Bob’s Journal 10/17
Social Security announced the inflation adjustments that will take effect on January 1, 2020.
Retirement and disability benefits will increase by 1.6% because of the cost-of-living adjustment (COLA).
For those who are still working, the maximum amount of earnings subject to the Social Security tax will be $137,700.
People who are working while receiving Social Security retirement benefits will have new earnings limits. Those who are younger than the “full retirement age” face no reduction in benefits until their earnings exceed $18,420 in 2020. When earnings exceed that amount, benefits are reduced by $1 for every $2 earned over $18,420. The full retirement age is defined as 66 for those who were born from 1943 through 1954.
For beneficiaries who turn age 66 in 2020, the earnings limit has been increased to $48,600 ($4,050 per month). Benefits will be reduced $1 for each $3 earned over $48,600 until the month the worker turns 66. Once the full retirement age has been reached, there is no earnings limit.
The maximum benefit for a worker retiring in 2020 will be $3,011 per month. That’s the first time the maximum monthly benefit has exceeded $3,000. The average monthly benefit for retired workers in 2020 is expected to be $1,503.
Medicare Open Enrollment began on Oct. 15 and will run through Dec. 7.
Before Open Enrollment, Medicare announced that the premiums for Medicare Advantage plans, on average, are expected to be 14% lower than in 2019 and 23% lower than the 2018 premiums. That’s the lowest level in 13 years. Medicare says that plan choices and benefits will increase despite the lower premiums.
The average premium for Part D Prescription Drug policies is expected to decrease by 13.5%. The average monthly basic Part D premium will be $30 in 2020, the lowest level since 2013.
For the first time in 2020, Medicare Advantage plans will be able to offer additional benefits for enrollees with conditions such as diabetes and congestive heart failure. Medicare said about 300 plans will offer the benefits in 2020.
Advantage plans also will be able to provide extra benefits that are tailored to an individual’s needs, such as adult care services and caregiver support services. About 500 plans will offer these benefits.
Go to www.medicare.gov to compare the plans offered in your area.
The Medicare Part B premiums for 2020 haven’t been announced and Medicare supplement premiums can be changed throughout the year, instead of only during Open Enrollment. Premiums for Part B and supplement plans are expected to increase by 6% or more.
Investors won’t have an easier way to invest in bitcoin or other digital currencies for some time.
The Securities and Exchange Commission (SEC) disapproved a proposed rule change that would have allowed the first listing of an exchange-traded fund (ETF) that trades bitcoin. This is the latest in a series of decisions by the SEC that either disapproved or delayed the listing of ETFs which are designed to trade bitcoin or other digital currencies.
A majority of the SEC is concerned that digital currencies are too prone to fraud and manipulation. A digital currency ETF is unlikely to be approved until a majority of the commissioners are convinced that the levels of fraud and manipulation in the digital currency markets have been greatly reduced.
A recent court decision concerns executors and beneficiaries of large estates.
A federal district court held that the recipients of gifts can be liable for gift taxes that weren’t paid by the donor of the gifts, and the IRS can attach liens to the gifts. In that case, the donor had died, and his estate had been distributed without paying the gift taxes. (U.S. v. Estate of Elson, 124 AFRT 2nd 2019, Dist. Ct. N.J.)
Other cases in the past have held that the executor of an estate can be personally liable for taxes if the estate was distributed before all the taxes were paid.
Another case shows how important it is to follow the IRA rules closely to avoid unnecessary taxes.
In that case, a couple divorced. The ex-husband was entitled to a payment from the ex-wife to reimburse him for retirement benefits that he had paid to the ex-wife during the marriage.
The ex-wife had a share of her IRA transferred to an IRA in the ex-husband’s name at the same broker. The ex-husband liquidated the IRA within seven days, taking the balance in cash.
That was a big mistake.
The husband contended that the divorce agreement stipulated that he be paid in cash and that his ex-wife used the IRA transfer over his objections. Therefore, he didn’t report the IRA distribution as income, even though he received a 1099-R from the broker listing it as a taxable distribution.
The Tax Court ruled his intention didn’t matter. The IRA transfer was used, and the court wouldn’t ignore it. The ex-husband had to report the distribution in gross income. In addition, since he was younger than age 59½, he also owed the 10% early distribution penalty. (Rosenberg v. Commissioner, T.C. Memo 2019-124)
The Data
Retail sales declined 0.3% in September, compared to a 0.6% revised increase in August. Analysts expected a 0.3% increase.
But retail sales are volatile from month to month. It’s best to look at numbers over longer periods. Over the past 12 months, sales are up 4.1%. That’s lower than August’s 4.4%, but it still is the second-best 12-month number since last October.
Consumer Sentiment, as measured by the University of Michigan, surprised economists by increasing to 96.0 from 93.2. Most economists expected a decline in sentiment.
The current conditions component of the survey increased the most, but expectations also improved. Consumers expect their incomes to increase.
Manufacturing improved in the New York area, according to the Empire State Manufacturing Survey. The index increased to 4.0 from 2.0. That’s still one of the lowest levels in the last two- and one-half years, and the six-month outlook in the survey was only modestly positive.
The Philadelphia Fed Business Outlook Survey was mixed. The General Business Conditions Index declined to 5.6 from 12.0. But orders and unfilled orders were very high. These are signs of renewed strength in manufacturing. Employment also surged, according to the survey.
But Industrial Production declined 0.4% in September, compared to a 0.8% increase in August. For the third quarter, production increased 1.2%. That’s an improvement from the decreases in the first and second quarters. Production is down 0.1% over 12 months.
The manufacturing component of Industrial Production was decreased 0.5% in September. Part of that decline was due to the strike at General Motors. Excluding autos, manufacturing was down 0.2%.
Home builder optimism increased as interest rates declined. The Housing Market Index from NAHB increased to 71 in October from 68 in September. Both sales and traffic increased.
It’s the details that count in the housing starts and permits data. The headline number showed a sharp decrease in starts. But the decrease was mostly in multifamily units.
Single-family homes contribute much more to economic growth and are more important to most economists. There was an increase in single-family home starts in September. It’s the fifth consecutive month of increases for single-family home starts, and the three-month average is significantly higher than in August. The story is similar for single-family home permits. Single-family starts are up 4.3% over 12 months, and permits are up 2.8%.
New unemployment claims increased by 4,000 to 214,000. The claims have been in a tight range near their historic lows for quite some time.
The Markets
The S&P 500 rose 2.45% for the week ended with Wednesday’s close. The Dow Jones Industrial Average added 2.52%. The Russell 2000 increased 3.00%. The All-Country World Index (excluding U.S. stocks) climbed 3.25%. Emerging market equities had a total return of 3.42%.
Long-term treasuries declined 3.07% for the week. Investment-grade bonds fell 0.60%. Treasury Inflation-Protected Securities (TIPS) gave up 0.64%. High-yield bonds rose 0.75%.
The dollar fell 1.04%.
Energy-based commodities increased 1.34%. Broader-based commodities rose 0.69%. Gold declined 1.18%.
Bob’s News & Updates
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