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What To Know About Bonds (2025)

The Federal Reserve, with its primary objective of controlling inflation and maintaining economic stability, plays a crucial role in shaping the financial landscape. But what exactly has changed regarding interest rates, and how might these changes affect individual financial planning?
The Domino Effect Interest rates are inherently tied to various aspects of the economy. Inflation, employment, and economic growth will adjust as interest rates change.

Economic variables generally affected include:

  • Consumer spending. Interest rates can impact consumers' willingness to spend on goods and services.
  • Business investment. Interest rates can impact businesses' appetite to invest in new projects and expand.
  • Borrowing costs. Consumers see changes to interest rates on credit cards, auto loans, and mortgages.
  • Currency rates. Interest rate changes can impact the value of a country's currency relative to the currencies of other countries.
  • Inflation. Raising interest rates can be necessary to combat out-of-control inflation while lowering them can spur the economy.
  • Equity Prices.Interest rate changes can affect investors' appetite for risk. They may reevaluate risk versus reward, potentially leading to price volatility and buying and selling opportunities.

Raising rates in 2020 likely helped curb inflation.The Federal Reserve uses interest rates as a critical tool to manage inflation. Raising rates cools the economy by making borrowing more expensive, which can curb rising prices.

Lowering interest rates can now help stimulate the economy. Conversely, reducing rates stimulates economic activity by making borrowing cheaper and encouraging spending and investment.
Now what? Now that rates are headed downward, there are likely some things we can expect.
  • Consumer relief:Lowering interest rates generally means lower borrowing costs on credit cards, loans, and mortgages, potentially increasing consumer spending.
  • Businesses spending: Lowering rates can make it less expensive for companies to invest and expand, potentially boosting economic growth.
  • Investors reevaluate:As the returns on safer investments like bonds recede, investors may decide to reevaluate their risk tolerance, potentially leading to new opportunities in their market strategy.
  • Inflation (hopefully) remains tamed: The goal of previously raising interest rates (in 2020) was to curb inflation, sparked likely by the COVID-19 pandemic. By lowering interest rates in 2024 and possibly in 2025, the Federal Reserve has begun to indicate a shift in focus and enhance efforts to stimulate the economy while also maintaining its leverage for future potential economic turbulence.
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Chapter 1: What is the Perfect Plan?
Individuals have a vested interest in the outcomes of their own financial decisions. As such, with all available information, the individual is the best judge for the appropriateness of the consequential decisions that affect them. Gain a fresh perspective on financial services; this course provides learners with an objective, solicitation-free environment to explore and better understand financial concepts for themselves. Without judgment or outside scrutinization, identify and ideally settle on personal preferences, affinities, and lifestyle prioritization.
Chapter 1

Chapter Objectives

  • It’s your money. Learn why everyone should opt for a financial plan based on math that is flexible to the unknowable and still likely to succeed, giving everyone reasonably what they want. Identify personal affinities and learn why qualitative variables can be equally or sometimes more important than math alone.
  • Let’s be rational. Explore processes for consequential decision-making, apply objective-based critical thinking, and recognize and learn to set aside personal biases that can sometimes negatively affect financial outcomes.
  • Me, myself, and I. Financial security empowers individuals to pursue their aspirations, support loved ones, and contribute to their community without compromising their well-being. Learn that embracing some degree of self-ness can be a form of positive financial care.
  • All together now. Identify critical roles professionals will assist with, foster teamwork and openness among family, and learn how to facilitate productive discourse on subjective matters.
  • The future is today. Explore trends, understand technology’s role in planning, develop critical document storage systems, and decide on a general personal data security policy.
  • Planning for a reason. Identify vulnerabilities and commit to improving the status quo. Increase the likelihood of success through analysis, contingency planning, and creative problem-solving. Generally attempt to exceed expectations.
Home
Chapter 2: Expenses
Understand why financial plan sustainability requires a reasonably clear idea of personal expenses. Track expenses easily with a spreadsheet. Learn to categorize and isolate certain expense variables for later in-depth analysis. Factor in an estimate of longevity, rates of return, and inflation assumptions to have a realistic, well-informed, and adaptable financial framework that can withstand known and unknowable financial life events.
Chapter 2

