Rising Interest Rates Improve Retirement Income Prospects

The cost of purchasing retirement income products is much lower than a few months ago, BlackRock data shows.

Interest rates are on the rise—marked by the U.S. Federal Reserve’s rate boost in December—and that represents good news for retirement savers looking to generate secure lifetime income once they’re no longer drawing a paycheck, BlackRock says.

When interest rates rise, the cost of retirement income decreases. Today, investors are enjoying retirement income costs lower by as much as 14% versus a few months ago, according to BlackRock’s CoRI Retirement Indexes, which helps investors estimate how much annual retirement income their current savings can generate starting at age 65. At the same time, investors’ retirement portfolios have been getting a boost from the market rally, so a 55-year-old investor, for example, may now be on track for about 18% more retirement income than they were a few months ago.

The CoRI Index value (in this case, for an investor planning to retire in 2025) indicates how much it costs today to purchase $1 of income at retirement. Since early November, the CoRI Index and the S&P 500 have generally been moving in opposite directions, meaning investors are seeing higher returns from the S&P 500 (and greater income “buying power” in their savings) at the same time that the cost of that income is getting significantly cheaper.

More about BlackRock’s CoRI Retirement Indexes can be found here.