Rising Interest Rates and Your Retirement: Does Your Plan Need Rates to Fall?
If you’re five to ten years from retirement, you probably have a date in mind.
A birthday. The year the mortgage is gone.
Maybe you and your spouse have started saying, “Just a few more years.”
Earlier this year, many forecasts expected interest rates to move lower.
This month, the Federal Reserve raised them for the first time since 2023.
So does your plan need rates to fall? For a lot of plans, the honest answer is yes, and nobody ever wrote it down.
I don’t know where rates go next. Neither does anyone selling you a guess.
What matters is what your plan needs them to do, and finding that out while you still have a paycheck coming in.
You Didn’t Do Anything Wrong
A lot of careful people are going to feel a little foolish this month.
They have no business feeling that way.
You spent decades doing the responsible things.
Saving. Raising the contribution when you could.
Choosing investments with retirement in mind. That work counts.
But somebody handed you a forecast with the confidence of a fact.
Nobody says “if rates fall.” They say “when.” One word, and it disappears into the sentence.
I spent years on a trading desk watching consensus forecasts come apart.
What stayed with me was how confidently people described a future that hadn’t happened yet.
The Assumption Nobody Writes Down
Most people believe their plan is built around their situation.
Their age, their savings, what they want out of the next thirty years.
Half true. All of that’s in there.
But underneath it are assumptions nobody writes down.
Markets rise over time. Inflation settles. Rates come down from here.
That last one has been doing quiet work for about two years.
Think about a bridge. An engineer doesn’t design it for a normal Tuesday.
They design it for the worst day: ice, wind, and a jam of loaded trucks all at once.
They’re required to. That margin is written into the building code.
Now come back to your retirement plan. Where’s the margin?
You never asked for a bridge that only holds in good weather. You assumed the margin was there. Most people do.
What Rising Rates Do to “Safe” Money
The SEC explains it in one sentence: when market rates rise, prices of existing fixed-rate bonds generally fall, because newly issued bonds may offer higher yields.
That’s a price decline, not a default.
But it’s real, and it shows up in the half of your portfolio that’s supposed to hold steady while stocks move around.
We’ve seen it recently.
In 2022, stocks and bonds fell together.
Morningstar Direct data reported by InvestmentNews put the median 2022 return for U.S. target-date funds with a 2025 vintage at -15.4%.
Those were funds built for people about to retire.
One low-equity fund in that group held about 20% in stocks and still finished down about 12.7%.
That’s history, not a prediction, and a median across funds rather than anyone’s exact experience.
But if you lived through that year and wondered what you missed, the answer is nothing.
At 20% in stocks, there wasn’t much stock exposure to blame.
Fifteen Minutes, One Sheet of Paper, Three Questions
Here’s the belief I’d swap in. Your plan is built around your situation, and around a forecast nobody labeled as one. Your job is to know which parts need that forecast to be right.
First:how much will your savings need to provide? Start with expected spending, taxes included.
Subtract Social Security, a pension, anything dependable, and note when each one starts. What’s left is the job your savings have to do.
Second: if markets are down the year you stop working, where do withdrawals come from? Be specific. Which account? Which asset? “I have a diversified portfolio” is a starting point. Now explain how it pays you.
Third: if a rough stretch lasts longer than expected, how would you adjust? Optional spending, a reserve, the timing of a big purchase, and what would trigger the change.
Circle any answer you can’t explain yet.
Often, the portfolio turns out to be fine. What you’re really looking for is whether all three answers are load-bearing in the same year: the year you stop working.
A plan where everything has to go right at once isn’t conservative. It only looks conservative on paper.
Selling On a Plan, Not Under Pressure
Selling isn’t automatically the problem. Planned sales are part of a sound retirement. The question is whether you’d be selling on a plan, or under pressure because the bills are due.
In my work, preparing for that is Step Three of my Life-Tested Retirement System, Crisis Capital Engineering.
It starts by identifying money whose first job is to be available for planned withdrawals during a difficult stretch. How much depends entirely on that first question.
Someone whose pension covers the essentials has a different answer from someone living off investments in month one.
There are trade-offs.
Money positioned for access usually gives up growth, and inflation doesn’t stop mattering.
What it buys you is room to respond when conditions disappoint.
Nobody driving across a bridge notices the margin. That’s the point of it.
Somebody will tell you this month what rates do next. That’s the wrong question to start with.
Here’s the better one: if the forecast is wrong, what would you do?
It’s worth knowing before you need the answer, because once you’ve given notice and started spending, your options narrow in the exact year you can least afford it.
If you’re five to ten years out and want help working through those three questions, schedule a Retirement Resilience Call at jonathanpeters.net/consultation.
Best regards,
Jon
Sources
- 2022 target-date fund performance: InvestmentNews, “2022 was rough year for near-retirees in target-date funds”
- Interest rates and bond prices: SEC Investor Bulletin, “Interest Rate Risk”.
- Losses near retirement and withdrawals: Vanguard, “Safeguarding retirement in a bear market”.
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