Fed Rate Hikes and Retirement: Things to Consider

In times of economic uncertainty, it’s common to feel a little uneasy. In the years since the Covid-19 pandemic began, the economy has taken many twists and turns. The Federal Reserve raised interest rates with 10 separate rate hikes between March 2022 and May 2023. Mortgage interest rates went from historic lows to over 6%. Inflation made everyday items like groceries, gas and utilities more expensive for families across the country. Depending on your situation, these changes may have had a big or a small impact on your financial outlook. But there are two groups who may be feeling a little more stressed than others: retirees and those approaching retirement. Why? Because retirees want to ensure that they can fully cover their monthly expenses with their savings and investment portfolio, well into their golden years. If you’re approaching or already in retirement, here are five steps you should consider taking — one of which could be right-sizing your real estate investment with an option like co-ownership.

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1. Stay calm

First and foremost, stay calm. It's hard when external factors wreak havoc on your financial plans, but it’s important to avoid making rash decisions, especially when it comes to your retirement nest egg. Money-related decisions can be emotional, so sometimes it’s helpful to bring in an objective third party, like a financial planner or investment advisor. Skilled professionals can recommend if and when to move investments around, while also providing peace of mind that you aren’t making the wrong decision.

2. Review your portfolio

As retirement nears, it’s considered a best practice to rebalance your portfolio, taking money out of high-risk, high-reward stocks and toward more conservative bonds. This strategy can be especially valuable when interest rates are rising as you prepare for or enter retirement. When interest rates are high, bonds, savings accounts and CDs become more attractive — and a historically safer bet for those who don’t have decades to ride out the ups and downs of the stock market before retirement. This is another task where you can seek assistance from a professional.

3. Take advantage of better interest rates on savings accounts

During the last few years when interest rates were at historic lows, the rate of return on savings accounts was also incredibly low. As interest rates rise, you’ll see APYs on savings accounts rise, too. To take advantage of this boost, be sure to shop around. While your existing savings account is probably paying out more than it has in a long time, there may be better options out there. Look for a high-yield savings account and note that rates from online-only banks tend to be the highest. However, watch for possible fees on frequent withdrawals.

4. Check out CDs

CDs are another savings vehicle that gains in popularity when interest rates are high. Short for certificate of deposit, a CD lets you earn interest on a lump-sum deposit you make that remains untouched for a pre-set amount of time. The longer the term of your CD, the higher your interest rate will be. Terms can range from as short as three months to as long as five years. Early withdrawal penalties often apply, so be sure that you won’t need the money you have stashed away during the entire term.

5. Right-size your real estate investments

Retirement is a great time to take another look at your real estate portfolio. Housing needs change for people over time, and tough economic periods can be the catalyst for people to reconsider where they’re spending their money. As retirement approaches, many empty nesters choose to downsize their primary residence. This strategy is also popular as it allows you to access equity that may have been tied up in your home. It’s also common for people to move to somewhere with a lower cost of living. Similarly, if you own a second home, it might be time to reconsider your investment. Owning, managing and maintaining a vacation home can be time consuming and expensive, but going it alone isn’t your only option. During challenging economic times, many second home owners are selling their properties and turning to Pacaso. With Pacaso, you get all the things that are wonderful about owning a vacation property — a place of your own in your favorite destination — without shouldering the entire economic burden yourself. Pacaso homes are co-owned by up to eight individuals, who split not only the cost of purchasing the home, but ongoing costs like maintenance and management. Pacaso homes come fully furnished, professionally decorated and ready for relaxation. Co-owners enjoy equitable scheduling via a convenient app, and you’ll always have the flexibility to sell your share when economic conditions or your plans change.

Fed rate hikes and retirement: 5 things to consider