In March 2022, the Federal Reserve aggressively raised interest rates, reaching 5.25% to 5.5%. By late 2024, rates began to come down in three 0.25% increments, with a mid-September cut of 0.25% due to a stalling job market.

Changes in interest rates affect businesses, mortgages, prices, and markets, impacting retirement savings like 401(k) and Roth IRAs. The Federal Reserve aims to stabilize inflation and maximize employment across the country, making decisions based on the U.S. economy’s long-term interests.

When the Federal Reserve lowers the target interest rate, businesses and consumers benefit, but saving becomes less attractive. Lower rates stimulate economic growth, making it cheaper to take on mortgages or car loans. However, banks lower interest on savings accounts and CDs, prompting many to spend or invest instead of saving.

Investors in stocks through retirement accounts may benefit from rate cuts as businesses borrow at lower rates and consumers spend more. Retirees watching their portfolios rise may need to adjust their investment strategies to avoid losses when the market corrects.

Some retirees invest in fixed-income assets like bonds. A rate cut can make existing bonds more valuable as new bonds offer lower interest rates. Those with CDs may see returns drop with rates, leading to caution when considering new investments given the expected continued drop in rates.

Maintain financial security during rate cuts by avoiding drastic changes to your retirement portfolio. With more rate cuts expected, consider buying bonds now to capitalize on fixed-income payments before returns drop. Diversify your investment portfolio to withstand volatility and keep your finances stable through any interest rate environment.

Read more at Yahoo Finance: What Falling Interest Rates Could Mean for Your 401(k) and IRA Into 2026