Chapter Objectives

  • Expensification.Analyze spending patterns and create a personalized expense projection useful for future cash flow analysis for oneself, family and trusted professionals.
  • Understand and deliver. Better evaluate how specific expense choices might affect longer-term retirement outcomes. Fulfill wishes (like funding a wedding, college, or medical expense) all without simultaneously disrupting long-term sustainability.
  • All intensive purposes. Calculate essential needs based on existing spending patterns. Isolate discretionary expenses to create a realistic projection incorporating plenty of “wiggle room.” Individually factor for specific goods and services, like medical expenses.
  • 100%. Research life expectancy tables, consider family history and personal health, and learn the importance of realistically predicting how long money will need to last.
  • Counting down. Decide on a “retirement” date for planning purposes. Understand why a firm date is important but should also be practical. Set expectations, evaluate financial preparedness, assess risk changes and factor in health and lifestyle.
  • The long haul. Question conventional wisdom and learn why some money should always work to offset long-term inflation – even while retired. Decide what money is naturally suited to capture long-term appreciation.
  • Pick a reason. Planning with a clear purpose brings numerous benefits, including alignment and shared understanding. Work to reduce misunderstanding, minimize regret, family conflict, and sales fatigue. Embrace effective conflict resolution, systematic decision-making, improved efficiency and productivity, and enhanced motivation and engagement.
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Chapter 3: Cashflow & Net Worth

Particularly for retirees, cash flow and net worth statements are the primary documents for evaluating a financial plan’s overall health and long-term sustainability. These documents show how future income, expenses, taxes, and total portfolio assets interact to create a transparent “vector” to achieving retirement goals.

Chapter 3

Chapter Objectives

  • Numbers person. Support decisions using mathematical reason, ideally encompassing every knowable variable. Learn to scrutinize financial statements for vulnerabilities and recognize opportunities to improve financial health.
  • Endless possibilities. Even a well-conditioned financial plan can benefit from exercises that simulate changing conditions. Also, incorporate case studies and be inspired by others. Achieve better outcomes and learn to never be satisfied when aspiring to meet financial goals..
  • The debt corrector. Leverage debt to enhance planning outcomes. Incorporate a bad debt elimination strategy. Learn to avoid pesky, well-intentioned debts from going bad.
  • Full-circle. Maximize tax benefits by thinking both long and short-term. Attempt to align efficiency opportunities with pre-identified lifestyle objectives. Avoid letting tax determine when to enjoy money by creating a system to free up tax deferred income over time.
  • The opportunist. Increase general awareness and openness to tax opportunities, including Roth conversations, alternative social security start dates, and tax loss harvesting. Balance lifestyle with the possibility of gain and long-term sustainability.
  • LifestyleControl™ Rethink conventional retirement planning techniques and model desired outcomes equally alongside facts, goals, and personal preferences. Develop several possible scenarios and decide which will ultimately prevail.
  • Mogul-ization. Tips for utilizing real estate successfully as an income source. Analyze the risks, costs, ongoing personal commitment, and the importance of having an “exit plan.”
  • Buffering. Prepare in advance for unexpected cash flow needs. Insulate pre-planned lifestyle preferences and be prepared to deploy contingency planning when problems arise.
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Chapter 4: Types of Accounts
There exist many places to save for retirement. Several factors influence a retirement savings plan, including age, access to employer-sponsored plans, tax situation, other assets, and timing assets for use. Strategize around retirement distribution rules, leverage taxable and non-taxable contributions, and consider what makes sense personally. Take a closer look at pre- and post-retirement contributions to understand how any account type (e.g., Traditional, Roth, and Taxable type accounts) can be equally viable planning vehicles depending on the individual situation, existing assets, and anticipated need.
Chapter 4

