It seems like interest rates will stay high for a while in 2024. People who are close to retiring should think about this. They should consider the information when they’re deciding how to invest their money. The news can also help them determine if it’s a good time to retire. The Federal Reserve is meeting soon, but most experts don’t think they’ll announce that interest rates will go down.
High-Interest Rate
The Federal Reserve might lower interest rates for the first time in June. However, if inflation keeps rising, they might have to wait longer. Right now, the interest rate is stable between 5.25% and 5.5%. This rate is the highest it has been in 22 years. This is good news for investors, especially those close to retirement.
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To get a better understanding of this interest rate and its impact, some wealth management advisers gave some insights.
Lock In Today’s High Interest Rates
The first advice the wealth management advisers gave was to lock in the present high rates. Here’s what to do first. If you think you’ll need money saved up for everyday expenses when you retire, start saving now. It is a good idea to start building up a stash of cash in safe investments.
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Make sure these investments don’t have a lot of risk, like government bonds and certificates of deposit (CDs). A straightforward way to do this is to take some of the money you’ve made from your investments in stocks.
High-Interest Rates: Save or Invest Wisely
“Getting a higher interest rate is useful because you’ll earn more money in interest with CDs and other safe investments. This can be helpful for emergencies and part of your retirement savings,” explained Daniel Soo, a financial advisor at TIAA.
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“If you’re someone who tends to be more careful with your money, you should take this advice.” Certain types of savings accounts and certificates of deposit are now offering interest rates higher than 5%.
Saving Options
Online banks typically provide the most attractive rates, with some offering around 5.5% for a one-year certificate. These savings options can serve as a safety net in the early years of retirement. If the stock market experiences a downturn, you can rely on these savings.
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Relying on these savings is better than selling stocks at a loss. It is also better than feeling stressed about market fluctuations affecting your living expenses.
Retirement Decisions Aren’t Just About Interest Rates
High-interest rates should not be your only reason to retire. “When you think about retiring, there are many factors to consider before deciding,” says Nick Nefouse. Nick Nefouse is the head of retirement solutions at BlackRock, a financial firm.
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He said, “You need to look at your money situation for retirement. You need to know things like how much you’ve saved and what you’ll need to spend. You also need to know where your money will come from, for example, Social Security.”
Leo Chubinishvili’s Input
Many experts agree with Nick Nefouse. Leo Chubinishvili, a financial planner, made a statement. He said, “Deciding when to retire shouldn’t just depend on the economy or stock market. Instead, it’s crucial to focus on your financial preparedness. This means making sure you have enough money saved up to live comfortably after retiring.”
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“He further stated, ”Your retirement plan should be able to adjust to different economic situations. Situations like high or low-interest rates and changes in the market.”
Higher Interest Rates Gives More Choices
Head of retirement and personal wealth solutions at Bank of America, Lorna Sabbia, also gave her opinion. She said, “Most people decide when to retire based on their confidence. They retire when they feel confident about covering their expected expenses with the money they’ve saved up.”
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Higher rates don’t determine when to retire; they only provide more investment options. If interest rates stay up for a while, things like bonds, annuities, and money market accounts might give you more money back.
Making the Most Out of Interest Rates
If you’re getting close to retiring, it’s smart to look over your retirement savings. Also, think about adjusting them to get the most out of these higher interest rates,” Nefouse suggested.
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“For retirement planning, it’s important that the money you save grows faster than the rising prices of things. It should also grow faster than the cost of living,” Soo explained. It’s a good idea to adjust your retirement savings strategy now,” he explained.
Potential Gains
Soo further said, “Make sure your investments match how much risk you’re comfortable with by shifting some of your stocks. Also, make sure they match by adding more longer-term bonds to your portfolio. But remember, it’s not time to sell all your stocks just yet.”
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“Sabbia explained that when deciding between higher interest rates in CDs and money markets, you should think about some things. It’s essential to think about the potential long-term gains in stocks and bonds.
Treasury Bills
As you get closer to retirement, and even during retirement, it’s still important to consider investing in stocks. You should do this, especially when you think about how long you might live.”
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With the Fed keeping interest rates high, people who want to save money for a year or less can earn good returns by investing in Treasury bills (T-bills). These are short-term investments issued by the government. For example, on March 7, a one-year T-bill was giving back 4.93%, and a six-month one was at 5.34%.
Investing in Treasury Bills
As long as the Federal Reserve keeps interest rates high, putting your money into Treasury bills can give you profit. It can also help save on taxes at the same time. Treasury bills, like I-bonds and Treasury inflation-protected securities (TIPS), are issued and supported by the US government.
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Also, investing in T-bills can help you save on taxes since they’re exempt from state and local income tax. According to Ken Tumin, an expert in the field, T-bill yields are higher compared to most online savings accounts and short-term CD yields.
How Treasury Bills Work
Treasury bills are a type of investment where you buy them for less than their face value. When the bill reaches its maturity date, you earn interest. This interest is the difference between what you paid and the bill’s face value.
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To buy T-bills, you must participate in auctions held regularly. Most individual investors make what’s called a noncompetitive bid. This means they agree to accept the average yield set at the auction. Auctions happen weekly for most maturities, except for the one-year T-bill, which occurs every four weeks.
How to Buy T-Bills
If you decide to cash out early on a Treasury bill, you won’t face any penalty like you would with a CD. But there’s a risk of losing money if you sell the T-bill for less than what you paid for it. You can buy Treasury bills through your bank, broker, or online. Buying online through TreasuryDirect has no commission and a minimum investment of $100.
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However, if you purchase through TreasuryDirect, you must hold onto the T-bill for at least 45 days before selling it. Interest is paid when the bill matures.
Making Your Decision
Planning for retirement but not sure when to take the step? Consider making some fixed-income investments now and wait while you figure out your retirement plans.
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There is a big question that you have to think about. How can I secure some gains from my stock investments and get reasonable rates on fixed-income investments? According to financial planner Lazetta Rainey Braxton, it’s about finding what works best for your situation now. Then, you can worry about retirement timing later.