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Bob’s Journal for 11/12/20

Published on: Nov 12 2020

Medicare Premiums Will Increase in 2021 Along with Other Costs

Medicare premiums will increase in 2021 along with other costs, the Centers for Medicare and Medicaid Services (CMS) recently announced.

The monthly premium for Part B, which covers most doctor’s services and similar non-hospital care, will rise to $148.50. The Part B premium is $144.60 for 2020, so it will increase $3.90 per month or about 2.70%.

The annual deductible for Part B increases to $203 in 2021, a $5 rise from 2020’s $198 deductible.

For higher-income Medicare beneficiaries, the Medicare premium surtax, also known as the Income-Related Monthly Adjustment Amount (IRMAA), will kick in when adjusted gross income exceeds $176,000 for married couples filing joint returns and $88,000 for single taxpayers.

The IRMAA begins at $59.40, making the total monthly cost of Part B $207.90.

The IRMAA rises as adjusted gross income increases. The maximum IRMAA in 2021 will be $356.40, bringing the total monthly cost for Part B to $504.90. The top level of IRMAA applies to married couples with adjusted gross incomes of $750,000 or more and singles with $500,000 or more of income.

There’s a two-year lag between the level of adjusted gross income and IRMAA. Income levels for 2019 are used to determine the IRMAA for 2021.

Previously, CMS announced that costs of Medicare Advantage programs would decline for 2021. The 2021 premiums for Advantage plans on average will be 34.2% lower than in 2017. The average monthly premium will be the lowest in 14 years. Each Medicare Advantage plan sets its own premiums and benefit levels.

The Part A deductibles and coinsurance amounts also will increase for 2021.

Details on all the changes can be found here and here.

Tracking the Recovery

The economy changed so fast this year that much of the traditional economic data are not useful.

Most of the data is issued weeks or longer after the activities they measure. Normally, that’s acceptable. But this year, trends often changed before data were issued.

One tool I’ve found useful in this period is Opportunity Insights Economic Tracker. It has more timely data and also has some unconventional data, such as mobility determined by tracking cell phones.

The website reports that the recession has ended for most workers earning more than $60,000 per year. Their employment rate is 0.3% higher than its level on Feb. 1. But the employment rate for those earning less than $27,000 still is 19.5% below the Feb. 1 level.

The website also says total spending by all consumers is 6.4% below its pre-pandemic level and is declining from a recent high in early September.

The number of small businesses that are open is 24.1% below the pre-pandemic number, and small business revenue is down 23.2%.

The site also uses cell phone data to track the percentage of time people spend outside the home and where they spend that time.

Total time spent outside the home still is down 9% from before the pandemic. Time spent in retail establishments and restaurants is down 16.6%, and time spent on public transit is down 32%.

The website also can break down most of the data by state, county and metropolitan area, and it has subcategories for some of the broad categories.

The bottom line is that the economy has recovered a lot from the low point in the spring, but it still is at depressed levels. Also, some measures of economic activity have declined since August.

ETF Fee Wars Accelerate

The largest exchange-traded fund (ETF) issuers are competing with themselves for the lowest-fee offerings.

One of the largest and best-performing ETFs is the Invesco QQQ Trust (QQQ), which invests in the 100 largest companies on the Nasdaq. It charges a fee 0f 0.2%, or $2 annually for every $1,000 invested.

Invesco was worried that it could lose cost-conscious investors to other funds. So, Invesco created a lower-fee fund of its own to compete with QQQ.

The Invesco Nasdaq 100 ETF (QQQM) was launched in October. It charges only 0.15% in fees, and its share price is about half of QQQ’s.

Many investors are using low fees as their prime investment criterion. Morningstar found that the 20% of mutual funds and ETFs with the lowest fees had net cash inflows of over $500 billion in 2019. But the rest of the market had a net outflow of over $200 billion.

QQQ and some other older ETFs are structured as unit investment trusts instead of straight ETFs. Trusts have higher costs and can’t take actions that reduce expenses, such as lending securities and reinvesting dividends.

The lesson is to shop carefully for ETFs. There’s a wide range of fees among ETFs with identical or almost identical investment strategies. New ETFs with lower fees are being issued with some regularity.

The Data

New unemployment claims declined by 48,000 to 709,000 in the latest week. Continuing claims for regular unemployment compensation declined to 6.8 million from 7.2 million the previous week.

But the number of people receiving compensation under the special pandemic programs remains high. Plus, the number of people receiving an additional 13 weeks of benefits increased to almost four million, the highest level since the program was initiated last spring.

Overall, 21.16 million Americans are receiving some form of unemployment benefits. That marks a decrease of 374,179 from the previous week.

The Fed’s efforts to increase inflation had a setback in October. The Consumer Price Index (CPI) was unchanged for the month and is up only 1.2% over 12 months. Excluding food and energy, the CPI also was unchanged for October and is up only 1.6% over 12 months.

Small business owners continue to be cautiously optimistic. The Small Business Optimism Index for October was 104.0, unchanged from September. The index remains above its 46-year average despite the recession.

But the uncertainty component of the index increased to its highest level since November 2016, and the percentage of owners expecting business conditions to improve over the next six months declined.

Consumer credit use increased in September. Nonrevolving credit, which is primarily student and auto loans, increased at an annualized rate of 4.75%. Credit card use also increased at a 4.75% annualized rate in September. These increases partially offset August’s sharp decline in credit card use and a small increase in nonrevolving credit.

Last Friday’s Employment Situation reports were much better than economists anticipated.

There was an increase of 638,000 jobs in October. Even so, this was lower than the 672,000 increase in September. The biggest gains were in hospitality and professional business services.

There has been about a 12 million increase in payrolls since May. That leaves the economy with about 10 million fewer positions than before the pandemic.

The JOLTS (Job Openings and Labor Turnover Survey) is more detailed than the Employment Situation reports but a month behind.

For September, the JOLTS report showed little change in the labor market from August. Some good news is that the rate of layoffs and discharges was at its lowest level in some time.

The Markets

The S&P 500 rose 3.82% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 5.60%. The Russell 2000 increased 7.61%. The All-Country World Index (excluding U.S. stocks) added 5.71%. Emerging market equities grew 2.37%.

Long-term treasuries lost 3.33% for the week. Investment-grade bonds declined 0.77%. Treasury Inflation-Protected Securities (TIPS) fell 0.39%. High-yield bonds gained 0.59%.

In the currency arena, the U.S. dollar fell 0.56%.

Energy-based commodities increased 3.33%. Broader-based commodities rose 2.29% but gold declined 2.26%.

Bob’s News & Updates

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Seriesclick here.

A recent five-star review of my book on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my Amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here

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