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Bob’s Journal for 9/24/20

Published on: Sep 24 2020

These Notable Events Grabbed My Attention This Week

Soon, we’ll know the Social Security cost of living adjustment (COLA) and other changes for 2021.

September’s Consumer Price Index was issued last week. That’s the last piece of data the Social Security Administration needs to calculate the COLAs and adjustments for next year.

Private sources estimate benefits will increase by 1.3%. That’s substantially higher than the 0.0% many were forecasting during the depths of the pandemic last spring.

If that’s the case, the average monthly benefit would increase to $1,517, a jump of $19.70, according to the Senior Citizens League. But that increase could be more than offset by a rise in Medicare Part B premiums.

Last April, the Medicare trustees forecast that Part B premiums would increase by about 6% for 2021. But increased costs due to the coronavirus pandemic are likely to cause Medicare premiums to rise more, perhaps double, to a 12% increase.

People who already are receiving Social Security benefits and have their Part B premiums withheld from it are protected from having their net monthly benefit reduced by higher Medicare premiums. But first-time Medicare beneficiaries and those who don’t have their premiums withheld from Social Security benefits will bear the full cost increase.

There was no COLA in three years: 2010, 2011 and 2016. There was only a 0.3% COLA in 2017. Since 2009, the COLAs have averaged 1.4%.

What Drives Life Expectancy?

It is no secret that average life expectancy steadily increased over the last 100 years. But why has it increased?

A key factor in any retirement plan is an estimate of life expectancy. You’re more likely to run out of money if you underestimate your life expectancy. But your standard of living will be less than it could have been if you overestimate life expectancy.

A new study sought to identify the drivers of the life expectancy increase in the United States between 1990 and 2015.

The researchers found that 12 factors explain most of the improved life expectancy.

The most important category of factors was public health measures. The study said that improvements in a variety of public health measures accounted for 44% of the increase. Another 35% of the increase was due to pharmaceutical medical care. Non-pharmaceutical medical care accounted for 13% of the increase.

Accidental poisonings and drug overdoses were the largest negative contributors to changes in life expectancy.

If public health measures continue to improve and pharmaceutical companies keep innovating, most of today’s retirees and pre-retirees will need to use longer estimates of life expectancy in their retirement plans.

Some Have More Time to Return Unwanted RMDs

Congress suspended the requirement minimum distribution (RMD) rules for IRAs and other retirement plans for 2020.

But the suspension wasn’t enacted until late March. People who took RMDs early in the year seemed to be penalized. They had only 60 days to return the distributions to their IRAs and avoid including them in gross income.

The IRS resolved the problem by ruling that any unwanted RMDs could be returned to the retirement accounts without penalty if that occurred by Aug. 31.

What about the people who missed the Aug. 31 deadline? They might still have options.

The 60-day rollover rule still applies. If you took the distribution less than 60 days ago, you have time to roll it over to an IRA.

Other people might still have an option.

The option is available to someone who was affected by COVID-19, known in the tax law as a “qualified individual.” Basically, if you or someone in your household caught the virus or was unable to work because of the virus (such as by being laid off), you’re a qualified individual.

When a retirement plan distribution was taken by a qualified individual in 2020, the individual has a couple of options.

One option is to pay the income taxes on the distribution equally over three years, instead of only in the year of the distribution.

The other option is to roll the same amount of money over to any qualified retirement plan within three years. If you do this, you don’t owe income taxes on the distribution. You might have to file a tax return for 2020 that includes the distribution in gross income and pay taxes on it. In a later year after you roll the distribution to a retirement plan, you file an amended return for 2020 to claim a refund of the taxes.

The Data

New unemployment claims increased by 4,000 to 870,000 in the latest week. Also, the previous week’s new claims were revised higher by 6,000.

Continuing claims declined by 167,000 to 12.58 million. Continuing claims are reported with a one-week lag from new claims.

The number of new claims for Pandemic Unemployment Assistance declined to 630,080 from 675,154.

The numbers indicate that some of the unemployed are able to go back to work, but there still are significant layoffs throughout the economy each week.

Existing home sales continue to improve. Sales for August were 2.4% higher than in July and 10.5% higher than 12 months earlier. The main constraint on sales now is an extremely low number of homes on the market.

New home sales also are doing well. Sales in August increased by 4.8% over the revised July sales number. In addition, the sales for the three previous months were revised significantly higher from the initial reports.

August sales were 43.2% higher than sales 12 months earlier. The August new home sales were the highest since 2006.

Home prices are rising with sales. The Federal Housing Finance Agency (FHFA) House Price Index increased 1.0% in July, which matches a revised 1.0% increase in June. Over 12 months, prices are up 6.5%.

The Richmond Fed Manufacturing Index continues to report that manufacturing is expanding in the mid-Atlantic area. The index for September was reported at 21, compared to 18 in July.

As of mid-September, the economy was growing a little slower than at the end of August, according to the PMI Composite Flash Index. The composite declined to 54.4 from 54.7.

The index for the manufacturing sector declined a little to 53.5 from 53.6. The service sector declined to 54.6 from 54.8.

The Leading Economic Indicators Index from The Conference Board had a solid increase of 1.2% in August to 106.5. This increase was lower than the increases in the two previous months, 2.0% in July and 3.1% in August. That’s another sign that the recovery is slowing.

Consumer Sentiment, as measured by the University of Michigan, continues its gradual improvement. The index for September was 78.9, up from 74.1 in August and better than expectations.

This was the highest level since March but well below the 100+ levels before the pandemic. Also, inflationary expectations declined, despite the Fed’s recent announcements that it would tolerate and even encourage higher inflation.

The Markets

The S&P 500 declined 4.39% for the week ended with Wednesday’s close. The Dow Jones Industrial Average fell 4.56%. The Russell 2000 lost 6.58%. The All-Country World Index (excluding U.S. stocks) retreated 4.09%. Emerging market equities gave up 4.33%.

Long-term treasuries gained 0.56% for the week. Investment-grade bonds lost 0.92%. Treasury Inflation-Protected Securities (TIPS) fell 0.28%, while high-yield bonds declined 1.82%.

In the currency arena, the U.S. dollar increased 1.39%.

Energy-based commodities lost 1.94%. Broader-based commodities fell 2.96%, while gold declined 5.08%.

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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