The Fed raised rates – retirees and near-retirees should do this

The Fed raised rates – retirees and near-retirees should do this

Retirees need to watch their spending, especially after the latest rate hike from the Federal Reserve announced on Wednesday.

For the third time in a row, the Federal Reserve said on Wednesday it would raise the benchmark federal funds rate – this time, by 0.75 percentage points to between 3% and 3.25%. Officials suggested this would not be the last time this year, and expect the rate to jump to around 4.4% by the end of 2022.

For retirees in particular, many of whom live on fixed incomes, the situation may seem overwhelming. Raising the federal funds rate is the Federal Reserve’s attempt to fight inflation, but many Americans are trying to do so themselves — while also handling the stresses of market volatility. In recent years the economic environment has felt bleak at times for retirees, as well as retirement savers: market volatility has pushed 401(k) balances down, and everyday expenses like groceries and gas have become much more expensive due to on increased inflation.

The Federal Reserve said higher interest rates will introduce other examples of “pain” for Americans, including a slowing economy and a rising unemployment rate.

Look: Fed’s tough task: History shows that inflation takes an average of 10 years to return to 2%

The first thing to watch out for is spending, said Kelly LaVigne, vice president of advanced markets and solutions at Allianz Life. Companies have tried to catch up by producing a lot of inventory, and a slowing economy could make it competitive for them to sell their products at “attractive prices,” he said — those sales could be tempting, but retirees and retirement savers alike should guard against and curb any bad spending habits, LaVigne said.

US stock indexes fell shortly after the latest announcement from the Federal Reserve.

Volatility can be hard to stomach, especially for someone whose nest egg is tied up in an investment portfolio, but retirees and near-retirees are often told to stay the course. “Really, we have to protect ourselves from ourselves,” LaVigne said. This includes sticking to a retirement plan, and balancing risk tolerance with time, financial assets and needs as rationally as possible. One way to stay calm amid the volatility: don’t look at your portfolio too often, experts said.

See also: Ray Dalio says stocks, bonds to fall more, sees US recession coming in 2023 or 2024

Americans may want to take this time to tackle any credit card debt, as rising rates will affect higher interest debt, and check in with their banks about savings account interest rates, which will rise as a result of that.

Now is the time for anyone in or near retirement to consider multiple income streams if they haven’t already. For some Americans, it may be just a portfolio of retirement and Social Security benefits. For others, it could be a pension, or an annuity, combined with personal retirement savings. Many retirees have turned to part-time work in retirement as a way to bring in extra cash and preserve their investments, while other older Americans were forced to retire during the height of the pandemic. following “non-retirement,” where they go back. the labor market.

Additional income streams are helpful in the present, as it allows investors to keep their investment portfolios untouched (giving those investments time to recover from market volatility), but it will also help with retirement security future if savers continue to add to retirement or an investment portfolio for use later in life when the cost of living inevitably rises. Retiree health care costs have historically increased year after year, and are expected to continue to do so, for example.

Regardless, retirees should consider how they’re feeling right now with the latest rate hike and keep it in mind if the Federal Reserve raises rates again later this year, LaVigne said. “Look where you are now,” he said. “Remember how this feels and try to plan ahead.”

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