Early Retirement Blog

After two brutal years in the stock and bond markets, 2009 may bring seniors in retirement, some relief and added income. In 2008 alone, seniors watched as the S&P 500 fell an incredible 40%, and bond yields declined to near zero.  Usually, and as everyone knows these are unusual times, bond yields and stock market returns move in opposite direction.

When one is doing bad, the other one does well, and seniors can count on either higher income from bonds or stock appreciation to fund their retirement.  That has not been the case for the past two years, as both sources of retirement income for seniors, have been hit very hard.  Added on top of the misery of poor investment returns, extremely high oil and gasoline prices, which forced many retirees to cut back or dip into their savings.

Although both the stock and bond markets will likely remain bearish in 2009, seniors in retirement will see extra income, and lower food and fuel costs.  Beginning in January 2009, seniors will receive a 5.8% increase in their Social Security checks, based on  the Social Security Administration 2009 Cost of Living Adjustment (COLA).   The figure was calculated by the Social Security Administration in the fall of 2008, when food and fuel prices were at their peak, and was an official projection of inflation for 2009.

However, in just a few months time, oil has tumbled from $150 per barrel down to only $40 per barrel, and now the Federal Reserve is worried about deflation instead of inflation.  The effect of low oil prices is already being seen at the pump, where customers are paying half what they used to, to fill up their cars.  Seniors should soon also see decreased home fuel costs, and after low oil prices make their way through the food supply chain, lower food costs as well.

The result is that in 2009, seniors in retirement will receive extra income from Social Security, and need to spend less of their income for food and fuel.  So, even if the stock and bond markets go nowhere in 2009, seniors in retirement will still be better off than they were the previous two years.  That is good and welcome news, and a reason for seniors in retirement, to celebrate a “Happy New Year in 2009!”