Rising Interest Rates: Are They Good Or Bad For Retirees?

Jan 13 2014, 12:23pm CST | by

Rising Interest Rates: Are They Good Or Bad For Retirees?

For years, the Fed’s efforts to pump money into the financial system through quantitative easing have held down interest rates. However, interest rates are rebounding from their historic lows, affecting bond prices, mortgage rates, and potentially stock market returns. Will rising rates be good or bad for retirees?

Thomas: I think that rising interest rates will hurt retirees because they will drive down bond prices because bond prices generally have an inverse relationship with interest rates. This will negatively affect the portfolio values of fixed income investors.

Robert: Yes, but over the long term, rising interest rates will present real opportunities for fixed income investors. For example, investors might finally be able to go to the bank and get CDs at 5-6 percent, which is impossible now, offering higher potential income for retirees. Retirees used to be able to rely on fixed income investments for income in retirement, but the Fed’s easy money policies have decreased the interest payments investors have been able to get.

Solutions: 

In the short term, while rising interest rates might hurt retirees by driving down fixed income prices, in the long term, there will be some possible investment opportunities to consider as rates rise.

What options do retirees seeking income have in a rising interest rate environment?

Investors can limit their interest rate risk by sticking with shorter-term bonds that expose investors to less risk of rising interest rates. Duration is a concept that bond investors should become familiar with; in basic terms, duration measures the overall interest rate sensitivity of a bond or portfolio of bonds. In order to reduce the potential negative effects of rising rates, talk to your advisor about strategies like reducing bond duration or exploring fixed income securities that rise with inflation.

You should also consider the benefits of reducing your borrowing needs, so that rising mortgage rates or credit card interest rates don’t affect your household finances as much. If you’re anticipating making a major purchase, like a house or car, consider accelerating your buying process to take advantage of lower rates now.

Ultimately, while rising rates may be bad news for those who haven’t jumped on lower rates to refinance or buy a house, and for large borrowers like municipalities and corporation, they are good news for retirees who can look forward to the potential for higher income.

Whichever financial strategy you and your financial advisor choose to pursue, it’s important to prepare mentally to stay the course even when the ride gets bumpy. One of the biggest mistakes you can make as an investor is to react emotionally to changing market environments.

*Securities and advisory services offered through SII Investments, Inc., member FINRA, SIPC and a Registered Investment Advisor.  Fross and Fross Wealth Management and SII Investments, Inc. are separate companies.  SII does not provide tax or legal advice.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Drugs to abet cancer cells suicide found
London, Nov 1 (IANS) British scientists have found a drug combination that can trigger the self-destruct process in lung cancer cells -- paving the way for new treatments.
 
 
Climate change threatens global health security: UNEP
San Juan, Nov 1 (IANS/EFE) The rapid propagation in recent years of infectious diseases such as Malaria, Chikungunya and even Ebola is one more example of how climate change threatens global health security.
 
 
US-Japan joint rain radar mission to end next year
Washington, Nov 1 (IANS) After 17 years of groundbreaking 3-D images of rain and storms, the joint NASA and Japan Aerospace Exploration Agency Tropical Rainfall Measuring Mission (TRMM) will come to an end next year, the US space agency said in a statement.
 
 
Al Qaeda threatens to disrupt Australian fuel supplies
Sydney, Nov 1 (IANS) Al Qaeda has urged Islamic militants to attack oil tankers in maritime hotspots that supply Australia with up to 70 percent of its petrol, a media report said Saturday.
 
 
 

Latest from the Network

Al Pacino considered name change
Al Pacino considered changing his name to ''Sonny Scott'' when he started acting. The 74-year-old star was advised to alter his moniker when he began working in the movie industry because any stars with an ''ethnic...
Read more on Movie Balla
 
How to increase your popularity on Twitter
London, Nov 1 (IANS) Having a large number of followers on Twitter is a more efficient strategy to gain popularity on the social networking site than increasing your number of tweets, said a study. Messages from...
Read more on Celebrity Balla
 
US-Japan joint rain radar mission to end next year
Washington, Nov 1 (IANS) After 17 years of groundbreaking 3-D images of rain and storms, the joint NASA and Japan Aerospace Exploration Agency Tropical Rainfall Measuring Mission (TRMM) will come to an end next year,...
Read more on Politics Balla
 
Sexist slur against Nikki Haley; media calls it only a 'gaffe'
Washington, Nov 1 (IANS) Reflecting the falling standard of US politics, the Democratic opponent of South Carolina's Indian-origin Governor Nikki Haley called her a "whore", but more shockingly the mainstream US media...
Read more on Politics Balla
 
Users Facing Wi-Fi Connectivity Issues in the New OS X Yosemite
The OS X Yosemite, the latest version of the operating system for Macs, might have been affected by a bug, as its users are continuing to be frustrated by the Wi-Fi connectivity issue.According to Apple Insider, the...
Read more on Apple Balla
 
Wear your sweatshirt right
Los Angeles, Nov 1 (IANS) A sweatshirt is a must-have item in your autumn-winter wardrobe. Mix it up with jeggings or team it up with hot pants to jazz up the look. Sweatshirts are not only comfortable and cosy, but...
Read more on Celebrity Balla
 
Undergo seaweed body wrap for a beautiful you
London, Nov 1 (IANS) Try seaweed body wraps in a spa for improved skin elasticity and reduction of cellulite. A seaweed wrap is typically made by combining seaweed with hot water and sometimes essential oils, clay and...
Read more on Celebrity Balla
 
When Jake Gyllenhaal went out with real nightcrawlers
Los Angeles, Nov 1 (IANS) Actor Jake Gyllenhaal, who features in "Nightcrawler", found it a "dangerous" experience to venture out in the dark to prepare for his role in the movie. But he found it to be exciting too!...
Read more on Celebrity Balla