• ARE YOU PREPARED TO RETIRE

    Examining the 2018 Social Security COLA

     

    It will help retirees out, but it will not help them get ahead.

     

    Provided by MidAmerica Financial Resources

     

    Seniors got a little good news this fall. Next year, monthly Social Security income payments to retirees will increase by 2.0%. That will mean an extra $326 – roughly $27.40 a month – for the average Social Security recipient in 2018.1  

     

    This is the largest cost-of-living adjustment (COLA) to Social Security benefits since 2012. In that year, retirees received 3.6% more in benefits than they had in 2011.2 

     

    Unfortunately, the 2.0% increase may not make much of a difference. After all, the COLA does not constitute a gain on inflation, but merely a response to it.

     

    The Senior Citizens League, an advocacy group for retirees, thinks that rising Medicare premiums could absorb the 2.0% COLA for 70% of Social Security beneficiaries. Whether that happens or not, some analysts think retirees deserve larger Social Security COLAs than the ones they receive.2

     

    The COLAs have constantly fallen short of rising housing costs and medical costs. In fact, yearly health care inflation exceeded annual Social Security COLAs in 33 of the 35 years ending in 2016.3

     

    Should the method for figuring the annual COLA be changed? Perhaps it should be, as other metrics can be used.

     

    When the federal government figures out annual COLAs for Social Security, it references the annualized advance in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Critics argue that the CPI-W is the wrong benchmark. They feel COLAs should be calculated using the Consumer Price Index for the Elderly (CPI-E). The CPI-E only tracks spending for households headed by those aged 62 or older.3

     

    Back in 2011, the Bureau of Labor Statistics scrutinized both the CPI-W and CPI-E. It determined that the CPI-E gave greater weight to rent and mortgage expenses and health care costs, but slightly less weight to education, food, entertainment, clothing, and transportation expenses. The CPI-E may, therefore, be a better measure of senior expenses – and if it is ever used as a yardstick to measure Social Security COLAs, those COLAs might be larger.3

     

    Given all this, why does the federal government keep using the CPI-W to figure out COLAs? The CPI-E, it turns out, has flaws of its own. It does not include any Medicare Part A expenses, and the larger COLAs it would potentially generate for retirees would also help to speed the drawdown of Social Security’s coffers.3

     

    A 2.0% raise may not be much, but it beats what happened in 2016 and 2017. The 2017 COLA was only 0.3%, and retirees went without any COLA the year before.2

     

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com www.mid-america.us

       

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

        

    Citations.

    1 - marketwatch.com/story/social-security-checks-expected-to-increase-2-in-2018-2017-10-13/ [10/13/17]                

    2 - cnbc.com/2017/10/13/medicare-premiums-may-devour-increased-2018-social-security-benefit.html [10/13/17]

    3 - fool.com/retirement/2017/08/05/social-security-benefits-are-expected-to-increase.aspx [8/5/17]

     

  • A Look at Jerome Powell

     

    More about the man selected to succeed Janet Yellen as chair of the central bank.

     

    Provided by MidAmerica Financial Resources

     

    On November 2, Jerome “Jay” Powell was nominated to lead the Federal Reserve. The announcement in the White House’s Rose Garden was not a surprise; in recent days, he had emerged as the front-runner for the chairmanship.1

     

    Three things stand out about Jay Powell’s nomination, and the change of leadership presumably ahead at the Fed in 2018.1

     

    The choice of Powell does much to affirm the status quo. In fact, Powell has sided with the majority in every Fed policy vote since he became a Fed governor in 2012. Former White House budget director David Stockman calls him “Janet Yellen with a tie.”1,2

     

    Analysts widely expect Powell to try to maintain the accommodative stance of his predecessor, along with the Fed’s current strategy for normalizing monetary policy. He has shown an interest in scaling back some of the banking regulation put in place by the Dodd-Frank Act, such as the prohibition on proprietary trading by commercial banks.1,3

       

    Interestingly, Powell does not have a Ph.D. in economics. He is not an economist by profession, but rather a lawyer who became an investment banker and Fed governor. This may turn out to be more of a curiosity than a detriment; after all, the last Fed chair without a doctorate in economics was a fellow named Paul Volcker.3,4

     

    For the first time in almost 40 years, a sitting Fed chair will not be reappointed. Presidents have commonly retained Federal Reserve chairs appointed by the previous commander-in-chief; if Powell takes the helm of the Fed, that pattern will end. Janet Yellen does have the option to stay on as a Fed governor and voting member of the Federal Reserve Board through 2024, though exercising that option would be atypical. Assuming his nomination is approved, Powell will succeed Yellen as Fed chair in February.3,4

     

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com www.mid-america.us

       

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

         

    Citations.

    1 - nytimes.com/2017/11/02/opinion/jerome-powell-trump-federal-reserve.html [11/2/17]

    2 - foxbusiness.com/politics/2017/11/01/fed-pick-jerome-powell-is-janet-yellen-with-tie-fmr-reagan-budget-director.html [11/1/17]

    3 - thestreet.com/story/14364543/1/powell-seen-as-safe-uncontroversial-choice-to-replace-yellen.html [11/1/17]

    4 - tinyurl.com/y8kammc9 [11/2/17]