Chapter Objectives

  • Havin’ it all. Differentiate between Traditional IRAs, Roth IRAs, 401(k) plans, 457 plans, 403(b) plans, SIMPLE plans, Solo 401(ks), and SEP IRAs. Identify scenarios for de-risking company stock, when to prioritize tax-deductible contributions, timing Roth conversions, and methods for filling in gaps in diversification. Coordinate all accounts to have a cohesive investment strategy. A plan that’s well rationalized and prepared for targeted and flexible withdrawals.
  • Math and me. Understand the inner workings of withdrawals and how planning priorities will change once retired. Start offsetting any overlooked deficiencies using other accounts while rethinking the status quo. Develop post-retirement retirement assumptions for returns and use various techniques to build income and liquidity.
  • What I got. Create a to-do list of all necessary tasks and documentation, including obtaining a company summary plan description, locating investment ticker symbols and tips for utilizing a “self-directed” option, if available.
  • Driver’s seat. Set up an ongoing system for tracking individual stock market investments. Develop healthy habits to re-evaluate risk tolerance and occasionally complete required rebalancing duties.
  • Roots and Wings. First, consider the benefits of keeping an employer plan. Then, decide which areas benefit from potential account consolidation and which shall remain intact.
  • Pass the buck. Discuss the different tax deferral options, from deferred annuities to rules permitting the delay of RMDs by continuing to work.
  • SECURE ACT and SECURE ACT 2.0. Learn about the significant updates to catch-up contributions for older workers, the new requirement for Roth contributions for employees above certain income thresholds, the latest option for employer Roth contributions, and new enhancements for self-employed individuals and small business owners.
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Chapter 5: Guarantees
Guarantees are promises to be paid by corporations, insurance companies, and government entities. Payouts are generally perpetual for life, calculated based on an individual’s life expectancy, sometimes years of service, and may or may not include a cost-of-living adjustment (COLA). Compare hypothetical long-term growth investment vehicles and contrast a guaranteed benefit against market risk and their ability to act as a reliable income source for essential expenses. Evaluate and generally decide the “right” amount of a guarantee, establish personal preferences and evaluate realistic growth assumptions. Finally balance taking a guarantee and opting for a rollover or lump sum payout.
Chapter 5

Chapter Objectives

  • A sure bet. Evaluate all viable guaranteed income sources that could provide stable retirement income. Decide how much guaranteed income is “just right” relative to essential expenses.
  • To the max. Understand eligibility requirements, calculation methods, and how Social Security benefits are taxed. Make personal claiming decisions, such as with spousal and survivor benefits with the goal of maximizing benefits. Practically factor in claiming strategies by considering income needs and overall health and longevity.
  • The unknowables. Confront potential mishaps ahead of time, develop contingencies, and think critically about how a plan could go wrong. Build preparedness by having a
  • Quality guaranteed. Key variables such as having or not having a cost-of-living adjustment (COLA), researching insurance company strength, comparing annuity payout competitiveness, and evaluating the specific terms of a guarantee. Better asess fees and potential policy riders.
  • Somethin’ somethin’. Get granular when designating beneficiaries. Consider individual beneficiaries or lineage when making assignments. Assess payout methods such as single life, joint life, and, if available, survivor benefits. Differentiate between accounts better suited to be spent while alive versus bequeathed upon death.
  • The sweet spot. Understand the generalized benefits and tradeoffs of a guarantee. Learn how every plan will be required to find harmony between guarantees and long-term appreciation.
  • Wheelin’ and dealin’. Explore situations where buying a guarantee may be an appropriate consideration. Objectively learn to research specific concepts. Understand the main parameters when selecting a company and how to calculate a “withdrawal rate” versus an “interest rate.” Evaluate how interest rates affect marketplace competitiveness. Overall, assess the long-term tradeoffs of such a decision.
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Chapter 6: Distributions
Individuals will likely need to withdraw money from their accounts throughout retirement to cover personal and other expenses. Many of these consequential decisions are mandatory and irreversible. Gain insight into the importance of developing an effective distribution strategy and how specified requirements must align with a plan and personal preferences. Develop a process to withdraw or transfer funds and decide when and why it makes sense to leave certain accounts where they are.
Chapter 6

