When I started working in the 1980s, I calculated that I could retire on $1 million invested at 5% interest. After all, that was 150% of my starting salary. Of course, interest rates even went higher, making a million dollars a good goal.
From 2009 to 1019, it looked like retirement was going to require significant more investment funds, when interest rates dropped below 0.5% for CDs. Then having a million dollars didn't look so good as a retirement plan since it would only yield less than $5,000 per year. The path to retirement looked dismal.
Then in 2019 interest rates starting rising, with rates peaking in 2023 to 2025 at about 5%. that means a million dollars now yield $50,000 per year instead of only $5,000. It also means less retirement savings is needed to retire comfortably.
While interest rates may still go up, I'm locking in 4-5% interest rates on part of our savings for 10-20 years through Treasury bonds and CDs. Yes, interest rates rising and inflation are a risk, but the bigger risk for us is interest rates going back to 1% or less for an extended period.
Here's my simple logic. If rates go up, I can always reinvest maturing bonds at the higher rate. If rates go down, I have to reinvest as at a lower rate, which makes this the higher risk option. So I am scaling in to long term fixed rated bonds and CDs over the next few weeks and months.
This is not financial nor investment advice. Please consult a professional advisor.
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