![\"Illustration](\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/12\/What-the-Fed-rate-hike-means-for-your-retirement_5_NEW-e1673024560428.jpg\")
<\/figure>\n\n\n\n<\/p>\n\n\n\n
Take Fed interest rate changes in stride<\/h2>\n\n\n\n
Higher interest rates have implications for savers everywhere, and you may be wondering: How will rising interest rates affect my retirement? The answer depends on several factors, but first and foremost, it may depend on your age and target retirement date.<\/p>\n\n\n\n
\u201cI have a decent amount of time to go before I retire,\u201d says Dulin, who has not changed his retirement strategy<\/a> in response to rising rates in the past. \u201cBut for people who are older and getting closer to retirement, paying attention to interest rates\u2014whether we\u2019re in a rising interest rate environment or a declining interest rate environment\u2014is important. A lot of times, you\u2019re trying to live off the income that your investments are generating.\u201d<\/p>\n\n\n\n To be sure, it\u2019s a good idea to keep an eye on anything impacting your savings at any age. But whether you\u2019re 25 or 65, it\u2019s important not to react too swiftly or dramatically to interest rate changes. Instead, stay calm, be patient, and take the long view, Dulin says.<\/p>\n\n\n<\/div>\n\n\n Following these five guidelines can help you determine what a Fed rate hike means for your retirement and how to stay on track with your long-term savings plan:<\/p>\n\n\n\n As you consider what the Fed rate hike means for your retirement, remember that higher interest rates at the Fed can translate into higher interest rates on savings accounts.<\/p>\n\n\n\n A Fed rate hike may also be a good time to boost your savings overall. The more cash you have stashed away in a savings account as interest rates rise, the more you stand to benefit from more-generous terms at banks. With higher interest rates on savings accounts or other savings vehicles (think a certificate of deposit or money market account), you may earn a little more for every dollar. If you\u2019re trying to leverage the way interest rates affect retirement plans, this can go a long way toward meeting your retirement-savings goals.<\/p>\n\n\n\n One way that interest rates affect retirement plans is by prompting savers to re-examine their investment portfolios and asset allocation. A long period of low interest rates can steer many people away from low-yielding bonds, savings accounts, and certificates of deposit and toward dividend-paying stocks that offer higher returns, Dulin says.<\/p>\n\n\n\n \u201cWhen interest rates rise,\u201d according to Dulin, \u201cit probably makes sense to start looking at selling off some of those assets and moving back toward bonds. If you\u2019re too heavily weighted in equities and you\u2019re coming toward retirement\u2014and we have another situation where the market crashes\u2014you\u2019re going to lose a lot more.\u201d<\/p>\n\n\n\n Bonds may start to look more attractive to savers nearing retirement, as bond yields commonly rise when market interest rates increase.<\/p>\n\n\n\n One caveat to remember: While newly issued bonds may offer higher yields when rates go up, the value of existing bonds can go down. And the longer the duration of a bond, the more sensitive its price is to market interest rate changes, says Robert R. Johnson, co-author of a book about how the Fed can inform your portfolio strategy. <\/p>\n\n\n\n <\/p>\n\n\n\n When interest rates go up, you might consider shifting some funds from stocks to certificates of deposit (CDs), says Andrew Schrage, co-owner of a personal finance blog. But if you do, he recommends choosing short-term instruments. That way, if rates continue to rise you can take advantage of the higher earnings by reinvesting the funds at the end of each term.<\/p>\n\n\n\n CD laddering<\/a> might be another strategy to consider, Dulin says. For example, you could simultaneously deposit equal amounts into a twelve-month and an eighteen-month CD. If interest rates continue to rise, as each instrument matures, you\u2019ll be able to reinvest the money at higher and higher interest rates.<\/p>\n\n\n\n Interest rates affect retirement plans <\/strong>through their impact on the stock market, too. When an interest rate hike is on the horizon, you may want to tweak your stock portfolio to favor investments in market sectors that perform better when rates are on the way up, Johnson says.<\/p>\n\n\n\n Since rising interest rates can make it more expensive to take out loans and use credit to pay for goods, those rate increases may have an impact on consumer behavior. But experts have differing views as to how consumers react. Some believe discretionary spending may increase during the early part of a rate hike because the Fed raises rates when the economy and consumer confidence are improving.<\/p>\n\n\n\n <\/p>\n\n\n\n Johnson, in contrast, believes that discretionary spending tends to go down, which in turn pushes down the value of stocks in market sectors reliant on consumer borrowing, like automobiles, durable goods, and apparel. \u201cWhen rates are rising, you don\u2019t need to buy cars, you don\u2019t need to buy a washing machine, you don\u2019t need to buy that new suit,\u201d says Johnson.<\/p>\n\n\n\n On the other hand, he says some non-discretionary sectors\u2014such as energy, consumer goods, utilities, and food\u2014tend to hold their own in an environment of rising interest rates because consumers need them regardless. \u201cYou need to heat your home, you need to buy toothpaste, you need to buy food, whether rates are up, down, or sideways,\u201d he says.<\/p>\n\n\n\n Let\u2019s say you\u2019ve determined some answers to the question, \u201cHow will rising interest rates affect my retirement?\u201d Should that assessment lead to an overhaul of your entire saving strategy? Probably not.<\/p>\n\n\n\n \u201cI am not a big fan of large changes in overall retirement planning strategies in anticipation of changes in interest rates,\u201d Johnson says. \u201cInterest rates rise and fall and making wholesale changes is not advisable because it can lead to large portfolio turnover. I believe that the asset allocation\u2014stock and bond mix\u2014should remain largely unchanged.\u201d<\/p>\n\n\n\n Schrage would encourage retirement savers not to let any short-term market volatility<\/a> scare them away from the stock market.<\/p>\n\n\n\n \u201cThere might be a bit of a cause for concern for folks who are closer to retirement age, but especially for younger folks, it\u2019s best to try not to change course because of volatility in the near term,\u201d he says. \u201cThat might cause you to make a rash decision, which could cost you over the long run.\u201d<\/p>\n\n\n\n![\"\"](\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2017\/09\/Should-Rising-Interest-Rates-Affect-Your-Retirement-Plans_4-755x222.jpg?v=4.jpg\")
\n <\/picture>\n<\/div>\n\n\n 1. Capitalize on better savings rates<\/h2>\n\n\n\n
2. Review your investment portfolio<\/h2>\n\n\n\n
![\"An](\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/12\/What-the-Fed-rate-hike-means-for-your-retirement_2_NEW-e1673024633257.jpg\")
<\/figure>\n\n\n\n3. Take another look at CDs<\/h2>\n\n\n\n
4. Consider stocks that aren\u2019t rate-sensitive<\/h2>\n\n\n\n
![\"An](\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/12\/What-the-Fed-rate-hike-means-for-your-retirement_1_NEW-e1673024683540.jpg\")
<\/figure>\n\n\n\n5. Stick with your long-term saving strategy<\/h2>\n\n\n\n