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Are Rising Interest Rates a Good Thing?

Filed under: Retirement, Taxes and Planning

The Federal Reserve raised interest rates in March for the second time in four months. The first increase came at the board’s December meeting. While individual rate hikes often don’t have a sizable impact on the economy, these hikes are significant because rates have held steady at historic lows since the financial crash in 2008.

If you’re a borrower who has recently purchased a home, a car or any other item financed with lending, then the historically low interest rates have benefited you. If you’re a saver who keeps money in certificates of deposit, interest-bearing savings accounts or fixed income investments, however, the past eight years may have presented some challenges.

It’s impossible to predict whether the Federal Reserve will continue increasing rates, or how quickly it may do so. However, the recent increases may show that the Fed is willing to raise rates further.

Is an increase in interest rates good or bad for you? If you are a borrower, an increase may be problematic. If you are a saver, however, increased interest rates could offer new opportunities. Below are three tips to keep in mind if rates continue to increase:


Stay diversified.

If interest rates continue to increase, you may be tempted to move your assets to fixed income investments and interest-bearing accounts that you may perceive to be a low risk. However, it’s important to remember that you will also likely need compounded growth, too.

Remember, your retirement may last decades. A diversified balance of different types of assets and investments can help you achieve the growth you need to fund your retirement while also helping you manage your risk exposure. A financial professional can help you find the right balance for your goals and your risk tolerance.


Consider future guaranteed* income.

Perhaps you aren’t retired yet but will be in the near future. If so, you may be looking for ways to create retirement income that’s guaranteed for life. You may want to look at tools that can provide guaranteed income and also offer the ability to participate in rising interest rates.

For example, a fixed annuity may be one such tool. In many fixed annuities, you’re offered a guaranteed interest rate for a set period of time, and then your interest rate renews based on prevailing rates at that time. When you’re ready to take income, you can either take the interest as a payment, or you can annuitize the compounded balance and create a guaranteed income stream for yourself.

There are many different types of annuities, and each is meant for a specific goal or objective. Again, a financial professional can help you analyze your goals and needs and determine whether an annuity would be helpful for you.


Beware of inflation.

Inflation is often an ignored risk for many retirees. Inflation has been modest in recent years, and sometimes there’s a perception that a small amount of inflation doesn’t pose a threat.

However, even a small amount of inflation can be dangerous if it compounds over many years. Consider that even 3 percent annual inflation over a 24-year period would lead to a doubling of prices. It’s possible that your retirement could last 24 years or more. Could you afford to see your expenses double over that period?

It’s also possible that rising interest rates can fuel inflation. While the relationship between inflation and interest rates is complex, there has been correlation between the two in the past. You can manage the threat of inflation by staying diversified and using an investment strategy that has some growth potential.

Do you have a strategy for rising interest rates? Let’s talk about it. Contact us at Ambrose Financial & Insurance Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.


*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.


This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

16529 – 2017/3/22