Today Jerome Powell, head of the Federal Reserve, who I call the most powerful person in the world talked about how inflation interest rates might hold higher for longer. Back in December we heard that interest rates could be cut because we saw that inflation might be going down but in return what we have seen is inflation has actually been going up, compared to where they are. Current US inflation rate right now is at 3.48% and the Federal Reserve doesn’t see inflation rates dropping any further.

 At one point we heard there might be a pause when it comes to interest rates but right now what we’re hearing is not a pause going on but rather a streamline of higher interest rates for longer can happen. So many people are asking how does that affect retirees?  

First and foremost it affects retirees depending on your situation. So let’s talk about it, first we have a couple; they’re homeowners and they’re getting ready to retire.  For these types of people this is actually an excellent time for them to retire, the reason being is if we look at the last 15 years we were in a 0% interest rate market and that type of environment was fantastic for people who were borrowing money. We saw a huge amount of money in venture capitalists such as Uber and WeWork and all these huge companies but it hurt retirees. The reason being was the low interest rates that made retirees take on so much risk to generate a certain amount of retirement income that they needed. For instance if they had a million dollars in the bank they were getting 1%, within a 1% on a million dollars it’s just $10,000. Unfortunately they could not live and suffice for retirement. Now in this current interest rate environment inflation has gone up but not as high as the current interest rates are, where right now we’re seeing that they can get a much higher rate. They could currently receive over 5% in the bank. If you get a million dollars, 5% of that means they’re now receiving $50,000. That’s a huge turn in events so if you’re a retiree who’s not borrowing money but just living off your retirement this is a great time to have some of your assets and fixed income. 

What we see in equity markets is a lot of volatility right now, so as a retiree this might be a good time to reassess your money that you have in your money market, your CD’s, your savings and even some old annuities. On the other hand if you’re a retiree who is renting or even still working this might be a more expensive time for you. One, your bills have increased. PG&E recently had a price increase but more importantly we see gas prices increasing. If you’re working every day that’s adding more towards your commute. We also see auto and home insurance rates rising. The one good thing about being a retiree on a fixed income already, if you are not working you’re probably not driving as much so automatically your auto insurance rates might have gone down but if you’re working and commuting then that situation is worrisome. 

Another thing is if you’re borrowing money because you’re thinking about buying a home or using credit cards or have lots of debt, that debt has gotten a lot more expensive. The reality is now it’s a lot harder for you to retire. With all that being said everybody’s situation is different but one thing we should look at is the basic needs. Again, if you’re a saver and you have your savings under control this could be a really good time for you. While if you are borrowing money which we see record high credit card debt in this country this could be a very challenging time. I hope these tips and advice helps you with understanding how higher interest rates can affect you down the road. In the future we could see interest rates rise, instead of 5%, it could go up to 6% or 7% which will be a lot more attractive for retirees, compared to borrowers; we’re going to see their cost to borrow money is a lot more.

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