While Social Security recipients and pensioners wait for the cost-of-living adjustment (COLA) statistics to be released on October 10.
Which will show how much their payments will go up in 2025, the Federal Reserve System (FED) has their own news to share. But the news from the FED is not as good.
The FED says that seniors should start getting ready for the possibility that their Social Security payments will go down as early as 2026.
Federal Reserve’s first rate cut in years occurred this year
In September of this year, the Federal Reserve cut federal fund rates by 50 basis points. This was the first time in four years that they had done so. The cut shows that the Federal Reserve is putting the risk of a recession ahead of the risk of inflation.
The move shows that the Federal Reserve is sure that inflation is starting to level off after the COVID19 pandemic in 2020.
Fed fund rates are the interest rates that banks and other depository institutions charge each other for short-term loans so that they can meet their reserve standards.
These interest rates have a big effect on the economy because they show how the Federal Reserve feels about the country’s current economic situation. Consumer loans, credit rates, and the stock market are all affected by these rates.
A decrease in the Federal Reserve Rate highlights a need to stimulate economic growth.
The Federal Reserve has kept the interest rate the same for four years, which shows that they value economic security. The Federal Reserve wants to boost spending to avoid a recession, which is clear from the lower rate.
On the other hand, higher rates mean that there is a plan to fight inflation. Some retired people who get Social Security may be upset about the smaller rate, though.
The lower rate does not have a direct effect on the COLA number, but it does mean that COLA rates will probably be lower in the future. Retirees can expect their payments to go down in the future.
Even though seniors will need to start getting ready for a lower COLA, it is important to remember that a lower COLA is a good sign that inflation and the cost of living are levelling off.
The adjusted rate will impact retirees more than COLA
One important thing to remember is that COLA is always a reactive number. The change is only made after things that happened in the past year have happened.
But the Federal Reserve makes changes based on what they think the economy will do in the long run. Some retirees may be afraid that their payments will go down in the future, but the Federal Reserve thinks that things will get better.
People who get money from the Federal Reserve can expect short-term loan rates and credit interest rates to go down. In addition, it means that costs should go down overall.
However, even though most people who get Social Security use their monthly checks to live on, the money is only meant to be a supplement.
Which means that it will always be hard to pay for daily needs with Social Security alone, no matter how much payouts go up.
People who are currently working should begin saving money as soon as possible. You should have an emergency fund saved in a high-yield savings account.
This fund should be enough to cover your expenses for at least six months if you lose your job. Once you have an emergency fund set up, investing in low-risk unit trusts is a great way to save for retirement on top of what you put into Social Security.
As the cost of living probably starts to level off in the new year, many Americans who have been having trouble with money since the COVID-19 pandemic and the war in Ukraine can look forward to some relief.
Also see:-US Full Retirement Age to Increase Significantly by 2025
