In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the recent Fed rate cuts and what they mean for your retirement. After years of historically high Federal Reserve interest rates, the first rate cut of 2025 signals an important turning point for retirees and those planning retirement. With retirement interest rates shifting, CDs, bonds, and even savings accounts are no longer producing the same returns as just a year ago. This episode breaks down how the Fed interest rate changes impact your retirement investment strategy, from cash and CDs to fixed index annuities, bonds, and equities.

Listen in to learn about how to navigate this new environment. Radon and Murs share insights on how to rethink your retirement income planning, balance safety and growth, and use smart retirement planning strategies to secure your retirement. They also explain why now may be a critical moment to evaluate your options and protect your retirement nest egg so you can focus on retiring comfortably with peace of mind.

In this episode, find out:

·     Why the latest Fed rate cut immediately affects cash accounts and CD rates.

·     How bonds and interest rates respond differently for new buyers versus existing holders.

·     Why blindly chasing higher returns in equities can add more risk to your portfolio.

·     The role of fixed index annuities as a bond alternative in your retirement financial planning.

·     Practical retirement planning strategies to balance growth, safety, and predictable income.

Tweetable Quotes:

·     “When the Fed cuts rates, cash becomes less effective—so you need to think carefully about where your money works best in retirement.” – Radon Stancil

·     “Retirement planning today is less about chasing the highest return and more about finding the right return that provides predictability and peace of mind.” – Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Welcome everyone to secure your retirement podcast. Um, we are glad to be able to

talk to you today, especially on a topic that you probably have heard about. And

you wonder, well, what is this going to really mean? Um, and the topic is, uh,

the Fed just cut rates and went down 25 basis points or a quarter of 1 % and you

might, if you are somewhere within the, maybe the banking world or whatever, you

might have just gotten notification that your interest that you’re earning is going

to go down. And we wanted to talk a little bit about that today. You know, this

has been an environment that we’ve not seen in many years. I’ve been doing this

business for 25 years and we’ve not seen interest rates as high as they’ve been for

the last year or so in that whole period at that rate. And so, it’s been a really

fun time and I say fun in the context of, you know, you are getting good rates.

We are getting good things out there. And so, the problem with things though, is

that if you have high interest rates, a lot of times that could translate into high

inflation. And that’s reason why you saw those rates go up like they did is because

the Fed was trying to control or manipulate uncontrolled growth or inflationary

problems. And so, you might say, well, I mean, we’ve had clients in here saying,

hey, I’m paying more for groceries. I’m paying more for whatever it might be. And

but I’m earning more. I mean, and it’s been nice to see if I’ve got cash in a

bank, I’ve been able to see that outcome. But we are now seeing that kind of start

to come back down. And there is talk that the that rate is going to continue to

go down. And I think right now kind of the targets around that 3 % market right

now, we’re at 3 .75 as far as right is it 3 .75? It’s in that ballpark.

ballpark. Yeah. And that ballpark is, but anyway, that’s kind of the target. So

anyway, we wanted to chat about that today. Anything else there on the setup, Murs,

of what we’re trying to discuss? No, I think that’s, that’s really it. Big picture

is we want to talk through while the Fed just cut rates. And so, what do you do

now as someone that’s planning for retirement or already in retirement? And a lot of

this is going to kind of speak to maybe investment strategy a little bit. So, um,

Radon, why don’t you just kick us off and kind of talk through the cash side of

things. You know, a lot of people, in a way, it’s been easy money for the last

couple of years because of how rates have been. So why don’t you talk a little bit

to that and then we can get into more of the investment side of the stock market

and bonds and equities and all that. Yeah. You know, as I said, you know, you’ve

probably already gotten adjustments. We actually have a relationship with a banking

organization that gives very competitive rates without having to lock your money up.

A lot of our clients are using that for a multiple of reasons, but almost

immediately after the rate cut, we got notification that the rate that we were going

to be getting in the bank has dropped from 4 % to 3 .75%. I mean, it was pretty

much the day of the rate cut. And so that’s an effect. I mean, we hold cash in

those banks and in those accounts for, you know, personal as well as the business.

And so, you’re, you kind of got used to seeing these nice interest rates. And now

that’s going to start to come down a little bit. What we hope is though, is that

if there were inflationary issues, that that also is truly under control.

