Your Money at the Peak of Peak 65®: Economic Expectations for 2025
8 minute read time.
2025 is officially here, and with it comes a new administration in the White House, along with anticipated new economic policies that will impact you and your wallet. While it can be hard to predict exactly what will change during President Trump’s second time at the helm, there are steps we can take to prepare for what might be coming down the pike. All of this in a year when we hit the peak of the Peak 65® zone, where more than 11,400 Americans will turn 65 each day in 2025.
Betsey Stevenson is a University of Michigan Public Policy and Economics Professor and Former Chief Economist of the U.S. Department of Labor. As she explains, even if many Americans don’t believe it, the economy is doing well, and it has been for a while now. “We have had a miraculously strong economy for the last two years,” she notes. “Growth has exceeded the projections…we’ve seen more people participating in the labor force. We’ve had businesses start at an unusually high rate.”
All that good news is, for Stevenson, something of a concern. “When you’re operating at your peak, you’re doing the best you possibly can do, and there’s kind of only one direction to go…we could stay the same, or we could go down.” Let’s break it down.
2025 is officially here, and with it comes a new administration in the White House, along with new economic policies that will impact you and your wallet. On the next episode of “Your Money Map,” host Jean Chatzky sits down with Betsey Stevenson, University of Michigan Public Policy and Economics Professor and Former Chief Economist of the U.S. Department of Labor to talk about what economic changes in the New Year could mean for retirees.
INFLATION: WHERE DOES IT GO FROM HERE?
Despite the strong economy, surveys ahead of the election showed that for many Americans, rising costs were their top concern. “One of the things that made inflation so painful was it happened so rapidly,” notes Stevenson. “Inflation peaked at 9%. In other words, prices jumped up 9% in a one-year period. We’re not used to that.”
While we’d all like to see prices go back down, it’s a slippery slope – one that will require the Fed to be extra cautious about where it takes interest rates as it works to get inflation down to 2%. “We’ve got a slowing economy, and we have inflation that is still running a tiny bit hotter than what they’d like,” says Stevenson. “How are they going to balance those trade-offs? Are they going to cut interest rates more to try to make sure that the economy stays robust, or are they going to keep interest rates high in order to make sure that they get inflation down?”
LET’S TALK TARIFFS
One of the other hot topics, both ahead of the election and post-Trump win, has been the President’s plans to impose tariffs on imported goods.
As Stevenson notes, the proposed tariffs are expected to spur a series of ripple effects, including increasing prices and devaluing the dollar. “The U.S. dollar has been so strong, and that strong U.S. dollar has kept the price of the things we buy that are manufactured overseas quite low because it takes few U.S. dollars to give them a lot of money in their currency,” she says.
Potential price increases are concerning for anyone on a tight budget, but especially for those in retirement. Alliance for Lifetime Income research shows nearly half (48%) of Peak 65 consumers do not think their retirement savings and sources of income will last their lifetime, and nearly a third (31%) worry their retirement income won’t cover their essential monthly expenses.
THE BIG QUESTION MARK: SOCIAL SECURITY
Nearly half of Peak 65 consumers are already receiving Social Security payments, with many claiming benefits early because they fear the program won’t be around for the long haul. As Stevenson stresses, “We’re going to have to be really careful that we don’t prioritize Social Security in 2025-26 at the expense of 2035-2036,” she says. “What you really need is your Social Security benefits after the age of 75, because it’s when you start to run out of money.”
Given the uncertainty of Social Security, Stevenson says people should be looking at protected income, and more specifically, annuities, to cover fixed expenses in retirement. “What you want is insurance against living a long time,” she notes. “It’s insurance against a good thing, but the problem is that when you live a long time, then you need a lot of money because each year you want to be able to spend more. Annuities are going to be your insurance against winning the lifetime lottery and living to be 100.”
Stevenson suggests having a portfolio where your annuity comes into play once you’ve passed the median life expectancy. “Then, you should be thinking, okay, if my annuities are going to take care of me when I live a long time, I can actually spend more of what’s left in the years when I’m going to be most active.”
PREPARE BY ASKING THE BIG QUESTIONS…AND DON’T FORGET TO EXERCISE
Even though it can be uncomfortable, Stevenson says one of the most important things aging Americans can do to prepare for their future is to talk through the various situations they will likely face later in life – everything from the topic of long-term care to whether you’ll want to downsize your home. “People often procrastinate, but unfortunately, every morning when we wake up, we are a day older and a day behind on something we probably should have done the day before,” she says. “It is all about thinking about probabilities…and then what would you want to happen in that particular state of the world. And what would you need for that? Then you can start to back out a real plan.”
Last but not least, Stevenson says every older American needs to understand the importance of staying physically active as we age – an unexpected piece of advice coming from an economist, but a critical one nonetheless. “It’s a really important thing to realize that investing in that physical health is also investing in your financial health because a lot of the money you’re going to spend in your later years reflects the health needs that you have,” she says. “It [spending $100 a week on a trainer] might mean that you save $100 bucks a week later down the road on not having in-home care, and you’re also healthier and happier.”