In the US, a Fed rate hike could increase retirees’ income from savings — MarketWatch
In the United States, the Federal Reserve is expected to raise interest rates on Wednesday for the first time since 2023. For retirees who keep savings in certificates of deposit, high-yield savings accounts, or money market funds, this could mean higher income. At the same time, credit card debt and variable-rate loans could become more expensive, MarketWatch reports.
Higher income from savings
Financial adviser and managing partner of Chesapeake Financial Planners Jeff Judge noted that higher rates are a rare advantage for people who live off savings rather than a salary. According to him, rising rates increase yields on certificates of deposit, money market funds, and high-yield savings accounts. Advisers also noted that buying an annuity when rates are high can provide larger regular payments.
Haven Financial Advisors founder John Lepp believes that higher rates generally help older people who have more savings than debt. He advises making sure that idle cash earns a competitive return, as traditional savings accounts may pay significantly less than online accounts, certificates of deposit, or US Treasury securities. Lepp also recommends staggering the maturity dates of deposits or government bonds to maintain access to funds.
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Risks for borrowers
At the same time, nearly half of Americans aged 50 and older carry credit card debt from month to month, according to AARP. Judge warned that interest on such cards can rise quickly, as most of them have variable rates tied to the prime rate. People who make only the minimum payment may be particularly vulnerable.
Rising rates also make home equity loans and adjustable-rate mortgages less predictable. American Private Wealth founder Kashif Ahmed added that rate hikes make borrowing more expensive, while the prices of existing bonds typically fall. He advised against radically changing a retirement portfolio solely because of rate movements and urged maintaining a balance between income, liquidity, inflation protection, and long-term growth.
Model Wealth Inc. founder Randy Bruns stressed that inflation poses a particular danger to people with fixed incomes. According to him, higher income from money market funds, certificates of deposit, and short-term Treasury bills may be offset by the rising cost of living.
