NerdWallet’s Smart Money Podcast

Episode: Why Refis Are Spiking and How to Optimize Your 401k Target-Date Fund for Long-Term Growth
Date: September 4, 2025
Hosts: Sean Pyles, CFP®, Elizabeth Ayoola
Guests: Ana Helhoski, Kate Wood, Holden Lewis, June Sham

Brief Overview

This episode unpacks two major personal finance topics. First, the Nerds tackle why mortgage refinancing (refis) is on the rise even though overall home sales are slow, exploring both the numbers and the motivations behind current refi trends. Second, they answer a listener’s question about target-date funds—explaining what these funds are, how to optimize them for long-term retirement growth, and how to know if they’re the right choice for your 401k plan. The episode is rich with actionable tips, practical analogies, and insights tailored for both homebuyers and retirement investors.

Key Discussion Points & Insights

1. Mortgage Refinancing Spike: What’s Happening and Why?

[02:36 – 13:15]

Current Market Trends

• Home mortgage refinancing is seeing a spike, despite the Federal Reserve holding rates steady since late 2024.
• Kate Wood: "About half of mortgages are refinances now. That's not a ton of mortgages, because hardly anyone is getting a mortgage nowadays ... but refinance is getting a lot of interest." (03:01)
• Volume is low overall due to slow home sales, but refis make up a larger share.

Who Should Consider Refinancing?

• The classic rule of thumb: If you can lower your mortgage rate by at least 0.75 percentage points, it may be time to consider a rate-and-term refinance.
• Don’t forget closing costs, typically 2–6% of the loan amount. For example, on $300,000, that means $6,000–$18,000. You only save money if you’ll be in the house long enough to reach the break-even point.
• Holden Lewis: "If your goal is to save money, you're not really saving until the amount you've saved from your rate drop is greater than what you spent to do so. We call that the break-even point." (04:21)

Who Actually Benefits Right Now?

• Best candidates are those who locked in at higher rates—specifically between August and December 2023 (when rates hit 7.25–7.75%) or for a couple weeks in April/May 2024.
• For most others, refis won't immediately save money through lower interest rates.

Why the Refi Spike If Not for Lower Rates?

• Trend flip: The spike is actually driven by “cash-out” refinances, not just rate-and-term.
• 60% of refinances now are cash-out, where homeowners pull equity from their home for renovations, debt consolidation, or as part of divorce settlements.
• Kate Wood: “Some people are replacing their current mortgage with a mortgage with an even higher rate ... but it might help them free up cash for renovations or paying off higher interest debt.” (09:35)

The Fed, Rates, and Mortgage Markets

• Fed policy doesn’t set mortgage rates directly—those follow bond markets, which react in real time to economic signals and sometimes just to “vibes.”
• Holden Lewis: “Mortgage rates go off of what the markets are doing ... sometimes it kind of feels like rates are going off of vibes.” (11:16)
• If the Fed cuts rates, don’t expect an immediate or dramatic change in mortgage rates—they tend to move ahead of Fed actions.

Memorable Analogy

• Kate Wood: "I always compare mortgage rates to like a reactive dog ... they bark at everything. The Fed is like the opposite dog—quiet, like a cat. By the time the Fed acts, mortgage rates have usually already moved." (12:19)

2. Listener Money Question: Target Date Funds for 401k

[15:21 – 27:21]

Jay’s Question

Jay, age 35, is in a 2055 401k target-date fund, contributing $200/month with a $29,000 balance. He asks:

• If he wants to work past 2055, should he change funds now or later?
• Is he behind on retirement savings with his current situation (income: $55,000 after tax, no 401k at his part-time job)?

What Are Target-Date Funds?

• Designed to be “set it and forget it”: They choose and adjust your portfolio automatically as you approach a specific retirement year.
• Early on, investments are more aggressive (in stocks); as retirement nears, they get more conservative (bonds, etc.), rebalancing over time.
• June Sham: "Target-date funds ... do two things for you: choose your investments and adjust the allocation ... over time as you get closer to your target date." (16:19)

Pros & Cons

• Pros: Simplicity, hands-off, professional allocation and automatic risk reduction over time.
• Cons: Less flexibility; may not reflect your personal risk tolerance; potentially higher fees than low-cost index funds.
• June Sham: “Fees and expenses for target date funds can be higher than other investment options ... industry average was 0.29% in 2024, but there are some lower-fee options." (17:50)

When to Switch Target Date Funds

• Small differences (retiring a year after 2055) are negligible. But if you expect to retire 5+ years later, your fund could get too conservative, too soon, potentially missing out on growth.
• Look at each fund’s “glide path”: Does it freeze in a conservative mix at the target year (“to” retirement) or continue adjusting after (“through” retirement)?
• June Sham: "If [Jay] plans to retire five years after 2055, the fund might become too conservative too early ... A 'through' glide path could provide more flexibility." (18:52)

Practical Advice for Jay

• You’re not locked in—can switch funds closer to retirement as plans become clearer.
• Consider the fund’s glide path and your anticipated retirement date every few years, especially as you approach it.
• Sean Pyles: "Investing for retirement doesn't stop once you retire ... continue investing so your money can keep up with inflation." (20:20)

Are You Behind on Retirement Savings?

