For Retirees, Interest Rates & Inflation Remain Risks

The last two years brought challenges for investors across all walks of life, but particularly for retirees. Soaring inflation and interest rates resulted in a rising cost of living and ongoing market volatility. This left many investors hedged in cash and forced to weather the storm through any means necessary.

According to the Natixis Investment Managers’ 2024 Global Retirement Index report, the specters of inflation and interest rates still loom large for retirees. The report includes findings from a recent survey that included 8,550 individual investors across 23 countries and highlighted the risks retirees and those saving for retirement still face.

The Interest Rate Cash Trap for Retirees

An environment of historically low rates created several challenges for retirees in the last 15 years. Elevated rates drove bond yields higher in the last two years (bond prices and yields move inverse). While it brought income back to fixed income allocations, it also resulted in many people hedging their risk in cash, money markets, certificates of deposit, and other instruments similar to cash. Natixis notes that over $6 trillion was invested in money markets as of June 2024.

The risk now becomes that investors remain in these overallocations and the long-term potential impacts on income.

“Interest rates have been among the greatest risks to retirement security since the Natixis Global Retirement Index was introduced in 2012,” Natixis wrote. “But with rates at or near 15-year highs, many may be sacrificing a sustainable long-term income for short-term security presented by cash.”