Bond Ladder Calculator

How the bond ladder calculator works

This bond ladder calculator lets you design a ladder of individual bonds (or bond-like instruments such as CDs or government securities) with different maturities. You can quickly see:

• How much you invest in each rung
• Expected annual coupon income
• Principal repayments at maturity
• The ladder’s average yield to maturity and approximate duration

Key inputs

• Total investment amount – how much capital you want to allocate to the ladder.
• Number of rungs – how many distinct maturities you want (e.g., 5 rungs for a 1–5 year ladder).
• Shortest and longest maturity – the time horizon you want to cover.
• Coupon rate – annual coupon rate of each bond, as a percentage of par.
• Yield to maturity (YTM) – market yield for each rung, used to approximate duration.
• Price (% of par) – bond price as a percentage of par (100 = par, 95 = discount, 105 = premium).

Formulas used

What is a bond ladder?

A bond ladder is a portfolio of bonds with staggered maturities. For example, you might buy bonds maturing in 1, 2, 3, 4, and 5 years. As each bond matures, you can either:

• Use the principal for spending (e.g., living expenses, tuition), or
• Reinvest it into a new long-term bond at the far end of the ladder.

This structure gives you a predictable schedule of cash flows and reduces the risk of locking all your money into a single interest-rate environment.

Why investors use bond ladders

• Predictable cash flows – known maturity dates and coupon payments.
• Interest-rate diversification – different rungs are exposed to different parts of the yield curve.
• Reinvestment flexibility – as bonds mature, you can reinvest at current rates or spend the cash.
• Lower volatility than long-only bonds – shorter rungs reduce sensitivity to rate spikes.

Example: 5-year bond ladder

Suppose you invest \$50,000 and build a 5-rung ladder from 1 to 5 years:

• Rung 1 – 1-year bond, \$10,000
• Rung 2 – 2-year bond, \$10,000
• Rung 3 – 3-year bond, \$10,000
• Rung 4 – 4-year bond, \$10,000
• Rung 5 – 5-year bond, \$10,000

Each year, one rung matures and returns \$10,000 of principal. You can reinvest that into a new 5-year bond, keeping the ladder length constant, or use the cash for planned expenses.

Best practices for building a bond ladder

1. Choose the right time horizon

Start from your goals: are you funding living expenses for the next 5 years, or preserving capital for 15+ years? Your longest maturity should roughly match the latest date you need predictable cash.

2. Decide on rung spacing

• Annual rungs (1, 2, 3, 4, 5 years) – simple and common for retirees.
• Semi-annual or quarterly rungs – smoother cash flows, more complexity.
• Custom rungs – align maturities with known expenses (tuition, balloon payments, etc.).

3. Diversify issuers and credit risk

Avoid concentrating your ladder in a single issuer or sector. Many investors prefer:

• Government or investment-grade bonds for core rungs
• Limited exposure to lower-rated bonds, if any
• Awareness of call features and sinking funds

4. Understand call and reinvestment risk

Callable bonds can be redeemed early if interest rates fall, forcing you to reinvest at lower yields. The calculator assumes bonds are held to stated maturity and does not model early calls, so treat callable bonds with extra caution.

5. Reinvesting vs. spending

A ladder can be:

• Self-liquidating – you spend principal as rungs mature, gradually shrinking the ladder.
• Perpetual – you reinvest each maturing rung at the long end, keeping the ladder length constant.

Use the cash-flow table in this calculator to check whether your ladder generates enough income and principal at the times you need it.

Limitations and assumptions

• Coupons are assumed to be paid annually and reinvested at the same yield (for duration approximation).
• No defaults, downgrades, or early calls are modeled.
• Taxes, transaction costs, and bid–ask spreads are ignored.
• Duration is approximated using maturity and yield; for precise risk management, use full bond pricing models.

This tool is for educational and planning purposes only and is not investment advice. Always check actual bond terms, tax implications, and your personal situation with a qualified professional before investing.

FAQ

Is a bond ladder better than a bond fund?

A bond ladder gives you control over specific bonds and maturity dates, which can be helpful if you need cash on known dates. Bond funds offer diversification and convenience but do not have a fixed maturity date and can be more volatile when rates move. Many investors use both, depending on their goals.

Can I build a bond ladder with ETFs?

Yes, some investors approximate a ladder using target-maturity bond ETFs (also called defined-maturity ETFs). Each ETF holds many bonds that all mature in the same year, and the ETF itself terminates around that date. You can treat each ETF as a “rung” in your ladder, using this calculator to plan allocations and cash flows.

How often should I review my bond ladder?

At minimum, review your ladder when:

• A rung is about to mature
• Interest rates move significantly
• Your spending needs or risk tolerance change

Use the scenario buttons (+1% / −1% yields) to see how changes in yields might affect your ladder’s average yield and duration.