• Some benchmarks: At 35, shoot for 1–1.5x your salary saved for retirement (i.e., $55k–$83k at Jay’s age). Jay has $29k, so not at the benchmark—but the median American has much less.
• Sean Pyles: “Median savings for under 35 is under $19,000; 35–44 is $45,000.” (25:21)
• Benchmarks are guidelines, not hard rules. Focus on progressing toward your own goals.

Other Retirement Investment Options

• Most 401ks and IRAs offer: mutual funds (professional management), index funds (track major market indexes), ETFs (trade like stocks), plus the option of individual stock/bond picking.
• June Sham: “Target date funds are great for hands-off investing, but you can choose mutual funds, index funds, ETFs, or stocks and bonds if you want to build and manage your own portfolio.” (21:56)

Real-Life Investing Habits

• All three investment pros (hosts and guest) have their own retirement savings in target-date funds, citing simplicity and peace of mind.
• Elizabeth Ayoola: "I am also a lazy investor, so it's nice to know that the fund does the work for me." (22:40)

How Much to Contribute

• General advice: Save 10–15% of pre-tax income for retirement; or aim to replace 80% of your annual income in retirement.
• Use a retirement calculator to gauge your progress.
• Adapt based on your needs and circumstances.

Encouragement for Late Savers

• It’s never too late. Awareness lets you make new plans, even if the catch-up is gradual.
• June Sham: “Benchmarks can help when defining goals, but they should not be your goals ... Everyone has a different idea of retirement.” (26:03)
• Stay focused on what you can control, be patient, and ask for help if needed.

Notable Quotes & Memorable Moments

• [03:01] Kate Wood: “About half of mortgages are refinances now ... a bigger piece of a shrunken pie.”
• [04:21] Holden Lewis: “You’re not really saving until the amount that you've saved from your rate drop is greater than what you spent ... That's the break-even point.”
• [09:35] Kate Wood: “Some people are replacing their mortgage with a higher rate ... to pay off 21% credit card debt at 7% instead.”
• [11:16] Holden Lewis: “Mortgage rates ... sometimes it kind of feels like rates are going off of vibes.”
• [12:19] Kate Wood: “Mortgage rates are like a reactive dog; the Fed is like a quiet cat.”
• [16:19] June Sham: “Target date funds are a set-it-and-forget-it solution, great if you're not a hands-on investor.”
• [18:52] June Sham: “A 'through' glide path could provide more flexibility if you work past your targeted retirement date.”
• [22:40] Elizabeth Ayoola: “I am also a lazy investor, so it's nice to know the fund does the work for me.”
• [26:03] June Sham: “Benchmarks can help when defining goals, but they should not be your goals ... focus on your personal number.”

Timestamps for Important Segments

• [02:36] Money News: Why refis are spiking despite high mortgage rates.
• [03:01] What’s driving refinancing right now.
• [04:21] How to decide if refinancing makes sense for you.
• [07:49] Cash-out refinancing explained; real-life motivations for refi.
• [10:50] Fed rate speculation and how it actually impacts mortgage rates.
• [12:19] Analogy: Mortgage rates as reactive dogs, Fed as cool cats.
• [15:21] Listener money question: Target date funds, retirement strategy.
• [16:19] What is a target date fund and how does it work?
• [17:50] The truth about fees and expenses in target-date funds.
• [18:52] Adjusting your glide path and target-date fund strategy.
• [21:56] Other investment options for your 401k or IRA.
• [22:30] Hosts and guest discuss their own investments—why they prefer target date funds.
• [23:38] How much should you contribute to retirement, and two key frameworks.
• [25:21] Is Jay behind on retirement? How to compare your numbers.
• [26:03] Final thoughts: Focus on your own goals, not just benchmarks.

Final Thoughts

This episode combines the latest in personal finance trends—explaining the refi spike and its true drivers—with an approachable, in-depth walkthrough of target-date funds for retirement. The hosts are transparent about their own strategies, blending expert judgment with relatable, stress-reducing advice. The message: Focus on what you can control, update your plans as life changes, be patient, and don’t be afraid to go the “lazy” (but smart) route with investing.

Useful Links:

• NerdWallet Mortgage Refinance Calculator
• NerdWallet Retirement Planning Guides
• Contact the podcast with your money questions: 901-730-6373 or podcasts@nerdwallet.com