Author Topic: Retirement Timing and the Fed Rate Increase  (Read 2963 times)

CestMoi

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Retirement Timing and the Fed Rate Increase
« on: June 05, 2015, 01:19:18 PM »
I'm considering pulling the full-time work plug sometime this fall. If the Fed begins to raise rates around that time, does that make it a bad time to consider retiring? If you were considering retiring before next year, would you be concerned?

Thanks in advance.

TN_Steve

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Re: Retirement Timing and the Fed Rate Increase
« Reply #1 on: June 05, 2015, 01:40:01 PM »
I'm considering pulling the full-time work plug sometime this fall. If the Fed begins to raise rates around that time, does that make it a bad time to consider retiring? If you were considering retiring before next year, would you be concerned?

Thanks in advance.

You should have enough margin built in to handle something like this before making the jump.  Otherwise, what if you retired and the rates went up next year, or the year after?  Thus, wouldn't concern me if that, or other turbulence, were to pop up in the months before we quit.

matchewed

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Re: Retirement Timing and the Fed Rate Increase
« Reply #2 on: June 05, 2015, 02:21:04 PM »
Rather than look at it from the should I be concerned side of things you should look at it another way(s). The first is what is the effect of raised interest rates? Then how does that affect my plan?

That is a better way of analyzing the impact of raised rates. Another way is to consider that the fundamentals behind your plan (assuming you're doing the whole 4% SWR, have planned appropriately, built in fat to cut or have some other back up plans) already have either redundancies built into them or have back up scenarios and you'll be okay. If you don't have any of those things well maybe you should...

MDM

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Re: Retirement Timing and the Fed Rate Increase
« Reply #3 on: June 05, 2015, 02:27:41 PM »
Also consider the basis of the 4% SWR: https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/.  As long as we don't have a new "worst ever" situation in the next several years you should be ok (assuming you are ok under a 4% withdrawal rate analysis).

CestMoi

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Re: Retirement Timing and the Fed Rate Increase
« Reply #4 on: June 05, 2015, 02:57:58 PM »
Good comments.

As long as we don't have a new "worst ever" situation in the next several years you should be ok (assuming you are ok under a 4% withdrawal rate analysis).

-My plan will use less than a 4% withdrawal rate; and I have some fat margin built in, but maybe not enough to easily weather another 2007 financial crisis. Much of what I've read about the rate increase doesn't seem to indicate it will turn into another financial crisis. But recently I've found myself worrying about it, even though personally I wish rates had started to be raised before this.

I have a backup plan, since I'll probably be using my professional skills fairly regularly. I can plan on doing that even if it doesn't seem necessary.

seattlecyclone

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Re: Retirement Timing and the Fed Rate Increase
« Reply #5 on: June 05, 2015, 03:03:14 PM »
What rate increase? We bought a house five years ago. We got a 15-year mortgage with 4.25% interest. At the time, people were saying that interest rates were insanely low and were bound to go up any day now. Rates have only gone down since then. I'll believe in a rate increase when I see it, not before. I certainly won't delay my retirement on rumors or speculation regarding a possible increase. That seems to make just as much sense as delaying your retirement because you've heard the stock market will have a correction in a couple of months. Sure, that could happen, but so could any number of other things. As long as the next few decades aren't the worst ever, a 4% withdrawal rate will work out just fine even if interest rates go up the day after you retire.

arebelspy

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Re: Retirement Timing and the Fed Rate Increase
« Reply #6 on: June 05, 2015, 03:17:49 PM »
Assuming you don't have an ARM, why would higher rates be bad for you?

You really think they'll stifle the economy that much?  Or will they give you better fixed rate investment options?
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