How to Build a Resilient Retirement Income Strategy in an Era of Rising Interest Rates

Retirees and those approaching retirement are facing an increasingly interesting economic environment that can present both challenges, and opportunities. After more than a decade of historically low interest rates, we are entering a new phase, one with rising rates that seem to be reshaping the rules for retirement income planning. While higher rates can boost interest income, they can also introduce greater volatility and new decisions on where to invest, how to draw income, and how to adjust long-term plans.

Revisit Your Income Structure

Whether you’re thinking about retirement, or already there, now is a good time to revisit how your income will be structured. The foundation of most retirement plans includes sources like Social Security, pension income, investment interest, dividends, and withdrawals from retirement accounts. With interest rates rising, bonds and fixed-income investments, such as annuities, may offer more attractive returns than they did in previous economic environments. However, retirees holding older bonds may also see a decline in their market value, which is where strategy becomes essential.

A Time-Based Approach to Assets

One approach that some may find helpful involves organizing assets on when the funds will be needed. This type of time-based strategy allows for a separation between short-term liquidity needs, mid-range stability, and long-term growth potential. It can help individuals better manage volatility without making frequent changes to their portfolio in response to market shifts.

The Role of Diversification

As part of that broader structure, diversification continues to play a critical role. In a rising rate environment, different asset classes respond in different ways; bonds, equities, cash, and real assets may not all move in sync. A well-diversified portfolio may help smooth out performance and reduce the impact of any single market event. While diversification doesn’t eliminate risk, it can offer some protection against the uncertainty that often accompanies shifts in monetary policy, inflation, or sector-specific downturns. Many retirees find that spreading investments across a mix of assets helps maintain both income and growth potential, even as market conditions evolve.

Withdrawal Timing Matters

Another consideration for those planning withdrawals from retirement accounts is the timing and order of distributions. Managing market risk early in retirement, sometimes referred to as sequence-of-returns risk, is something that has gained more attention in recent years. Planning for how and when to draw funds, especially during down markets, can play a role in maintaining long-term financial sustainability.

It’s also worth revisiting spending plans in light of current borrowing costs and inflation. Rising rates can affect everything from credit card interest to mortgage payments, which may shift how people approach budgeting in retirement.

It’s important to remember that the path to a resilient income strategy looks different for everyone. As the interest rate environment continues to evolve, so too do the tools and options available to retirees. Creating a solid strategy with your financial advisor is always the best way to move forward. Our team can evaluate your retirement strategy, and bring forward options in which we believe will best protect you in your golden years.

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