What we hope we don’t see is this scenario of the rate dropping and then the rate

having to go back and back and forth, that could be a troublesome time. So

right now, if you had maybe gotten a CD last year, and let’s say you got that CD

and it was paying maybe four, four and a half, maybe you’ve got an older CD that

maybe even got up close to five, when you renew, you are going to see, not see

the same opportunity. And so that’s the thing you got to be aware of. We talked a

lot about that with clients, you know CDs are not a long -term play, but if you

could get yourself locked in at a higher rate a couple years ago or a year ago,

and you were able to lock that in well fantastic but now we’re in this new

environment and you’re not going to see that, so you got to think well What am I

going to do if I now am starting to see a lower rate? Am I going to renew again,

or do I want to look for other ways to be able to save money? So anyway, we can

now jump over into the bonds and equities, kind of the effects over there, Murs.

Yeah. So, you know, go back to that CD, CD conversation and you, you say,

well, my CD is renewing. It was at 5 % and I got a good run out of it. Now it’s

there. Tell me it’s going to be three and a half or three and a quarter, whatever

it ends up being, uh, when it comes time for a new, the decision becomes, well, do

I renew at a lower rate or what else can I do now that rates are kind rates are

dropping across the board. Naturally, a lot of people will start to think too the

stock market of, “Well, let me go into bonds and equities.” Traditionally,

or just more specifically numbers -wise, when it comes to bonds, bonds are a really

interest -rate sensitive and it’s really unique. Say you bought a bond a couple years

ago at the higher interest rate and maybe it was longer term bond, like a 10 -year

or 20 -year or 30 -year type of bond, that particular one is going to benefit rather

well from rates dropping because you locked in a higher rate for a longer period of

time. That makes the value of that bond itself increase as rates drop.

It’s a way more attractive thing to have in your tool kit. And so, the value of

it’s going to increase, which is a good thing, as well as you got a nice rate, so

the income is going to be steady for the period of time that you’re having that

bond. But go back to that example of the person that is saying, “The CD rate is

terrible. I don’t want this. I need to deploy new cash into the stock market, into

the bond market.” Well, you’re not going to get that great rate that was there two

years ago. You are going to get something that is more relevant to today’s rates.

And so, a lot of times new buyers are going to be buying at a lower rate. And

it’s still that battle of, well, the CDs here, the bonds here, the bonds carry some

risk. Is it worth it? And is it going to be good for the long run?

And so, I think that piece is really important to think about. Traditionally,

historically, go back to this evaluation. Do I go into the bonds for a lower rate?

Well, historically, a lot of people will say, let me just put that money now to

equities and chase after a little bit better return. The problem with this, though,

is we have to be very careful about how much risk we are incurring and adding to

our portfolio, because we don’t want the lower rate. We want better growth. We say,

“Okay, stock market is going to give us better growth. Equities are going to give

us better growth.” And we sometimes neglect the amount of risk now that we are

bringing back into the portfolio to chase this better rate. So, I think that having

that conversation with your advisor. If you don’t have an advisor, that’s a

conversation. We’re happy to, you know, talk you through as far as a balance of,

you know, safer assets and risk assets. And at the end of the day, finding that

blend, that’s going to make good sense for you. Historically, though, there is this

shift when markets do drop. I mean, interest rates do drop that the equity side

does benefit from that because there’s a flow of money shifting over that way. So

it is something to consider. But I think the bigger thing is you go back to

this conversation where it all started rates are dropping Cash is no longer effective

like it was two years ago, and I don’t want to up my risk. I don’t want to go

into the stock market I’ve got enough in the stock market as it is, But I need

something that’s going to be safe and reliable and still make me a good decent rate of

return Without the risk of the actual stock market itself And I think this is where

the opportunity truly live. So right now, let’s you speak to the, you know,

we call it the safety bucket, but there’s, there’s a good amount of protections and

they’re not just from safety, but also from our, our ability to, to earn in this

type of structure. So, I think let’s take a few minutes to kind of walk through

that and the opportunity that we have here through the end of the year. Yeah. I’m

just going to start off and say, you know, we talked about the bank situation where

the bank just came out the day of and just lowered rates. That’s a little different

in the annuity world. Now, we’ll probably start getting some notifications here soon,

like very soon, saying that rates are going to drop. And just so you know how that

works is that we will get a notification from XYZ Insurance Company, and it will

say you have until this date to submit applications, anything after that date,

the rate is going to go down to X. And so, we have not started getting a ton of

those yet, we know they’re coming. They are coming because when they drop the rates,

that’s how you’re able to build these products is to be able to have that higher

interest rate. So, with a fixed index annuity, just to kind of recap,

basically, what it does is it allows us to get a good interest rate based on an

index. And an index, let’s just for simple purposes, call it the S & P 500.

