Starting in January, Social Security beneficiaries will see their payments increase by 3.6%. This will add about $75 to the average retiree’s monthly benefit, bringing it just over $2,033. It’s a reflection of the inflation that has impacted consumers over the past year. This adjustment is the largest since the 8.7% increase in 2022, following several years of lower-than-average inflation that resulted from efforts to mitigate the economic fallout of the COVID-19 pandemic.
But how does this increase compare to the interest rates available for retirees looking to invest their money?
Better than your typical brick-and-mortar bank
It’s certainly not something anyone wants to dwell on, especially as an investor. Still, in today’s economic climate, every extra dollar counts. So, while this 3.6% adjustment seems reasonable—since it’s based on a key inflation measure from the Bureau of Labor Statistics—it still feels a bit lacking in really addressing the actual cost-of-living increases for Social Security recipients.
And maybe there’s a reason for that. The Bureau’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which dictates the annual COLA, differs somewhat from the Consumer Price Index for the Elderly (CPI-E). The CPI-E tracks cost-of-living changes specifically for those aged 62 and up, and it often reveals that healthcare costs for this demographic can be considerably higher than what the average worker faces.
Consequently, current Social Security beneficiaries should be wise with their payments. It’s a good idea to put this money to work in something that’s flexible and provides a decent return. While traditional checking and savings accounts at banks offer easy access, they don’t usually yield much. For better returns, consider money market funds from brokerage firms or high-yield savings accounts from online banks, which typically outperform local brick-and-mortar branches.
For instance, SoFi Technologies currently offers a savings account with a 4.2% yield, similar to what E*TRADE, a part of Morgan Stanley, is providing. Go2bank is advertising an annualized yield of up to 4.5% on balances up to $5,000, while Axos ONE is providing up to 5% for new customers for a span of six months.
Plan for different logistics
Be sure to read the fine print and think about how quickly you need access to your funds. Unlike local bank checking accounts, accessing cash from these online savings accounts might take at least a day. However, transferring money between accounts is usually an online process that can be completed within a day.
Given that many households right now are focused on maximizing their idle cash, the few hundred extra dollars gained from these options can definitely prove worthwhile.
