Investing for retirement in a world of Fed rate cuts: How to tackle cash, inflation and longevity risk

If you grew up in the ‘90s, you might remember the final challenge of “Nickelodeon Guts”: the Aggro Crag – a glowing, fog-spewing mountain full of surprises. Investing for retirement in today’s market can feel just as unpredictable, with plenty of twists, turns and hidden risks along the way.

With the Fed lowering interest rates, the “base camp” for cash is getting lower and lower. The question on everyone’s mind: How much further can rates drop? Following the Federal Reserve’s (Fed) September cut of 25 basis points, we expect another 75 basis points over the next year before we approach the “neutral” zone. But here’s the catch – sometimes, standing still (or clinging to excess cash) can be the riskiest move of all. In the world of investing, the obstacles aren’t foam boulders – they’re inflation, longevity and reinvestment risk, and they can knock you off course on your way to your goals.

Inflation can sneak up on your portfolio, making it harder to see your next move. In recent months, rising prices – fueled in part by tariffs – have made the path forward less clear. Even if things settle down next year, inflation is still lurking in the background. The Fed’s projections for 2026 anticipate higher inflation as tariffs continue to push consumer prices upward, though these effects are expected to be temporary. The challenge is that every dollar kept in cash loses a bit of its strength each year, making it harder to reach your goals. While cash is helpful for short-term needs, holding too much can leave you stuck, unable to see your way forward.

People are living longer than ever. For a healthy couple, there’s a 73% chance at least one will reach 90, and a one in five shot at hitting 100. That’s a lot of time to keep climbing! This is longevity risk – the chance you’ll outlive your assets. If you plan for “average” life expectancy, you might run out of steam before you reach your destination. The solution? Build a multi-decade strategy, diversify your sources of retirement income and don’t put all your eggs in one basket.

Sometimes, the market throws a curveball. If you’re holding cash and waiting for the “perfect” moment, you might end up reinvesting at lower rates or missing out on market rebounds. With the Fed restarting its rate-cutting cycle and moving toward a neutral rate, yields on cash are likely to decline further. Locking in yields with high-quality bonds or diversifying internationally can help you avoid getting stuck on a slippery slope.

Like picking your path up a mountain, some things are in your hands, and some aren’t. You can’t control market returns, geopolitics or tax policy. But you can control your saving and spending habits, your asset allocation and your willingness to stay invested. Saving is great, but investing is what helps you reach those long-term goals – especially when you’re planning for 30 or more years of retirement.

Winning on “Nickelodeon Guts” wasn’t just about being the fastest or the strongest – it was about having a strategy, staying focused and adapting to every challenge. The same goes for investing. The market will have its ups and downs (the S&P 500 has survived five recessions, a global pandemic and nearly 4,000 pullbacks of 5% or more in the last 40 years – and still found new highs). The key is to stay invested, stay diversified and keep your eyes on the summit.

If you’re feeling overwhelmed, don’t hit the panic button – reach out to your advisor. Together, you can build a plan that helps you dodge the obstacles, avoid the fog and reach your retirement goals.

All market and economic data as of 09/22/2025 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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