Updated July 2025

Change provokes fear and vulnerability for both parents and caregivers alike. The year 2025 is marked by change from many directions. Some of the changes we are experiencing this year are:

• High interest rates. High interest rates hurt bond portfolio values immediately, equity portfolios eventually and real estate values in the long run. On the flip side, we are now earning a bit more interest income on our money market accounts each month and when our CDs mature we can look forward to higher yields.
• Volatility in the stock market. American stock markets experienced volatile swings in late 2017 and early 2018, as well as during the pandemic. Markets stabilized until tariff announcements caused stock prices to roil in March and April 2025. Stock prices have been on a bumpy ride since those months, enjoying recoveries and erosions that reflect uncertainty about tariff policy and the economy’s overall health. Volatility is scary if you look at your portfolio value every day, but in the long run volatility is an investor’s friend. It reminds investors that all investments have risk. Investors get into trouble, and markets experience bubbles, when investors take on too much risk. Volatility brings cautiousness back and, with it, prudence for the wise investor.
• Income tax laws have changed this year. While many people are expecting, or hoping, for a reduction in their income tax obligation, we really won’t know how we fared until next April when our tax returns are due. Some workers will avoid taxation on tips and overtime hours, although those tax breaks are scheduled to expire in four years. Seniors who do not itemize deductions might benefit from a temporary increase in their standard tax deduction. Taxpayers in states with high tax rates will enjoy a temporary increase in the deduction for state and local taxes. The largest beneficiaries of recent tax policy are wealthy individuals and large corporations. Whether their tax breaks will improve the performance of stock market investments is unclear, given the fear associated with the increased federal debt that is paying for them.
• “Headline Risk” is the risk of making emotionally driven decisions due to the constant fear promoted by traditional and social media sources. We need to remember those sources are not motivated to help you enjoy a peaceful retirement. Their motivation is to create so much fear in us that we become dependent (like a news junkie) on following them. That is how they get advertisers to support them, which drives them to scare us even more.
• Inflation is back in consideration. Inflation spiked worldwide after the pandemic, thanks to supply chain disruptions and a shift of demand from goods to services. While post-pandemic government spending propped up the American economy, it also contributed to higher prices. The inflation rate began a sharp decline in the last half of 2022 that generally continued to fall through the end of 2024, albeit not fast enough to appease a buying public that had grown weary of high prices. While it is too early to know the full impact of ever-changing tariff policies on inflation, there are signs that prices are again rising. Several factors are igniting inflation

1. 1. Tariff policy. Tariffs are a tax on imports. When the American government imposes a tariff on goods imported from another nation, American importers pay that tax. Economists expect most of that added cost to be passed along to consumers after inventories of goods imported before the tariffs took effect are exhausted.
   2. Continuing strength in the labor market. As the employment market strengthens, employees can demand higher wages and benefits.
   3. The aforementioned tax reductions mean less dollars going to the government and more for people to spend. Increased spending means more demand for goods and services, which puts upward pressure on prices.
   4. Federal Reserve policy. The Fed tries to put the brakes on inflation by fixing the federal funds interest rates at a level that discourages runaway spending without hurting job growth. Threats to replace the Fed chair with someone who will stimulate the economy by reducing interest rates may contribute to rising inflation.

Staying Focused on Retirement Needs

In times of such change, particularly when you are retired and living on a fixed income, it is crucial to stay focused on your needs and goals rather than watching the financial headlines. To get the most from your retirement portfolio, we encourage you to review your situation:

• Your will, trusts, health directives and other estate plans.
• Insurance coverages such as Medicare supplemental plans, life insurance, homeowners policy (including personal property such as art, jewelry, etc.), auto coverage and liability insurance.
• Hopefully you reviewed and adjusted your investment portfolio early in the year, which would have helped you avoid the volatility we have experienced in the markets since February.
• A budget. Do you REALLY know where your money is going?

While change brings a sense of vulnerability and possibly fear, we are more resilient than we give ourselves credit.  Keep in mind the Serenity Prayer:

“God grant me the Serenity to accept the things I cannot change,
the Courage to change the things I can, and
the Wisdom to know the difference!”

(This article was reviewed July 2025 since it originally published May 2018.)