Go look up your bond fund's duration. It reveals the hidden risk sitting in your retirement account.

Bonds are considered a safe choice, but the investments, and their terms, still need to be reviewed in a retirement portfolio.

Whether you're retired already or are planning to retire one day, if you're doing everything right, you almost certainly own bonds. Almost everybody owns them for the same reason: They're the "safer" part of a portfolio.

They're the ballast, the part that isn't supposed to move much no matter what the stock market does.

Government bonds feel safest of all, because they're backed by the U.S. government. For most people that ends the conversation. The government is good for it. And while that's a fair sentiment, it still isn't enough. Right now the bond market is acting in a way it hasn't in two decades, and a lot of people are going to be caught off guard by what that means for the safe part of their money.

Earlier this month, the U.S. government paid 5.216% to borrow money for 30 years, the most it has paid since 2001. Six days later the Treasury Department did something it almost never does. It threw out the schedule it had published two weeks earlier and started buying back long-term bonds in an effort to push the rate down. The same day, the national debt passed $40 trillion for the first time.

It worked for about a day. By Friday the rate was right back where it started.

This isn't just about bonds, though. For anyone within 10 years of retiring, this affects your future.

Some people buy bonds directly. Most own them inside a retirement account, in a bond fund or an exchange-traded fund, and that difference can make the problem worse rather than better. Buy a bond yourself and there's a date on it when you get your money back. A fund has no such date, and you don't decide when anything inside it gets sold.

The good news

Higher interest rates are good for people who are living on savings. I don't want to bury that under caveats. Higher interest rates are the most important thing to have happened to conservative investors in 15 years.

Careful savers saw years of historically low interest rates erode the income they once relied on from CDs and money-market accounts. Many retirees who preferred to avoid risk were pushed toward higher-yielding investments just to generate the income that safer options once provided.

That era is over. A retiree today can generate more income from the same balance in conservative, interest-bearing investments than at any point since the financial crisis, although inflation reduces some of that increased purchasing power.

So nothing here is an argument against bonds. Bonds belong in nearly every retirement portfolio I've seen in almost 30 years of doing this. My argument is based on one decision about bonds: how long you agree to wait for your money.

The Fed doesn't set this rate

Most people believe the Federal Reserve sets interest rates. In fact, it sets one: the overnight rate banks charge each other, which affects savings accounts, money markets and short-term Treasury bills.

The 30-year bond BX:TMUBMUSD30Y is priced by whoever shows up to buy it. Lately buyers have been demanding a lot more interest to lend the government money. On Aug. 13, the Treasury Department sold $25 billion of 30-year bonds and had to pay 5.216% to get it done, the most the government has paid to borrow since 2001. The 10-year auction the day before cost it the most since 2007.

The buyers were there. They wanted more interest than they used to.

Nobody knows how much further this goes, and anyone who tells you they do know is guessing. The 30-year yield hit 15.21% in October 1981 - a reminder that 5% is not a ceiling, and that the range of what's possible is a lot wider than a decade of near-zero rates taught anyone to expect.

Why are buyers asking for more? The debt. The government owes more than $40 trillion and keeps borrowing to cover what it spends. When you lend money for 30 years, the danger isn't that the government fails to pay you back. It's that inflation makes those payments worth a lot less by the time they show up. The more the government borrows, the more people worry about inflation, and the more interest they want before they'll hand over the money.

If you still believe the Fed drives this, look at the last time it tried. J.P. Morgan found that in the seven Fed interest-rate-cutting cycles going back to the 1980s, the 10-year yield was lower 100 days after the first rate cut every single time. The Fed cut a full percentage point between September and December 2024, and the 10-year yield went up more than a full point instead.

Fed Chair Kevin Warsh said it plainly at last month's press conference. Investors, he said, are learning to "play the ball, not the referee."

30 years is a strange thing to commit to

My worry isn't a rate forecast. I don't have one, and I'd be careful with anyone selling you theirs.

It's that a 30-year bond bought this month matures in 2056. Consider what else in your life runs that long. Your mortgage, if you never refinance, and most people refinance twice. Almost nothing else.

To understand what you're agreeing to, look backward instead of forward. Thirty years ago was 1996. Since then we've had the dot-com crash, September 11th, two long wars, the 2008 financial crisis, most of a decade with interest rates near zero, trillions of dollars printed to get through it, a global pandemic, and the worst inflation in 40 years. Somebody who bought a 30-year bond in 1996 sat through every one of those, and the terms of that bond never moved once.

Now run it the other direction. Whatever shows up between now and 2056 - another bout of inflation, another war, another pandemic, another round of money printing - your bond pays exactly what it promised the day it was issued. That's the deal. You're locking in today's rate against 30 years of things nobody can see coming.

The scenario I keep coming back to isn't a bond selloff or a stock-market crash. It's the two arriving together.

That's rare, which is exactly why nobody plans for it - and then 2022 happened. Stocks down, bonds down, in the same 12 months. Nothing worked.

Now put a portfolio sitting way out on the calendar into that year. Stocks are off sharply, and you don't want to sell them there. Long rates have risen, so the bonds are underwater too. And the roof needs replacing.

