An era of higher interest rates — with the 30-year U.S. Treasury bond reaching 5.609 percent, its highest yield since 2002 — generally is good news for savers, as banks may increase payouts on savings accounts or newly issued certificates of deposit. But many seniors may not realize that rising rates could hit them in other ways, including higher Medicare premiums or reduced health-insurance subsidies. Some Social Security beneficiaries may also face a surprise tax bill.
Here are three ways rising interest rates might unexpectedly zing seniors, and what to do about it.
1. Higher interest income can raise Medicare premiums
One potential land mine is Medicare’s income-related monthly adjustment amount (IRMAA). Beneficiaries with a modified adjusted gross income that exceeds certain limits face a surcharge on both Medicare Part B (the core part of Medicare) and Part D (prescription) premiums.
Medicare generally has a two-year lookback period, so additional interest earned in 2026 could affect premiums in 2028. For 2026, the limit of $218,000 for joint filers (or $109,000 for single filers) is applied to 2024 income.
Medicare beneficiaries exceeding this limit by even a single dollar could see premiums rise. Joint filers enrolled in Medicare Parts B and D, for example, could each end up paying $284.10 per month for Part B instead of the standard $202.90, plus a $14.50 monthly Part D surcharge. That translates to an additional annual payment of $2,296.80 for the couple.
When interest income rises, the tax burden on retirees can become worse, even for those who don’t realize it. Joshua Mangoubi, a chartered financial analyst and founder and chief investment officer of Considerate Capital, said that interest earned in a taxable CD, for example, counts as income even when the account owner leaves it untouched. “Whether you spend the interest or leave it in your account does not matter,” he said.
2. More Social Security benefits may become taxable
The formula the IRS uses to determine the taxability of Social Security benefits can also be affected by higher interest rates. “Combined income” for Social Security purposes generally includes adjusted gross income, tax-exempt interest and half of Social Security benefits.
“If you earn $40,000 in Social Security, $20,000 of that counts,” said Brian Seymour, a certified financial planner and founder of Prosperitage Wealth. Tax-exempt municipal-bond interest is also included in the calculation, he said. “It is one of the only places in the tax code where tax-exempt income still works against you.”
Singles with more than $34,000 in combined income could face taxation on as much as 85 percent of their Social Security benefits. The same is true for joint filers with combined income in excess of $44,000.
Consider a single individual with $40,000 in Social Security income and $14,000 in other income. An additional $1,000 of interest would raise combined income to $35,000 and cause another $850 of Social Security benefits to become taxable, per the IRS formula.
3. Affordable Care Act subsidies may have to be repaid
Early retirees with coverage through the ACA, or Obamacare, may receive subsidies based on their expected income for the year. If their actual income is higher, they may have received too much help with their premiums. “There is no cap on repayment in 2026; they may have to pay it all back, Mangoubi said.
Rising income from higher interest rates can help retirees deal with day-to-day costs, but there may be a price to pay in the form of increased costs elsewhere. To avoid surprises, it’s a good idea for retirees to review their year-to-date interest and projected modified adjusted gross income before year-end.
“Don’t think about making less income. Think about coordinating your income,” Mangoubi said. For example, someone expecting $4,000 more in CD interest might take $4,000 less from a fully taxable traditional IRA, he said, provided it is not a required distribution. “Try to stay below these lines when it makes sense.”
Marketplace customers can also update their projected income when it changes. Working with a tax professional can be a good way to calculate the effects before the additional income produces a surprise premium or tax bill.
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