Chapter Objectives

  • Be flexible. Maintain sensitivity to an investment account’s existing dynamic. That is considering an investment’s taxable nature, existing allocation, tax basis, and timeline for use. Make logical decisions organizing and funding accounts in the lead-up and once into retirement.
  • Ch-ch-changes. Familiarize oneself with the new regulations governing retirement account distributions, including required beginning dates, required minimum distribution (RMD) tables, and new RMD rules for spouses and beneficiaries.
  • Withdrawal strategery. Plan out a basic income withdrawal strategy before retirement and find comfort in spending money methodically – versus not at all or haphazardly.
  • In my shoes. Simplicity usually means adjusting to the plan’s existing dynamic rather than retrofitting planning to some hypothetical ideal. Generally learn to offset risk where possible and tactfully pair personal preferences with what’s practical.
  • Exploring options. Temporarily set aside conventional wisdom and consider new techniques to meet income needs. Consider many strategies to form a mosaic of withdrawal approaches providing a more diverse and comprehensive distribution strategy. Develop a plan sensitive to existing dynamics, personal philosophy, and overall lifestyle objectives.
  • Bon voyage. Develop a list of procedures and best practices for seamlessly transferring or rolling over retirement funds. Learn why some should and choose to stay with their employer plan post-retirement.
  • Grrreat timing. Explore current rules and weigh variables for early or delayed retirement. Considerations include paying for healthcare, ongoing contributions to social security, and taking and managing risk while sustaining sufficient income.
  • UPDATED for the SECURE & SECURE ACT 2.0. Important updates include reduction of the RMD excise tax, delays for required minimum distributions (RMDs), and the introduction of the eligible designated beneficiary and designated beneficiary. New updates to defer more using certain annuities.
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Chapter 7: Investments
An investment aims to generate a greater and greater return on principal over time, ideally minimizing risk throughout the process. Ongoing portfolio construction will utilize diversification, among other strategies, to help mitigate risk and ultimately maximize these returns. Learn to incorporate existing plan strategies, measure and rebalance the weighting of various asset classes, maximize employer opportunities, navigate tax complexities, and determine post-retirement risk tolerance. Learn to incorporate personal preferences and affinities and build a more cohesive investment portfolio supported by an overarching investment philosophy.
Chapter 7

Chapter Objectives

  • Cash cow. Be reintroduced to “cash” investments. Incorporate a withdrawal system to replenish needed cash with a respectable “risk-free” rate of return over time.
  • Kit and caboodle. A total portfolio view considers all investments, including employer plans, IRAs, post-tax accounts, and real estate. Learn about and develop a system to coordinate various asset classes into one trackable system. Dive deeper into global risk exposure, spot and root out overlap, and become disciplined to rebalance to maintain the previously settled upon risk level.
  • Doin’ it. Expressly define the level and most appropriate locations of “do it yourself” investing. Start small, find comfort, and learn by doing. Explore the pros and cons of the DIY approach, and ensure there is a firm commitment and consistency to the long-term tasks necessary to be successful. Discover that there also exist two distinct options for a “hybrid” DIY approach with some managed options being just right for some.
  • My brother’s keeper. Understand a managed account’s role, including typical fees, expected services, and when a professionally managed account is appropriate. Learn to base decision-making on commitment level, account size, management complexity, risk, use timing, and personal preferences.
  • Piece of the pie. Enhance equity compensation knowledge with ISOs, NSOs, restricted stock, and employee stock purchase plans. Know the ins and outs of participant responsibilities, such as AMT credits, lookback provisions, and grant timelines.
  • Risk Aware. Terms like market risk, interest rate risk, inflation risk, and currency risk are essential to be aware of but don’t cover every kind of investment risk. Learn to increase performance by mitigating portfolio risk, making intuitive decisions, and using proven investing techniques to achieve an expected return while taking less risk.
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Chapter 8: Insurance
As retirees approach retirement, they often have accumulated significant wealth. A substantial financial loss at this point can erode this wealth and potentially jeopardize long-term retirement plan viability. Objectively explore the landscape of available insurance options, their role in planning, and the sustainability of premiums. Better understand the applicable high-risk situations, decide what’s practical, and learn to pre-qualify or disqualify oneself for specific insurance concepts and solutions.
Chapter 8

