University of California Employees: How Bonds Can Help Build Steady Retirement Income

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'University of California employees can benefit from reviewing how changing interest rates affect income strategies, and thoughtfully structured bond ladders may help support long-term goals when constructed with care and guidance' – Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.

'With interest rates shifting, University of California employees should focus on thoughtful income planning, and disciplined strategies like bond ladders can help provide greater consistency in an evolving market environment' – Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

1. How bond yields and Federal Reserve rate changes affect income strategies.

2. Why bond laddering can be useful for managing risk and creating steady income.

3. Key considerations before building a bond ladder for retirement planning.

Key Takeaways

• - Even after the Federal Reserve recently lowered interest rates, bond yields remain at levels that can generate income for retirement planning, which may be of interest to University of California employees.

• - Holding bonds with different maturities—known as a bond ladder—can help manage interest rate risk while providing consistent cash flow.

• - Bond ladders are typically constructed using high-quality, non-callable bonds to help maintain steady income.

• - Higher yields on investment-grade bonds have created income opportunities in recent years.

Understanding Bond Yields and Interest Rates

Although a rate cut by the Federal Reserve does not promise lower yields across all types of bonds, there is often a relationship between policy changes and overall bond yields. Various economic conditions can influence yields, particularly for longer-term bonds.

For example, in August 2020, the 10-year U.S. Treasury yield dropped to a low of 0.55% amid ongoing concerns around the pandemic. ¹  As the Federal Reserve began to target inflation, the yield started to climb, reaching 4.05% by the end of October 2025. ¹

• Following September's rate cut, longer-term yields rose slightly higher, moving independently of shorter-term yields—such as those from money market funds and newly issued certificates of deposit (CDs)—which declined. ²  University of California employees evaluating fixed income strategies may want to consider both dynamics.

Prospects for Bond Strategies

Industry analysts largely agree that yields on investment-grade bonds with longer maturities may not decline significantly in the near future. ³  As such, income from a well-structured bond strategy could outpace inflation. According to the Federal Reserve's September 2025 Summary of Economic Projections, personal consumption expenditures (PCE) inflation for 2026 is expected to be 2.6%. ⁴

What Is a Bond Ladder?

A bond ladder is a portfolio of individual bonds with staggered maturity dates. This structure is designed to:

• - Provide regular income

• - Reduce sensitivity to interest rate fluctuations

• - Allow reinvestment of matured bonds at current market rates

• - Help offset price declines caused by rising interest rates, since principal is returned at maturity (assuming no default)

Why Laddering Works in Changing Interest Rate Environments

• - When interest rates fall, previously purchased bonds continue to provide higher yields locked in earlier.

• - When rates rise, shorter-term bonds mature and can be reinvested at higher yields.

• - This method helps spreads reinvestment and interest rate risk over time.

Key Considerations Before Building a Bond Ladder

1. Diversification and Adequate Capital
   Minimums often start at $1,000 for corporate bonds and $5,000 for municipal bonds. Treasury or CD ladders can work for smaller portfolios.

2. Holding Bonds to Maturity
   To collect full principal and scheduled payments, bonds are typically held to maturity. Selling early may reduce income or result in transaction costs.

3. Issuer Diversification and Default Risk
   Lower-rated bonds require broader diversification. AAA-rated U.S. Treasuries are typically considered more creditworthy.

4. Choose High-Quality Bonds
   Ratings from agencies such as Moody’s and Standard & Poor’s can help investors evaluate issuer strength.

5. Callable Bonds
   Callable bonds may be redeemed before maturity, which can interrupt expected income and change the timing of returns.

6. Maturity Timing and Income Needs
   Ladders can be set at fixed intervals, such as every six months or year, depending on income requirements.

Important Points to Keep in Mind

• - A diversified bond ladder does not remove the possibility of losses.

• - Regular coupon payments and principal repayments can help spread risk across issuers.

Need Assistance?

The Retirement Group can help University of California employees explore income strategies and understand how bond ladders may fit into retirement planning. To speak with a financial advisor, call  (800) 900-5867 .

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Sources:

• 1. VettaFi Advisor Perspectives. ' 10-Year Treasury Yield Long-Term Perspective: October 2025 ,' by Jennifer Nash. 3 Nov. 2025.

• 2. Peakhill Capital. ' The Impact of Fed Rate Cuts on Refinancing in the U.S. ,' by Sandor Biderman. 25 Sep. 2025.

• 3. Morningstar. ' What Investors Need to Know About the Steepening Yield Curve ,' by Sarah Hansen. 26 Sep. 2025.

• 4. Federal Reserve. ' Summary of Economic Projections ,' 17 Sep. 2025.