Count the exits: Sell stocks, and you've locked the loss at the bottom. Sell the long bonds, and you've locked a loss that may be bigger. Sit tight, and you're living on the coupon with no way to reposition and nothing maturing soon enough to bail you out.

You didn't make a bad forecast. You ran out of moves.

That's the real cost of reaching too far out, and no yield comparison will show it to you. Short maturities aren't better because they pay more. They pay less, usually. What they give you is that things mature. Cash comes back. You reinvest at whatever rates have become, or cover the roof, or buy stocks that just went on sale.

Why the math is different once you stop working

There's one more reason this lands harder on retirees.

When markets fell while you were working, it hurt. You looked at the statement, you felt awful and then you did nothing, and your portfolio balance rebounded. That only worked because you weren't taking anything out. A loss you don't sell is just a number on a page.

Retirement changes that. You're withdrawing now, and a withdrawal taken during a decline doesn't behave like a simple loss. Those dollars are gone from the account. They aren't there for the recovery.

A bad market at age 45 is a delay. A bad market at age 70, when you're pulling money out of your accounts, is permanent.

Planners call this the sequence-of-returns risk, which is a clumsy name for something simple. Two people retire on the same day with the same balance and earn the identical average return over 30 years. One dies wealthy, and one runs out of money at 84. The only difference is the order the good and bad years showed up in. One of them withdrew when the markets were doing well. One of them had to withdraw while the account balance was dropping from a downturn. Nobody gets to pick the order.

The safe half of your portfolio - typically made up of bonds and other conservative investments - has one job. It's the money you spend in the ugly years so you aren't forced to sell stocks at the bottom. That's why the types of bonds and other investments you hold on the safe side matter. If that part of your portfolio is also down when you finally need it, you paid for insurance that didn't cover the claim.

Go look up two numbers

All of this comes down to one figure called duration, and it's easier than it sounds.

Duration tells you two things.

First, it tells you how long you will wait to get your money back, on average. Not the maturity date. The average, because a bond pays you interest along the way, so some of your money comes back early. Second, it tells you roughly how much the price will fall if rates rise 1 percentage point.

Basically, the longer you wait, the more the price moves while you're waiting.

So it's a trade, and it's a fair one either way. Longer bonds pay you more interest. If you have to sell before you're paid back, the loss is big. Shorter bonds pay you less and what you get in exchange is the ability to act sooner if necessary.

If you're looking up bond-yield comparisons, that second part never shows up. You aren't only buying an interest rate. You're buying, or selling, the ability to change your mind.

MW Buying 30-year bonds? Locking in today's rates could hurt your retirement planning.

By Kurt Supe

Go look up your bond fund's duration. It reveals the hidden risk sitting in your retirement account.

Bonds are considered a safe choice, but the investments, and their terms, still need to be reviewed in a retirement portfolio.

Whether you're retired already or are planning to retire one day, if you're doing everything right, you almost certainly own bonds. Almost everybody owns them for the same reason: They're the "safer" part of a portfolio.

They're the ballast, the part that isn't supposed to move much no matter what the stock market does.

Government bonds feel safest of all, because they're backed by the U.S. government. For most people that ends the conversation. The government is good for it. And while that's a fair sentiment, it still isn't enough. Right now the bond market is acting in a way it hasn't in two decades, and a lot of people are going to be caught off guard by what that means for the safe part of their money.

Earlier this month, the U.S. government paid 5.216% to borrow money for 30 years, the most it has paid since 2001. Six days later the Treasury Department did something it almost never does. It threw out the schedule it had published two weeks earlier and started buying back long-term bonds in an effort to push the rate down. The same day, the national debt passed $40 trillion for the first time.

It worked for about a day. By Friday the rate was right back where it started.

This isn't just about bonds, though. For anyone within 10 years of retiring, this affects your future.

Some people buy bonds directly. Most own them inside a retirement account, in a bond fund or an exchange-traded fund, and that difference can make the problem worse rather than better. Buy a bond yourself and there's a date on it when you get your money back. A fund has no such date, and you don't decide when anything inside it gets sold.

The good news

Higher interest rates are good for people who are living on savings. I don't want to bury that under caveats. Higher interest rates are the most important thing to have happened to conservative investors in 15 years.

Careful savers saw years of historically low interest rates erode the income they once relied on from CDs and money-market accounts. Many retirees who preferred to avoid risk were pushed toward higher-yielding investments just to generate the income that safer options once provided.

That era is over. A retiree today can generate more income from the same balance in conservative, interest-bearing investments than at any point since the financial crisis, although inflation reduces some of that increased purchasing power.

So nothing here is an argument against bonds. Bonds belong in nearly every retirement portfolio I've seen in almost 30 years of doing this. My argument is based on one decision about bonds: how long you agree to wait for your money.

The Fed doesn't set this rate

Most people believe the Federal Reserve sets interest rates. In fact, it sets one: the overnight rate banks charge each other, which affects savings accounts, money markets and short-term Treasury bills.