Chapter Objectives

  • Stuff Insurance. Learn how deductibles, coverage limits, and replacement costs work together to limit liability. Parse through the most common types of policy riders. Reevaluate current coverage and determine if current levels remain appropriate post-retirement.
  • Retirement disabled. Learn how a last-minute disability can disrupt a retirement plan. Gain perspective on how disability risk transitions to a potential long-term care need and when and if it’s appropriate to begin redirecting premiums as formal retirement approaches.
  • Medicare advantaged. Access resources and develop a timeline and task list for Medicare Part A, Part B, and Part D coverage. Understand how Medicare Advantage and Medigap policies work. Attempt to be tactical, avoiding upper-tier IRMAA surcharges. Think through practical retirement uses for Health Savings Accounts prior to formal retirement.
  • A care plan. Self-assess if you want to pursue and can likely obtain long-term custodial care insurance. Review the types of insurance policies, including coverage amounts and common policy riders. Consider the practicality of paying out of pocket or relying on Medicaid programs. Learn to consider options objectively.
  • Rest easy. Understand use cases for life insurance post-retirement. Explore needs versus wants and calculate final costs (e.g., memorial costs, remaining mortgage payments, college funding, business succession planning, and tax-efficient donations to charitable organizations.)
  • Getting ducks. Organize essential insurance documents and have them readily available in an emergency. Get privacy and security tips for maintaining access to necessary information for family, loved ones, and trusted professionals.
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Chapter 9: Estate Planning
Estate planning is a crucial process that involves making arrangements for managing and distributing one’s assets and property upon death. Everyone will have some kind of estate plan, either ahead of time by the decedent or done for them after death. While estate taxes apply to only a very small number of Americans, many are surprised that many of the best tax-saving estate planning techniques require minimal due diligence and apply to anyone who owns property. Avoid unnecessary complications and beneficiaries missing out. Be remembered for kindness and generosity, not for costly estate planning missteps.
Chapter 9

Chapter Objectives

  • Trust issues. Be financially considerate of loved ones, dependents, and charities. Facilitate and maximize wealth transfer by reducing beneficiary estate taxes and protecting assets from creditors – avoiding public disclosure and ongoing liabilities. Be intentional about minimizing the possibility of family infighting.
  • Will powers. Resources for creating a basic estate plan, including a Will. Understand the importance of developing lawful “powers of attorney” and “medical directives” in your retirement state. Learn best practices for assigning individuals who will make important financial and end-of-life decisions on your behalf. Make clear personal preferences and final wishes to doctors, health care professionals, and loved ones.
  • As you wish. Clearly define the roles of those with powers of attorney, including executors and beneficiaries. Make clear and get agreement on their legal requirements and expected tasks, what to do, and where important documents are located. Maintain ongoing communication to inform individuals of any changes and learn to be receptive to feedback.
  • Giving direction. Some assets may be best suited for a direct transfer to beneficiaries upon death. Other assets benefit from being held in a trust. Organize assets by taxable nature and withdrawal priority. Distinguish what assets will likely be spent as time goes on from those sold only as a contingency plan. Finally, identify those accounts best suited to benefit from being held until mortality.
  • A graceful exit. Basic estate planning measures can ensure a smooth and efficient estate settlement process, protecting loved ones from unnecessary delays, expenses, and public scrutiny.
  • The wealth whisperer. Review the tax and qualitative benefits of giving while alive versus after death. New considerations for efficiently distributing certain assets to eligible and non-eligible designated beneficiaries under the new SECURE ACT 2.0.
  • With the flow. Learn how, when, and why to have liquidity at death to pay estate and income tax, incidental expenses, outstanding debt, memorial services, and family support.
  • The grand finale. Ensure applicable ownership structures capture the “step up in basis” at death. Learn the importance of planning for common complications like co-ownership arrangements, appreciated employer stock, and illiquid partnerships.

