Connecting the dots: How rising government bond yields could hurt your retirement savings

Just imagine you have a decent sum of money and that you are looking for good investment to get into. Now, someone comes up to you and offers you a relatively safe investment that pays 5% a year. That doesn't sound too shabby, no? Especially when you don't have to pick your brain in trying to find the next big stock market winner.Well, that's essentially what government bonds are offering in this market. With Treasury yields hovering around 5% lately, that proposition is looking rather attractive.So, what happens when investors can earn decent returns without taking much risk? All of a sudden, everything else has to work a little harder to compete with what those bonds are offering.I mean, think about it. If you can earn 5% from a US government bond, would you really want to take on the additional risk of investing in stocks for a similar return? Probably not. To compensate you for wanting to take on that risk, you'd want something extra in return. And that is where the trouble begins for stock markets.When government bond yields rise, investors generally demand higher potential returns from riskier investments too. That can also mean paying less for company shares today, even if the businesses themselves haven't changed much.Besides that, there's another problem to consider. Let's not forget that companies borrow money too. And when government borrowing costs rise, corporate borrowing rates often follow.Let's take an example where a company wants to borrow $1 million to build a new factory. At 4% interest, that's $40,000 annually. At 7%, it's $70,000. That's an extra $30,000 every year that could otherwise have gone towards hiring workers, expanding the business, or even rewarding shareholders.Now, imagine that very same thing happening across hundreds or even thousands of companies. Slower investment leads to weaker profits and that in turn puts pressure on stock valuations. That is not quite something that sounds good for your retirement portfolio, does it?And here's the part I think people sometimes overlook. You don't have to own government bonds directly to feel the impact of all that. Your pension fund, retirement account, or long-term investment portfolio would almost certainly have a mix of both stocks and bonds.So, rising yields can push down the market value of existing fixed-rate bonds while also weighing on share prices at the same time. Thus, that can leave retirement savings facing pressure from both sides of the equation.Now, higher yields aren't exactly all bad. There is the fact that new bond investments can offer better income, which may benefit long-term savers. But for someone who might be approaching retirement, the timing of a market downturn can be especially painful.As much as we might not think about it, the very fact of life investing is that a government borrowing more expensively today could very well end up affecting how comfortably you retire tomorrow. This article was written by Justin Low at investinglive.com.