Bob’s Journal for 3/9/23

Some Notable Events That Grabbed My Attention This Week

I participated in a number of podcasts recently to discuss my latest book, “Retirement Watch: The Essential Guide to Retiring in the 2020s.”

There were a couple of great discussions you might want to listen to. One is my appearance on “Retire with Purpose” with Casey B. Weade.

And there’s my two-part appearance on “Medicare Moments” with Toni King.

Here’s a Detailed Look at 22 Years of Inflation

Most people focus on the headline Consumer Price Index (CPI) number each month. But the CPI is based on a hypothetical shopping basket that probably differs from the goods and services you buy.

Any individual is likely to face an inflation rate that’s different from the published CPI. That’s why it’s a good idea from time to time to dive into the details of the CPI reports. The deep dive gives a better idea of your inflation rate.

Even when inflation is broad-based, the price increases vary significantly among goods and services.

Since 2000, prices of hospital services increased more than any other good or service, rising 227.2% over 22 years. In second place and way behind are college tuition and fees with a 181.2% increase. College textbook costs increased 163.7%.

Rounding out the top increases were medical care services (132.3%), childcare and nursery school (123.1%), food and beverages (89.7%), and housing (87.1%).

During that time, the CPI increased 76.1% and average hourly wages increased 104.1%.

Of course, prices of some goods and services increased less than the CPI, and some declined over 22 years.

New cars increased in price by 24.1%. and household furnishings and operations gained 12.5%.

Declining in price were clothing (-2.2%), cellphone services (-39.5%), computer software (-71.7%), toys (-72.3%) and televisions (-97.7%).

Outlook for Social Security Trust Fund Worsens

The latest estimates indicate the Social Security trust fund will run out of money earlier than previous estimates.

Last year, the Trustees of Social Security and Medicare projected that the Social Security retirement trust fund would run out of money in 2034. I said at the time that estimates and assumptions used in the projection were too optimistic.

Recently, the Congressional Budget Office (CBO) issued its own projections as part of its annual federal budget estimates.

The CBO estimates that the retirement trust fund will run out of money in 2032 or early in 2033. Spending from the trust fund will increase 6% annually while income to the trust rises only 4% per year.

The CBO also estimates that the Medicare trust fund that pays for hospital expenses will run out of money in 2030. That’s three years later than projected last year.

In other parts of the budget forecast, CBO estimates that outlays for Social Security and Medicare will increase steadily as the population ages and more Baby Boomers join the programs.

Over time, the two programs will absorb greater percentages of the federal budget than they do today.

Congress eventually will have to take actions to make these programs solvent through some combination of tax increases and benefit reductions.

We can’t know the actions Congress will take. As I’ve said in the past, I believe people who are beneficiaries and within a few years of being beneficiaries at the time the changes are made are likely to be exempt from changes, except perhaps for those with high incomes.

But current and future retirees should be sure there is flexibility in their spending plans. They should be prepared for reductions in benefits. The maximum benefit reduction in Social Security would be 20% to 25%.

At some point, the payroll tax is likely to be imposed on those making more than $400,000 annually. Currently, it is imposed on incomes up to $160,200. But increasing the wage base wouldn’t close much of the shortfall.

President Biden’s latest budget proposal also calls for increasing the Medicare payroll tax from 3.8% to 5% on those earning more than $400,000 annually.

Congress could take another route. It could move away from trying to maintain these as self-supporting, separate programs. Instead, it could make a few benefit changes but provide that deficits in the programs will be financed from general revenues and overall tax increases.

Save Your 2023 Charitable Gift Receipts, Just in Case

You might be able to deduct charitable contributions even if you don’t itemize expenses on Schedule A filed with your income tax return.

Taxpayers can’t itemize expenses unless their total itemized expenses exceed their standard deduction. The standard deduction was doubled in the 2017 Tax Cuts and Jobs Act, so few people itemize expenses.

For most people, there is no separate tax benefit for making charitable contributions or for paying state and local taxes.

During the pandemic, Congress allowed people who don’t itemize expenses to deduct on the first page of their tax returns up to $300 of charitable donations. The amount was increased to $600 in 2021 for married taxpayers filing jointly.

That provision expired at the end of 2021, but there’s a move in Congress to bring it back.

A bipartisan group of 11 senators recently proposed restoring the charitable contribution deduction for taxpayers who don’t itemize expenses.

In addition, the senators propose increasing the deduction limit to one-third of the standard deduction. That would put the limit in 2023 at $4,600 for single taxpayers and $9,200 for married taxpayers filing jointly.

The proposal is something of a long shot, but you should keep receipts from 2023 charitable contributions in case it is added to a tax bill later this year.

The Data

The ISM Non-Manufacturing Index was 55.1 in February. That’s slightly lower than 55.2 in January but still indicates expansion.

The overall economy returned to expansion in February, according to the PMI indexes.

The PMI Services Index rose to 50.6 from 46.8 in January and 50.5 in mid-February. The reading above 50.0 ends a streak of seven consecutive months in which the sector contracted.

The PMI Composite Index for the economy was 50.1 at the end of February, compared to 46.8 at the end of January and 50.2 at mid-February.

Factory orders declined 1.6% in January after rising 1.7% in December. But after excluding transportation, orders increased 1.2% in January.

Consumer credit increased 3.7% in January, following a 2.9% increase in December. Revolving credit balances (mostly credit cards) increased 11.1% for the month and nonrevolving credit (vehicle and student loans) increased 1.2%.

The final estimate of fourth quarter 2022 productivity estimated an increase of 1.7%, up from a 1.2% rise in the third quarter. But the earlier estimate was that productivity increased 3.0% in the quarter.

For all of 2022, productivity decreased 1.7%, the largest annual drop since 1974.

The private sector added 242,000 jobs in February, according to the ADP Employment Report. Only 119,000 jobs were created in January, and that’s upwardly revised from the original estimate.

The leisure and hospitality sector again amassed the highest number of new jobs. Large and medium-sized businesses added new jobs while smaller firms eliminated 61,000 jobs.

The number of job openings decreased in January to about 10.824 million, down from 11.012 million in December. The number of hires and separations in January didn’t change much from December.

New unemployment claims declined another 2,000 to 190,000 in the latest week. The nine-month low, recorded in late January, was 183,000.

Continuing claims, which lag a week behind new claims, decreased to 1.655 million from 1.660 million.

The Markets

The S&P 500 rose 0.51%% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.70%. The Russell 2000 lost 0.89%. The All-Country World Index (excluding U.S. stocks) added 0.61%. Emerging market equities surged 1.33%.

Long-term treasuries rose 0.26% for the week. Investment-grade bonds increased 0.03%. Treasury Inflation-Protected Securities (TIPS) lost 0.40%. High-yield bonds gained 0.15%.

On the currency front, the U.S. dollar rose 0.70%.

Energy-based commodities were unchanged for the week. Broader-based commodities fell 0.28%. Gold declined 0.69%.

Bob’s News & Updates

My latest book is “Retirement Watch: The Essential Guide to Retiring in the 2020s.” Learn more and order by clicking here and here. You can be among the first to write a review.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

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 Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” 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.