What About Bonds?

A mix of income sources is consistent with proper diversification. However, bonds are a tried and tested tool in retirement portfolios. They provide stable income and historically have acted as a hedge against stock market volatility (with little effort and reasonable cost). Investors can help reduce stock market volatility by adding bonds to a diversified portfolio. Many investors use resources, like working with a financial professional, to assess how their investments coordinate to meet their goals. For example, we offer our clients a Global Investment Policy to help coordinate across all investment accounts in a plan.
Bond Types include:
  • U.S. Treasury Bonds: Individuals can buy treasuries directly from the government via TreasuryDirect.gov. The combination of a stated yield and security of principal makes treasuries attractive to those seeking current income in retirement without taking on excessive risk.
  • Municipal Bonds: Issued by state and local governments to fund public projects, these often offer special tax advantages to investors living within the state or municipality.
  • Corporate Bonds:Issued by corporations to raise capital, these bonds carry varying levels of credit risk depending on the issuer's financial strength.
  • High-Yield (Junk) Bonds: Issued by companies with lower credit ratings, these bonds offer higher yields but come with increased default risk.
Buying a bond means lending money to the issuer, which could be a government, municipality, or corporation. In return, the issuer will pay fixed-rate interest (coupons) until the bond’s maturity. At maturity, the issuer repays the bondholder’s original amount lent (referred to as the principal or face value).

Why buy a bond?

A key strategy for managing risk is to spread out investments across several asset classes. This means investing in different approaches (possibly even beyond just stocks and bonds).
Bonds generally have lower volatility compared to stocks. Historically, bonds have helped stabilize a portfolio during market downturns. However, bonds do carry risks, namely interest rate and inflation risk.
Strategic benefits bonds offer include:
  • Reliable Income: Bonds provide a predictable income stream through regular interest payments.
  • Asset Class Diversification: LoweIncorporating bonds with other asset classes can help reduce overall portfolio volatility by balancing risks usually associated with equities (or stocks).
  • Downside Protection:Though not guaranteed to do so, bonds have historically been shown to mitigate some losses during stock market downturns, offering stability.
  • Keeping bonds: Because of their inverse relationship with interest rates, older bond prices can rise when interest rates fall. This potentially creates opportunities to benefit from higher yields until the bonds mature or are sold at a “premium” (or a price above “par”).
  • Solutions for retirees: Falling interest rates are a consideration for retirees. Lower rates can certainly help borrowers, but they also lower yields on safe investments, like bonds. Retirees are left with a choice: Either accept lower returns on their savings or take more risk with equities in pursuit of higher yields.
  • Bond Laddering: A fixed-income investment strategy that involves constructing a portfolio of bonds with several maturity dates. Bond laddering aims to reduce interest rate risk and provide a steady income stream. By investing in bonds with varying maturities, investors can spread out the risk of interest rate fluctuations and ensure that they have bonds maturing regularly. This strategy is particularly beneficial for investors who rely on their bond portfolio for income and steady cash flow.
  • Annuity Laddering: Annuity laddering is a retirement income planning strategy that involves purchasing multiple annuities with different start dates. Similar to a bond ladder in design and function, annuity laddering aims to create a guaranteed income stream to help cover living expenses during retirement.
  • CD Laddering: Another fixed-income investment strategy that involves investing in a series of certificates of deposit (CDs) with different maturity dates. CD laddering aims to reduce interest rate risk and provide a steady income stream over time.
By staggering the start dates of the different investment vehicles, investors can generally ensure a steady flow of income over time. These strategies can be particularly beneficial for investors concerned about outliving their savings or who want to avoid running out of money in retirement.

