.

Before moving on to alternatives, however, first make sure you're getting the best money market deal you can.

Internet banks and mutual fund supermarkets offer rates that often trounce those offered by the local bricks-and-mortar institutions. Check out for the latest money market rates around the country. Even if rates start to decline, you'll be positioning yourself to capture the highest rates possible on your most liquid accounts.

Next, if you are a higher-bracket taxpayer, consider one of the tax-exempt money market mutual funds offered by the fund supermarkets. Vanguard's tax-exempt money market fund recently was paying 3.82 percent. For taxpayers in the 28 percent bracket, that's the equivalent of getting 5.3 percent on your money (or nearly 5.9 percent for those in the 35 percent bracket).

Those rates will drop if the Fed moves, but Scott Berry, a senior analyst with Morningstar Inc., said they've been holding up better than taxable rates recently.

"The equivalent yield on tax-exempt money markets has been very attractive, even in the 28 percent bracket," Berry said.

Federally insured CD products are an obvious choice for investors who crave protection of principal. But there are ways to play this choice that will make the most of your money, experts said.

One way is to throw some weight around. Retirees tend to have larger balances in shorter time horizon investments, so they can qualify for better rates with higher minimums. But don't stop with the published rates. High-balance customers can often negotiate better interest rates than what's offered to the public, said Kristine Garrett, a national director with JPMorgan's private banking unit.

Another idea to consider in a period of declining rates is what is known as a liquid CD. Some lenders including Washington Mutual set the rates on liquid CDs lower than the best market rates, but allow customers to make additional deposits (and limited withdrawals) on the money down the road.

And if you're really into the game of finding the best guaranteed rates, look for CDs or short-term bonds that are sold on the secondary market through brokerage houses. These are investments that still have time before maturity but have been sold by the original owner for liquidation (such as an heir liquidating an estate).

For clients who insist on very secure investments, financial adviser Jason Flurry of Legacy Partners Financial Group in Woodstock, Ga., has purchased callable bonds and CDs on the secondary market. Self-directed investors can search for these on their own at brokerages including Charles Schwab, though advisers typically have access to institutional search functions that make finding them a bit easier, a Schwab spokeswoman said.

Have a retirement question? Write to, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611.

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