Why should investors care about the interest rate risk, if they only care about the money they have at retirement?

He didn't lock in a growth rate of 4%. He locked in a yield of 4%. That's the amount the bond pays in interest on his original investment each year. If he just spends that money the bond will continue to pay 4% each year, but there's no growth. In order to get growth he has to reinvest the interest as it comes in; if he puts it into bonds, the return on that new money, and hence the growth, depends on the prevailing interest rate at the time that the interest is paid. That interest rate can be higher or lower than the original 4%; there's no connection between the two.

Some investors worry about interest rate risk because they

  1. Do not intend to hold a bond till maturity
  2. Want maximum return available in the bond market

Additional reason is margin trading which is borrowing money to invest in capital markets. Since margin trading includes minimum margin requirements and maintenance margin to protect lender "such as a broker" , a decrease in the value of bonds might trigger a threat of a margin call

There are other reasons why investors care about interest rate risk such as spread trade investors who benefit from difference in short term/ long term interest rates. Such investors borrow short term loans -which enables them to pay low interest- and lend long term loans - which enables them to gain high interest-. Any disturbance between the interest rate spread between short term and long term bonds might affect investor's profit and might even lead to losses.

In summary , it all depends on you investment objective and financial condition. You should consult with your financial adviser to help plan for your financial goals.

Very rarely would an investor be happy with a 4% yield independent of anything else that might happen in the future. For example, if in 3 years for some reason or other inflation explodes and 30 year bond yields go up to 15% across the board, they would be kicking themselves for having locked it up for 30 years at 4%.

However, if instead of doing that the investor put their money in a 3 year bond at 3% say, they would have the opportunity to reinvest in the new rate environment, which might offer higher or lower yields.

This eventually leads fixed income investors to have a bond portfolio in which they manage the average maturity of their bond portfolio to be somewhere between the two extremes of investing it all in super short term/ low yield money market rates vs. super long term bonds.

As they constantly monitor and manage their maturing investments, it inevitably leads them to managing interest rate risk as they decide where to reinvest their incremental coupons by looking at the shape of the yield curve at the time and determining what kind of risk/reward tradeoffs they would have to make.