Social Security Administration (SSA) recently announced that social security benefits will increase by 2.8% for 2019. This is a nice increase for those who are collecting or about to collect. With healthcare costs, grocery bills, and gas prices increasing year over year, the bump is a welcome raise. Interest rates are higher as well which means more income from bonds, CDs, and money markets.
How does this translate to the real world?
So, between higher interest rates and social security benefits, retirees have gotten a boost to their income compared to the previous year. According to SSA, there will be 62 million people getting the increase. On the surface, the unexpected raise seems like it is a net benefit for the economy.
Emergency cash reserves can now earn some money…finally. As of 10/10/2018, the 1-year Treasury rate is yielding 2.67%, the highest the rate has been in 10 years.
Intermediate-term bonds, such as the 10-year Treasury rate are now yielding 3.18%. For context, the day before Trump was elected the 10-year Treasury rate was yielding 1.87%.
On the flip side, mortgage rates have risen making borrowing costs higher than they were at the start of the year. From what I see, retirees already have a mortgage or no mortgage at all. The increase in mortgage rates will affect those that have an adjustable rate or downsizing to a new home. The national average is around 4.90% which is still low compared to historical mortgage rates. Paul frequently reminds me that his first mortgage was around 15%, to which I say, bond yields were 17%.
Despite the recent selloff in the equity market, the increase in social security and interest rates is good news for retirees who are living off their savings, investments, and social security.
Here is the link to the announcement from Social Security.
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