How Rising Interest Rates Affect Your Retirement Plan

How Rising Interest Rates Affect Your Retirement Plan Hilltop Wealth Solutions

The economy in 2022 has set multiple records, first with the highest inflation rate in 40 years, and now with the highest federal reserve interest rates since 2008.[1] The US Federal Reserve has raised interest rates six times in 2022, reaching a total of 3.75% in November to curb rampant inflation.[2] Higher interest rates should also be a part of your decisions before and after retirement. Furthermore, you should ask the right questions before retiring and understand how this change affects you as a retiree:

  1. Declining Investments

Rising interest rates – in other words, rising costs of borrowing money – tend to push stocks lower. [3] Investors may predict an incoming recession and pull out of the markets if interest rates rise, harming stock values. In addition, with higher rates in a safe investment, such as the US Treasury, they will opt to take money out of riskier assets and into the safer ones that now pay a higher rate. The Dow Jones Industrial Average and the S&P 500 stock indexes have fallen as a result of 2022 interest rate increases.[4] These indexes track stocks that people often purchase for long-term investments through 401ks, Roth IRAs, and pension funds, so a decrease in the price of these stocks may also lead to a decrease in the value of the funds in your investment accounts. However, this dip may be fleeting; an economic revival is still a possibility. As someone who plans to retire soon or perhaps withdraw from these accounts for income, you may lock in your investment losses by doing so.

  1. Saving Account Rates Rise

When interest rates go up, yields on savings accounts and fixed-income investments go up as well. Stock yields, on the other hand, move in the opposite direction of interest rates.[5] If you have money in a savings account, the bank loans the money to other customers in return for interest on the money you have deposited.[6] When interest rates rise, the bank is essentially enticing you to deposit more money with them so they can cover their own borrowing expenses. Think of yourself as a lender earning interest on the money you deposit with the bank. Your money is being borrowed at a higher rate, resulting in a higher interest rate for you. And your savings may grow at a faster rate thanks to compounding interest as a result of the higher yields.

  1. Variable Rates You Must Pay Also Increase

When rates rise, you may see higher credit costs, such as those on credit cards or variable mortgage loans. If you are retired or planning to retire and are still paying off debt, you may want to examine your payment plan to see if you have an adjustable rate, as this may result in higher monthly interest charges. Regardless of whether it’s an adjustable-rate mortgage or a credit card plan, an increase in interest rates might result in higher expenses.

The future of the economy in relation to inflation and interest rates is unknown. With borrowing costs predicted to increase further, the effects on your wallet may compound. It is important to know where you stand and how best to go about your financial plan amidst this changing economy. For better clarity on your circumstances, sign up for a complimentary review of your finances with us today.



Hilltop Wealth Solutions (“Hilltop”) is a registered investment advisor with the Securities and Exchange Commission (“SEC”) and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure for additional information regarding the qualifications and business practices of Hilltop. Hilltop Wealth Solutions, LLC is an SEC Registered Investment Adviser firm. Hilltop Tax Solutions, LLC, is an affiliate of Hilltop. Wealth Solutions that provides tax and bookkeeping services.

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