Taking ownership

When developing or changing a plan, the individual must be aware of all variables and make context-based decisions.

Leverage strengths and offset weaknesses

Every plan has its strengths and weaknesses. Looking at a plan holistically allows for a more cohesive strategy. While one partner may have a lower risk tolerance and generally want to be more balanced or conservative in terms of risk, another partner may feel more comfortable with risk, attempt to gain higher returns and offset long-term expenses. Working together, both partners offer a balanced approach that helps achieve short—and long-term objectives.

Temptation of more risk

As stated, bonds provide reliable income and stability for retirees. However, with falling interest rates and lower bond yields, some retirees may feel pressure to seek higher returns through riskier investments, such as stocks. This shift is especially risky for retirees who rely on their savings for income and may lack the time and ability to recover from a significant market downturn.
Sequence risk is the danger of selling investments at a loss early in retirement to cover expenses. This can severely deplete savings and jeopardize long-term financial sustainability. Managing sequence risk is a balancing act between risk and return and is a function of growth, safety, and current interest rates.

The importance of adapting

In the current financial landscape, retirees must proactively adapt their income strategies. Bonds still provide diversification and downside protection, but it’s prudent to familiarize oneself with other income-generating options. This will help maintain a well-rounded and flexible financial plan. Be curious about options. Consider viable ideas that match risk tolerance and long-term objectives.

Retirees need a reasonable yield on "safe money." And borrowers need access to reasonably priced capital.

What are some planning considerations?

When developing or changing a plan, the individual must be aware of all variables and make context-based decisions.

Top considerations include:

  • Changes to risk tolerance
  • Changes to rates of return
  • Changes to types of investments
  • When to take Social Security or a pension
  • When to formally “retire”

What retirement strategies apply?

Withdrawal strategies are fundamentally based on two basic withdrawal methods, either “preservation” or “spending” of principle.
  • Preservation of principal. Bonds, fixed annuity products, and dividend stock are the most well-known ways to do this. It means spending "just the interest" on a principal balance, not the principal itself. Real estate solutions can work similarly to create income off a principal balance. Essentially, interest is designed to supplement income. In this case, the property itself acts as the principal.
  • Spending principal. This technique involves withdrawing income from a portfolio and likely adjusting those withdrawals for inflation over time. It seems to develop a sustainable spending approach that includes utilizing both interest and principle. Income annuities and pensions work similarly, as the principal balance is “baked into” the payments.

Conclusion

The Federal Reserve has indicated a shift with its recent interest rate reduction. This reduction is naturally in conjunction with monitoring inflation and maintaining leverage against future economic turbulence.
Bonds and other similar vehicles benefit retired investors through their income and stability. Just as workers need growth, retirees need yield. Both, in tandem, help preserve stability that’s fair for all.
Now that inflation appears to be more in check, the Fed can again lower interest rates. However, finding the “sweet spot” is challenging, as maintaining some level of interest allows the Fed to respond to future economic turbulence. The Federal Reserve deserves credit for objectively navigating this tricky balance. We must support the Federal Reserve as it protects and enhances our economy’s ongoing growth while ensuring safety and income for current retirees.
Editor’s note: This blog offers informal investment and financial planning advice. We know nothing about your unique financial situation. The buying and selling of any financial product or security should only be considered in context. If appropriate, seek the counsel of experienced, ideally objective, financial, tax, retirement planning consultant or estate planning professionals. Past performance is not indicative of future performance.
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