The 30-year bond BX:TMUBMUSD30Y is priced by whoever shows up to buy it. Lately buyers have been demanding a lot more interest to lend the government money. On Aug. 13, the Treasury Department sold $25 billion of 30-year bonds and had to pay 5.216% to get it done, the most the government has paid to borrow since 2001. The 10-year auction the day before cost it the most since 2007.

The buyers were there. They wanted more interest than they used to.

Nobody knows how much further this goes, and anyone who tells you they do know is guessing. The 30-year yield hit 15.21% in October 1981 - a reminder that 5% is not a ceiling, and that the range of what's possible is a lot wider than a decade of near-zero rates taught anyone to expect.

Why are buyers asking for more? The debt. The government owes more than $40 trillion and keeps borrowing to cover what it spends. When you lend money for 30 years, the danger isn't that the government fails to pay you back. It's that inflation makes those payments worth a lot less by the time they show up. The more the government borrows, the more people worry about inflation, and the more interest they want before they'll hand over the money.

If you still believe the Fed drives this, look at the last time it tried. J.P. Morgan found that in the seven Fed interest-rate-cutting cycles going back to the 1980s, the 10-year yield was lower 100 days after the first rate cut every single time. The Fed cut a full percentage point between September and December 2024, and the 10-year yield went up more than a full point instead.

Fed Chair Kevin Warsh said it plainly at last month's press conference. Investors, he said, are learning to "play the ball, not the referee."

30 years is a strange thing to commit to

My worry isn't a rate forecast. I don't have one, and I'd be careful with anyone selling you theirs.

It's that a 30-year bond bought this month matures in 2056. Consider what else in your life runs that long. Your mortgage, if you never refinance, and most people refinance twice. Almost nothing else.

To understand what you're agreeing to, look backward instead of forward. Thirty years ago was 1996. Since then we've had the dot-com crash, September 11th, two long wars, the 2008 financial crisis, most of a decade with interest rates near zero, trillions of dollars printed to get through it, a global pandemic, and the worst inflation in 40 years. Somebody who bought a 30-year bond in 1996 sat through every one of those, and the terms of that bond never moved once.

Now run it the other direction. Whatever shows up between now and 2056 - another bout of inflation, another war, another pandemic, another round of money printing - your bond pays exactly what it promised the day it was issued. That's the deal. You're locking in today's rate against 30 years of things nobody can see coming.

The scenario I keep coming back to isn't a bond selloff or a stock-market crash. It's the two arriving together.

That's rare, which is exactly why nobody plans for it - and then 2022 happened. Stocks down, bonds down, in the same 12 months. Nothing worked.

Now put a portfolio sitting way out on the calendar into that year. Stocks are off sharply, and you don't want to sell them there. Long rates have risen, so the bonds are underwater too. And the roof needs replacing.

Count the exits: Sell stocks, and you've locked the loss at the bottom. Sell the long bonds, and you've locked a loss that may be bigger. Sit tight, and you're living on the coupon with no way to reposition and nothing maturing soon enough to bail you out.

You didn't make a bad forecast. You ran out of moves.

That's the real cost of reaching too far out, and no yield comparison will show it to you. Short maturities aren't better because they pay more. They pay less, usually. What they give you is that things mature. Cash comes back. You reinvest at whatever rates have become, or cover the roof, or buy stocks that just went on sale.

Why the math is different once you stop working

There's one more reason this lands harder on retirees.

When markets fell while you were working, it hurt. You looked at the statement, you felt awful and then you did nothing, and your portfolio balance rebounded. That only worked because you weren't taking anything out. A loss you don't sell is just a number on a page.

Retirement changes that. You're withdrawing now, and a withdrawal taken during a decline doesn't behave like a simple loss. Those dollars are gone from the account. They aren't there for the recovery.

A bad market at age 45 is a delay. A bad market at age 70, when you're pulling money out of your accounts, is permanent.

Planners call this the sequence-of-returns risk, which is a clumsy name for something simple. Two people retire on the same day with the same balance and earn the identical average return over 30 years. One dies wealthy, and one runs out of money at 84. The only difference is the order the good and bad years showed up in. One of them withdrew when the markets were doing well. One of them had to withdraw while the account balance was dropping from a downturn. Nobody gets to pick the order.

The safe half of your portfolio - typically made up of bonds and other conservative investments - has one job. It's the money you spend in the ugly years so you aren't forced to sell stocks at the bottom. That's why the types of bonds and other investments you hold on the safe side matter. If that part of your portfolio is also down when you finally need it, you paid for insurance that didn't cover the claim.

Go look up two numbers

All of this comes down to one figure called duration, and it's easier than it sounds.

Duration tells you two things.

First, it tells you how long you will wait to get your money back, on average. Not the maturity date. The average, because a bond pays you interest along the way, so some of your money comes back early. Second, it tells you roughly how much the price will fall if rates rise 1 percentage point.

Basically, the longer you wait, the more the price moves while you're waiting.

So it's a trade, and it's a fair one either way. Longer bonds pay you more interest. If you have to sell before you're paid back, the loss is big. Shorter bonds pay you less and what you get in exchange is the ability to act sooner if necessary.

If you're looking up bond-yield comparisons, that second part never shows up. You aren't only buying an interest rate. You're buying, or selling, the ability to change your mind.