How retirees and pre-retirees can benefit from high interest-rate environment

Clients can explore savings strategies and financial products with higher risk-free returns and alternative fixed-income investments.

For the last year, many Americans have felt the pinch on their personal finances as the Fed has tried to combat inflation by raising interest rates.

While much attention has been paid to the negative impact of high interest rates, this environment might present some opportunities — especially for retirees and pre-retirees — to expand their nest eggs. They can take steps to manage their savings and investments by exploring savings strategies and financial products with higher risk-free returns and alternative fixed-income investments.

As financial advisors guide clients in the current environment, here are six strategies to keep in mind:

Plan for fluctuating interest rates: A holistic financial strategy should account for fluctuating interest rates. What we’re experiencing now isn’t close to peak interest rates over the last 30-plus years. You can put this into perspective for your client and help them find opportunities — like what I share below — that can help them leverage the current environment based on their unique financial needs.

Adopt a savings mindset: The current period calls for a mindset shift away from borrowing — and toward saving. Now might be a great time for your clients to consider opening or adding to a health savings account (if they are eligible, up to their maximum) or an emergency savings fund. The money they save now should achieve higher growth than it would have previously thanks to higher interest rates.

Safeguard the retirement nest egg: Consider advising your clients to shift a portion of the portfolio into products that offer predictable growth and/or income. This can help eliminate some challenges for pre-retirees by allowing them to grow their savings and not be subject to ongoing market volatility.

Pursue higher risk-free earnings: With interest rates up on products like savings accounts and CDs, leveraging higher risk-free returns could help your retired clients bridge the gap between accumulation and distribution. In addition, today’s higher interest rates make it more worth considering products that offer guaranteed income, like payout annuities and guaranteed minimum withdrawal benefits on variable annuities, that solve for the risk many retirees face of outliving their retirement savings.

Explore alternative fixed-income investments: During periods of market volatility, people may want to explore low or no-risk products like a multi-year guarantee annuity or MYGA. Because it offers predictable returns, a MYGA is especially helpful for pre-retirees and retirees who want to grow their nest eggs during a period when they’re approaching or already living on a fixed income. And unlike a product like a CD, a MYGA offers accumulation and distribution options packaged into one product. This can give your clients increased flexibility and enable them to balance risk, reward, and access to their money more effectively based on their unique financial needs.

Factor in tax efficiency: A high interest-rate environment creates an opportunity for everyone to evaluate their retirement plan, make it more income-tax-efficient and potentially increase their total spendable income. With higher interest rates, there is an opportunity to use a product like a MYGA to have the earnings potential of a tax-deferred investment like a 401(k) without being susceptible to market fluctuations. Investors can then potentially reap the benefits of the market with a more aggressive “tax never” account like a Roth IRA.

Providing the right financial solutions, paired with actionable advice that aligns to your client’s goals, is the best way to help them navigate this high interest rate environment. As a financial advisor, be proactive in guiding your clients during this period, and help them adapt to these circumstances in a way that allows them to achieve their most important financial goals.

Mike DeKoning is senior vice president of insurance and wealth management solutions at Thrivent.