There’s been a lot of hubbub lately over Federal Reserve rates. On December 16, 2015, Fed rates raised to 0.25 percent. This is the first rate hike since rates were lowered to zero percent in 2008, and it indicates cautious optimism from an institution that in August of 2007 held rates at 5.25 percent. Economists in favor of the recent rate hike and those against it have been debating openly since before the hike actually happened, but few of them are discussing what you really need to know: How will this affect your retirement plan?
Will the Hike Affect Your Plan
The truth is that the federal rate hike might have little or no obvious effect on your retirement plan—especially at first. The people most hopeful to see changes from an increase in the federal interest rates are especially conservative investors. Individuals with traditional savings accounts and CDs will likely see rate increases but probably not for the next year or two as large banks tend to be slow to offer higher rates of return. (SOURCE: http://money.cnn.com/2015/09/17/news/economy/fed-rate-hike-meaning/)
For more aggressive investors, the months leading up to the rate hike are an indication that volatility in the stock market is to be expected—especially when a rate hike is on the line. However, the best option is usually to ride the waves when it comes to the stock market. Even when lows outnumber the highs in a given year, a long-term investment in the stock market usually pays off. It might help to choose not to watch closely when those numbers are jumping up and down dramatically. If you are nearing retirement, speak with your financial advisor concerning whether or not to move your savings to a more secure investment.
Overall, the federal rate hike is seen as a positive indicator for investors. This is because it indicates confidence in the strength of the global economy. A 0.25-percent increase is miniscule, but the faith it shows for the future is significant. What will impact your retirement plan and investments even more is how the Federal Reserve votes in the future concerning rate hikes. A series of rate hikes over the next few years could lead to changes in the way you and your employees may wish to save for retirement, and these rate hikes, over time, will have a definite impact on the rate of return you experience.
Making Changes to Your Plan
Heartland Consulting Group works daily with employers to provide affordable administration of retirement plans. If current events have you concerned about your plan management, reach out to one of our certified consultants. We enjoy helping clients find effective retirement solutions, and we’ll take the paperwork off your plate so you have more time to attend to the business you do best. Although we do not provide financial management or advice, we can connect you with financial advisors that can help you in that respect.
For Further Reading: