The Federal Reserve’s decisions about interest rates always make headlines, but they also ripple directly into your retirement plans. In September 2025, the Fed made a pivotal move: a rate cut of 25 basis points (0.25%). For those planning retirement or already retired, this change raises important questions. What does this mean for my investments, savings, and retirement income? Let’s break it down so you can understand how to adapt your strategy.

Why Did the Fed Cut Rates?

Interest rates had been climbing steadily since 2021 as the Fed sought to control inflation. High rates were good for savers; CDs, money markets, and bonds were paying yields not seen in decades. But they also came with drawbacks: higher borrowing costs, slower growth, and strain on consumers.

Now, with inflation showing signs of stabilizing, the Fed has pivoted to cutting rates. Their target is to bring the federal funds rate closer to 3% over time, from levels that hovered near 4%. Lower rates are intended to stimulate borrowing, investment, and spending; but they also change the retirement planning landscape.

Immediate Impact: Your Cash and Savings Accounts

For the last two years, retirees and pre-retirees enjoyed “easy money” in the form of high yields on cash. Money market funds and savings accounts offered 4% or more, something we hadn’t seen in decades.

But as soon as the Fed announced the rate cut 2025, banks reacted. Some dropped savings rates the same day. That means the cash you’re holding, whether in savings, money markets, or newly renewing CDs, will start earning less.

What It Means for You:

• If you locked into CDs last year at 5% or higher, congratulations. You’re earning above-market returns until maturity.
• Renewing CDs or new purchases will now reflect today’s lower rates, likely closer to 3–3.5%.
• Money markets and savings accounts will drift lower, making cash less productive as a long-term holding.

This creates a crucial question: Where should retirees turn for dependable income now that cash is losing its shine?

Bonds and Interest Rates: A Shifting Opportunity

When discussing bonds and interest rates, remember this: existing bonds with higher coupons become more valuable when new bonds pay less. That means if you already own long-term bonds purchased in the last two years, their market value is likely rising.

Two Perspectives:

• Existing bondholders: If you locked in a higher rate, you’re in good shape. Your bond income is steady, and the market value of your bonds may climb.
• New buyers: If you’re putting cash to work today, you won’t find the same attractive yields. New bonds will pay less, reflecting the Fed’s new direction.

This often pushes investors toward equities (stocks) in search of better returns, but retirees must balance that with the reality of market risk.

Equities: Growth with Caution

History shows that Fed rate cuts often boost the stock market. Lower borrowing costs can fuel corporate growth and investor optimism. But chasing growth without considering risk is a mistake, especially in retirement.

If you’re asking, “What Fed rate cut means for equities in my portfolio?” the answer is: potential upside, but with volatility. As more investors move away from cash and low-yield bonds, equities often benefit; but retirees should avoid overexposure to riskier assets.

A well-structured retirement investment strategy should combine growth with protection. That’s where diversification comes in.

Fixed Index Annuities: A Timely Alternative

One standout opportunity in today’s environment is the fixed index annuity (FIA). Here’s why:

• FIAs are designed as a bond alternative, offering growth potential tied to an index (like the S&P 500) but with downside protection.
• When markets fall, your annuity doesn’t lose value.
• When markets rise, you participate up to a cap rate; right now, still relatively high compared to past years.

With Fed interest rate changes pushing bond and CD yields lower, FIAs offer retirees a middle ground: strong returns without market volatility. But timing matters. As insurers adjust to lower rates, annuity caps may drop in the months ahead.

Retirement Income Planning in a Lower-Rate World

Ultimately, retirement is about generating predictable income. With lower rates on cash and bonds, retirees must reevaluate their retirement income planning strategies:

• Diversify income streams: Don’t rely solely on CDs or savings accounts. Consider blending FIAs, dividend-paying stocks, and bonds.
• Stress test your plan: Work with an advisor to model higher inflation, lower interest rates, and market downturns.
• Review your buckets: A sound plan divides assets into cash (short-term), safety (income), and growth (long-term). With rates falling, cash plays a smaller role while safe, income-generating assets take center stage.

Key Takeaways: Rate Cut 2025 and Your Retirement

• Cash is losing appeal: Savings and CDs will earn less. Don’t over-allocate here.
• Bonds are a mixed bag: Good for those holding older, high-rate bonds; less attractive for new buyers.
• Equities may benefit: Stock markets often rise on rate cuts, but retirees must balance growth with caution.
• FIAs are well-positioned: Fixed index annuities offer a timely way to lock in safe, competitive returns.
• Retirement planning strategies matter more than ever: Secure your retirement by diversifying income sources and adjusting to today’s shifting environment.

Final Thoughts

The Fed’s decision to cut rates in 2025 is a reminder that retirement planning must evolve with the economy. What worked in 2023 or 2024 may not work now. With retirement interest rates falling, it’s time to rethink your cash, bond, and income strategies. Schedule your complimentary 15-min call to talk about how this effects your retirement plan.