Building Your First Bond Ladder: A Retirement Income Strategy Guide

The first rung of my bond ladder just matured, and I’m reinvesting the proceeds into a new 5-year bond at a higher yield than I was getting two years ago. This is exactly how bond ladders are supposed to work—providing predictable income while allowing you to take advantage of rising rates over time.

Bond ladders sound complicated, but they’re actually one of the most straightforward strategies for generating retirement income. Let me walk you through exactly what they are and how to build one.

What Is a Bond Ladder?

A bond ladder is a portfolio of bonds with staggered maturity dates. Instead of buying one $50,000 bond that matures in 10 years, you buy five $10,000 bonds maturing in 2, 4, 6, 8, and 10 years.

How It Works

• Year 1: 2-year bond matures, reinvest in new 10-year bond
• Year 2: 4-year bond matures, reinvest in new 10-year bond
• Year 3: 6-year bond matures, reinvest in new 10-year bond
• And so on… Creating a perpetual ladder

The result? You always have bonds maturing regularly, providing liquidity and income, while also earning the higher yields typically offered by longer-term bonds.

Why Bond Ladders Work for Retirement

Advantages

• Predictable income: You know exactly when bonds mature and how much you’ll receive
• Interest rate protection: As rates rise, maturing bonds can be reinvested at higher rates
• Regular liquidity: Bonds maturing every 1-2 years provide cash without selling
• Reduced timing risk: Not locking in rates at a single point in time
• Simple to understand: Much easier than actively managing a bond portfolio

Who Benefits Most

Bond ladders are particularly good for:

• Retirees needing predictable income
• Conservative investors wanting stability
• People approaching retirement (5-10 years out)
• Anyone who wants to avoid bond fund volatility

Types of Bonds to Use

Treasury Bonds

The safest option—backed by the U.S. government:

• Risk: Essentially zero default risk
• Yield: Lower than corporate bonds
• Tax treatment: Exempt from state/local taxes
• Liquidity: Highly liquid secondary market

I use Treasury bonds for the core of my ladder because I prioritize safety over yield.

Corporate Bonds

Higher yields but more risk:

• Risk: Company could default (though rare for investment-grade)
• Yield: 1-2% higher than Treasuries
• Tax treatment: Fully taxable
• Liquidity: Less liquid than Treasuries

If you use corporate bonds, stick to investment-grade ratings (BBB or higher).

Municipal Bonds

Tax-advantaged for high earners:

• Risk: Low for most municipalities
• Yield: Lower nominal yield, but tax-free interest
• Tax treatment: Exempt from federal taxes (and state if in-state)
• Best for: High-tax-bracket investors in taxable accounts

CDs (Certificates of Deposit)

The simplest version of a ladder:

• Risk: FDIC insured up to $250,000
• Yield: Currently competitive with short-term bonds
• Tax treatment: Interest is fully taxable
• Liquidity: Early withdrawal penalties apply

CD ladders are great for beginners because they’re simple and insured.

How to Build a Bond Ladder

Step 1: Determine Your Ladder Size

How much do you want in fixed income? Common allocations:

• Age-based: Your age in bonds (60 years old = 60% bonds)
• Income-based: 5-10 years of living expenses in bonds
• Risk-based: Whatever lets you sleep at night

Example: $100,000 allocated to a bond ladder

Step 2: Choose Your Ladder Length

Common structures:

• 5-year ladder: 5 rungs, one maturing each year
• 10-year ladder: 10 rungs, better yield on longer bonds
• 2-year ladder: Very short, for near-term needs

I use a 5-year ladder for the sweet spot of yield and flexibility.

Step 3: Divide Your Money Equally

For a $100,000, 5-year ladder:

• Year 1: $20,000 in bonds maturing in 1 year
• Year 2: $20,000 in bonds maturing in 2 years
• Year 3: $20,000 in bonds maturing in 3 years
• Year 4: $20,000 in bonds maturing in 4 years
• Year 5: $20,000 in bonds maturing in 5 years

Step 4: Buy Your Bonds

Where to buy:

• TreasuryDirect.gov: Buy Treasuries directly from the government (no fees)
• Fidelity, Schwab, Vanguard: All have bond trading platforms with no commissions
• Your bank: For CD ladders

At Fidelity, go to “Fixed Income, Bonds, & CDs” and use their bond screener to find bonds with your target maturity dates.

Step 5: Reinvest as Bonds Mature

When a bond matures:

1. Principal returns to your account
2. Immediately reinvest in a new bond at the longest rung (5 years out)
3. This maintains your ladder perpetually

My Actual Bond Ladder

Here’s what I’m running:

• Total size: $75,000 (30% of my portfolio)
• Structure: 5-year ladder with $15,000 per rung
• Bond type: Mix of Treasury bonds and high-grade corporate bonds
• Current yields: 4.1% to 4.8% depending on maturity
• Annual income: ~$3,300/year in interest payments

Recent Activity

My 2-year Treasury just matured at $15,000. With rates higher than two years ago, I reinvested in a new 5-year Treasury at 4.5%, up from the 3.8% I was getting on the maturing bond. That’s the advantage of laddering—I’m capturing today’s higher rates.

Bond Ladder vs. Bond Fund

Common Mistakes

• Building a ladder too small: Need at least $25,000 to make it worthwhile
• All one bond type: Mix Treasuries and corporates for balance
• Ignoring taxes: Consider munis in taxable accounts if in high bracket
• Not reinvesting: Letting maturing bonds sit as cash defeats the purpose
• Chasing yield: Don’t buy junk bonds just for higher yields

When NOT to Use a Bond Ladder

Bond ladders aren’t ideal if:

• You have less than $25,000 to invest (bond funds are better)
• You need maximum flexibility (bond funds can be sold instantly)
• You want maximum diversification (funds own thousands of bonds)
• You’re decades from retirement (growth stocks better for long timeframes)

Getting Started

If you’re interested in building a ladder:

1. Open an account at Fidelity, Schwab, or Vanguard
2. Start with a simple 5-year Treasury ladder
3. Use $25,000 minimum ($5,000 per rung)
4. Buy through their bond trading platform
5. Set calendar reminders for maturity dates

Or start even simpler with a CD ladder at your bank—same concept, FDIC insured, and easier to understand.

The Bottom Line

Bond ladders provide predictable income, reduce interest rate risk, and are simple to maintain once set up. They’re not exciting, but that’s the point—boring, predictable, and reliable income for retirement.

I sleep better knowing I’ve got bonds maturing every year, providing income regardless of what the stock market is doing.