In a recent newsletter by the Association Retired Employees of Northeast Utilities (ARENU) , we wrote about the popular Fixed Account in their 401(k) plan at Fidelity that many NU retirees use. After the article went to press, a major development occurred: The interest rate on the fixed account decreased from 3.5% to 2.75%. That decline is steep – well over a 20% reduction, and it raises a lot of flags for us:
- The rate has dropped below the long term average inflation figure of 3%. That means the cost of living could outpace the income generated in the fixed account. Retirees who are withdrawing interest on a regular basis will see their income decline.
- The rate decreased at a time when interest rates elsewhere are holding steady or even increasing. This may be an indication of subpar rates for the foreseeable future in the fixed account.
- This change has significantly reduced the fixed accounts relative appeal. Now, there are many strategies that are just as competitive as the fixed account and in some cases offer additional benefits.
If you’re concerned about how this change will affect you, please contact us for a meeting. We can work with you to identify a strategy to meet your needs or fill the gap that this rate change caused.