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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, social security, healthcare and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or go to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial advisor, a licensed insurance agent, and a tax professional. In other words, I could actually do your taxes.
Mike:And when it comes to financial topics on the show, pretty much talk about anything, and that's really important. We wanna be able to talk about anything. Now that said, please remember this is just a show. Everything you hear should be considered informational, as in not financial advice. I don't know you.
Mike:You don't know me. If you want personal financial advice, then request your wealth analysis from my team today, my team of fiduciaries. You can do that by going to www dot yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Frandsen. David, thanks for being here today.
David:Good morning.
Mike:David's job, his mission is to be the voice of the people. He's gonna be reading off your questions, and I'm gonna do my best to answer them. You can send your questions in at any time by either texting them to 913-363-1234. That's 913-363-1234. Or email them to hey mike at how to retire on time.com.
Mike:Let's begin.
David:Hey, Mike. How would interest rates going down affect the market?
Mike:Okay. Yeah. This this is gonna be one that will be whatever I say is going to come back and either benefit me or haunt me. Interest rates are high. There's a lot of talk right now about interest rates going down.
Mike:Lot of speculation of if the Fed's gonna do it now or later. Lot of conversation about if they're gonna do it too slowly or too quickly. If they call an emergency meeting, is just the fact that they're calling an emergency meeting going to create more panic in the market and almost hurt its very purpose of alleviating the market. Lot going on in this conversation. So let's let's get rid of politics for a second.
Mike:Let's get rid of emotions for a second, and just talk about fundamentals, which I'm I'm talking specifically interest rates and how it affects interest rate correlated investments or products. Here's what I mean by that. If interest rates go down, then a CD rate is going to go down. They are connected at the hip. If interest rates go down, fixed annuities would go down.
Mike:Their offer, which a fixed annuity is basically a CD from an insurance company that may have a little bit better rate for a longer term period of time because, well, it's an insurance company. It's different. They're built differently than than banks. If interest rates go down, fixed index annuities would offer less growth potential. And the same would be with cash value life insurance.
Mike:If interest rates go down, the housing market would shift. And I don't know if it would go down or if it would go up. Economics 101 would suggest supply and demand. But because there's such a limitation on supply, the housing market may actually increase the houses may actually go up in value because there's still limited supply but people could afford more house for the same amount of money in some sense because if interest rates are lower then they can afford more.
David:It's cheaper to borrow money to buy it.
Mike:Borrow money to buy it. So as a whole, interest rates going down, I believe, has more of a negative impact towards the older generation and a more beneficial impact to the younger generation. Why? Higher interest rates benefit typically those who want protection. Who wants more protection?
Mike:A retiree.
David:As we've talked about before. Right?
Mike:Yeah. Yeah. A retiree, they they want they want less risk. Less risk means you're banking more on fixed rates, CDs, treasuries, annuities. That's the retiree space.
Mike:Even in, like, the real estate markets, for example, and how you're how the borrowing are are creating different investments or products or offerings. I mean, a lot of that has to do with interest rates. How cheap is money? What can they do with money? But for the younger people, it's just it's harder for them.
Mike:So how would interest rates going down affect the market? That's the the most basic level of it. Now let's get a little bit more nuanced. Okay? Many times, not all the time, but many times when interest rates go down, there's this weird reaction to where the market emotionally reacts to okay.
Mike:Well, yeah, money's getting cheaper. Why is money getting cheaper? There's a suspicion to it all. So it's like self fulfilling prophecy kind of situation. Mhmm.
Mike:If they're dropping interest rates to help the market out, the market might get panicked saying, well, why are you doing this? And then just crashes anyway.
David:Oh. So Oh, boy.
Mike:When interest rates go down, that might freak the market out. If it freaks the market out, then that might create panic, and then they may have to drop rate interest rates even more and and so on and so forth. And so, really, at the end of this, the the conversation is no one really knows from a macro level exactly how the market is going to emotionally react to it, what the speculation is going to look like. But if interest rates go down, let's say, 25 bps let me say that differently. If the interest rates go down 25 basis points, which is kind of a funny way to say it's 0.25%, so a very small amount.
Mike:Yeah. It's probably not gonna just disrupt the market that much. It's not that big of a deal. So if the Fed slowly starts dropping 25 bps here, 25 bps there, it might not be that big of a deal. Little bit, but not not huge.
Mike:If the fed were to drop a whole percent or whole 2%, that's a big deal. Kinda like what we saw in 2,008. Now this this may be one of those situations where it's chicken and the egg. Maybe the markets do do crash, and they just drop interest rates very quickly. Maybe they don't.
Mike:But at the end of the day, notice the speculation in the conversation. And if you want to proceed with this mindset of speculation, of emotion based investing, of trying to time the market, of trying to out smart the market, I would suggest that this whole conversation is actually going down the wrong path. We don't want to try and time the market. We know interest rate's going down. It'll affect things.
Mike:Great. We know that you probably may not want to live off of a CD ladder because whenever interest rates go down, the seeds will become less competitive. That's an extreme strategy. We know that when interest rates go down, the the the protected assets will be less competitive. But we don't know exactly how it's gonna affect everything.
Mike:So we create systems for when the markets are up and when the markets are down. Systems for understanding if interest rates increase or decrease, we know what we're gonna do. We we create a plan, we then optimize it for the efficiencies, and then we build a portfolio around it. We diversify based on objectives. In my opinion, I think one of the biggest things to be concerned about is having too much in cash or too much in CDs.
Mike:Those are shorter term fixed relevant or fixed affected rates or offers. And that if interest rates go down and you still want protection, going elsewhere might be difficult to find a good deal. Deal. I think trying to move money around based on the interest rates and trying to time it, it's just that's a dangerous thing, in my opinion. So if you're retired, if you're within 10 years of retirement and you want less risk, you wanna be proactive in your lifestyle and legacy plan, if you wanna understand how to take advantage of the higher interest rates now because they may not be this high for a long term period of time, then make a decision now.
Mike:If you're 10 years away from retirement, 5 years away from retirement, even if most of your assets are in the 4 one k, there are probably things you could do that you may not realize. Take action. Do something about it. So you can start by requesting your wealth analysis today by going to www.yourwealthanalysis.com. Again, that's www.yourwealthanalysis.com.
Mike:Or text keyword analysis to 913-363-1234. Again, that's 913-363-1234. Keyword analysis. 913-363-1234. David, anything else on that last one before we wrap up?
David:The bottom line kind of is we don't really know. We can't say for certain. Right? Well, what's gonna happen? We we don't we don't know how much they're gonna lower, when they're gonna lower.
David:We don't really know what's gonna happen. So if we just trust in our systems, though, then we don't have anything keeping us up at night.
Mike:Yeah. You wanna be able to sleep like a baby regardless if interest rates go up or down, regardless if if the market goes up or down, regardless of if tax rates go up or down. You wanna be able to have a system that is proactive and adaptive to whatever happens so that you're not losing sleep. They have that peace of mind and that you're maintaining your flexibility while focusing on growth throughout it all. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.