Well, if I were going to be looking at that particular type of index or that type

of an annuity, I’m going to get up to a cap. Right now, we can have caps today

at around 10 % is what we can have. Now, if now the interest rates are starting to

come down, we might see those caps start to come down maybe to nine and a half or

even nine. And so, I’m going to just say right now is a little bit of a unique

opportunity because you could lock in at a higher rate if you were ever considering

looking at the index annuity as an option. We call it a bond alternative. It’s a

way for us to get a good, decent rate of return without market volatility. And the

reason why is because when the markets are down, I don’t participate in the down

part of the market. So, I get safety. I get a good rate of return and right now

we are at an impetus point where hey if I’m going to hold these rates that where I’m

at right now is the time to say let’s go ahead and pull the trigger now I’m

going to go back to this whole story though we are still at very good interest rates

compared to where we were even five years ago that cap, I just told you about

that’s at 10 % of five years ago it was at three. Okay. So that is,

you know, we’re still in a very, very positive, good environment. We’re just saying,

Hey, if I’m thinking about doing something like this, this might be the time to go

ahead and pull the trigger because rates are going to go down. Now, I used to say

this all the time when rates were really, really, really low, like at one, maybe

even a half a percent. And when you go to the bank and You’d basically almost had

to pay the bank to hold your money. Um, I said, do you think the rates could go

any lower? No, they couldn’t go any lower because, you know, the, the, the

environment’s not there for it to be able to do that can only go up, right? Today

we’re in the opposite of that. We’ve been at these really high rates. They really

are not going to go much higher. And so, they’re going to just start to trickle

down and where they actually balance out remains to be seen, remains to be seen on

how the economy reacts to this. So long story short, I would say that you want to

make sure that if you’re looking at a fixed index annuity, you’ve ever had a

conversation about it, you couldn’t beat the timing as far as going ahead and

pulling the trigger. Yeah, I think, you know, we will constantly have conversations,

great environment aside around making sure that we’ve got asset allocation in line.

And for us, we make it simple, asset allocation is really dollars towards what we

call the growth bucket, which is risk in the stock market. And within that, it has

its own sets of asset allocations, and then dollars towards safety, which is kind of

the safer assets, like Radon just mentioned, the fixed index annuity, CDs can fit

in there when they’re worthy, money markets when they’re worthy, but those are kind

of falling out of that safety bucket because they’re just not going to be as

productive. So those are the big conversations that I think need to be had,

especially right now as we’re in this environment. And I’ll say this, I think we’re

really proud of here today is that we’ve got a lot of tools in the tool belt. And

while Radon talks about fixed index annuities just now, that’s not all we do. A

big portion of what we do is manage in the stock market. We also have alternative

investments that can provide income, that can provide growth that is not related to

the stock market. And so that list just goes on. What’s nice about our structure,

or let’s say this, go to a person that’s only an investment manager in the stock

market and you say, what do we do? Well, the only option is we add more to bonds

or we add more to stocks. And that’s kind of it. Go to the insurance salesperson

and you say, well, what do we do? Well, you just buy more insurance. In our case,

what’s nice is we It’s kind of; we look at it from a big picture perspective of

what’s the goal and then what are the tools we need to put in place to achieve

this goal around retirement, financial planning, but also around making a decent rate

of return without taking on any more risks than we want to. So, I think that’s a

really important thing to think about. You know, it’s no longer as we approach

retirement into retirement through retirement, it’s no longer about getting the highest

return. We hear that all the time from our clients today, it’s way more about

getting the right type of return, that’s going to make sure that we do have that

peace of mind and that predictability in retirement planning. So, anything else to add

as we close out here, Radon? No, I think, you know, we spent a very interesting

time of seeing rates go up to this. It’s probably a once in a planning season that

you’ll see rates that high. But at this point, you know, you’re going to start

seeing them come down, so we might want to take some action. All right, everyone, we

appreciate you listening to us today. We’ll be back in here next Monday to give you some more information. Have a great week.