Tag Archives: Personal income

Business

What to know as record 8.7% Social Security COLA goes into effect

Leave a comment

Kathrin Ziegler | Digitalvision | Getty Images

As inflation has kept prices high in 2022, Social Security beneficiaries may look forward to a record high cost-of-living adjustment in 2023.

“Your Social Security benefits will increase by 8.7% in 2023 because of a rise in cost of living,” the Social Security Administration states in the annual statements it is currently sending to beneficiaries.

The 8.7% increase will be the highest in 40 years. It is also a significant bump from the 5.9% cost-of-living increase beneficiaries saw in 2022.

The increase is “kind of a double-edged sword,” according to Jim Blair, a former Social Security administrator and co-founder and lead consultant at Premier Social Security Consulting, which educates consumer and financial advisors on the program’s benefits.

More from Personal Finance:
Why more workers need access to retirement savings
If you’re unretiring, avoid this Social Security surprise
Why long Covid may be ‘the next public health disaster’

“It’s good for people on Social Security,” Blair said. “It’s not so good for the economy with inflation.”

Social Security benefit checks will reflect the increase starting in January.

The average retiree benefit will go up by $146 per month, to $1,827 in 2023 from $1,681 in 2022, according to the Social Security Administration The average disability benefit will increase by $119 per month, to $1,483 in 2023 from $1,364 in 2022.

What’s more, standard Medicare Part B premiums will go down by about 3% next year to $164.90, a $5.20 decrease from 2022. Medicare Part B covers outpatient medical care including doctors’ visits.

Monthly Part B premium payments are often deducted directly from Social Security checks. Due to the lower 2023 premiums, beneficiaries are poised to see more of the 8.7% increase in their monthly Social Security checks.

“The good news about these letters is people are realizing 100% of the 8.7% lift,” said David Freitag, a financial planning consultant and Social Security expert at MassMutual.

“Of course, the economy is inflated at a frightful rate, but this represents the value of cost-of-living adjusted benefits from Social Security,” Freitag said.

Few other income streams in retirement offer cost-of-living adjustments, he noted.

What to look for in your Social Security statement

Justin Paget | Digitalvision | Getty Images

If you’re wondering how much more you stand to see in your checks, the personalized letter from the Social Security Administration will give you a breakdown of what to expect.

That includes your new 2023 monthly benefit amount before deductions.

It will also tell you your 2023 monthly deduction for premiums for Medicare Part B, as well as Medicare Part D, which covers prescription drugs.

The statement will also show your deduction for voluntary tax withholding.

The good news about these letters is people are realizing 100% of the 8.7% lift.

David Freitag

financial planning consultant and Social Security expert at MassMutual

After those deductions, the statement shows how much will be deposited into your bank account in January.

Of note, you do not necessarily have to be receiving Social Security checks now to benefit from the record 2023 increase, Blair noted.

“The good news is you don’t have to apply for benefits to receive the cost-of-living adjustment,” Blair said. “You just have to be age 62 or older.”

When you may pay Medicare premium surcharges

If your income is above a certain amount, you may pay a surcharge called an income related monthly adjustment amount, or IRMAA, on Medicare Parts B and D.

This year, that will be determined by your 2021 tax returns, including your adjusted gross income and tax-exempt interest income. Those two amounts are added together to get your modified adjusted gross income, or MAGI.

In 2023, those IRMAA premium rates kick in if your modified adjusted gross income is $97,000.01 or higher and you filed your tax return as single, head of household, qualifying widow or widower or married filing separately; or $194,000.01 or higher if you are married and filed jointly.

Notably, just one dollar over could put you in a higher bracket.

“It’s important for everyone to make sure that the amount of adjusted gross income that they’re using for the IRMAA surcharges agrees with what they filed on their tax return two years ago,” Freitag said.

If the information does not match, you “absolutely need to file an appeal,” he said.

Because the IRMAA surcharges can be extremely significant, that is an area to watch for errors, Freitag said.

When to appeal your Medicare surcharges

If your income has gone down since your 2021 tax return, you can appeal your IRMAA.

That goes if you have been affected by a life changing event and your modified adjusted gross income has moved down a bracket or below the lowest amounts in the table.

Qualifying life changing events, according to the Social Security Administration, include marriage; divorce or annulment; death of a spouse; you or your spouse reduced your work hours or stopped working altogether; you or your spouse lost income on from property due to a disaster; you or your spouse experienced cessation, termination or reorganization of an employer’s pension plan; or you or your spouse received a settlement from an employer or former employer due to bankruptcy, closure or reorganization.

To report that change, beneficiaries need to fill out Form SSA-44 with appropriate documentation.

How higher benefits could cost you

Andrew Bret Wallis | The Image Bank | Getty Images

As your Social Security income goes up with the 8.7% COLA, that may also push your into a different IRMAA or tax bracket, Freitag noted.

That calls for careful monitoring of your income, he said.

Keep in mind that two years in the future you may get exposed to IRMAA issues if you’re not careful.

In addition, more of your Social Security benefits may be subject to income taxes. Up to 85% of Social Security income may be taxed based on a unique formula that also factors in other income.

It is a good idea to have taxes withheld from Social Security benefits in order to avoid a tax liability when you file your income tax returns, according to Marc Kiner, a CPA and co-founder of Premier Social Security Consulting.

“Do it as soon as you can,” Kiner said of filling out the voluntary withholding request form.

To better gauge how IRMAA or taxes on benefits may affect you going forward, it may help to consult a tax advisor or CPA who can help identify tax-efficient strategies, Freitag said.

Read original article here

Business

Social Security COLA will be 8.7% in 2023, highest increase in 40 years

Leave a comment

Azmanjaka | E+ | Getty Images

Amid record high inflation, Social Security beneficiaries will get an 8.7% increase to their benefits in 2023, the highest increase in 40 years.

The Social Security Administration announced the change on Thursday. It will result in a benefit increase of more than $140 more per month on average starting in January.

The average Social Security retiree benefit will increase $146 per month, to $1,827 in 2023, from $1,681 in 2022.

The Senior Citizens League, a non-partisan senior group, had estimated last month that the COLA could be 8.7% next year. 

More from FA Playbook:

Here’s a look at other stories impacting the financial advisor business.

The confirmed 8.7% bump to benefits tops the 5.9% increase beneficiaries saw in 2022, which at the time was the highest in four decades.

The last time the cost-of-living adjustment was higher was in 1981, when the increase was 11.2%.

Next year’s record increase comes as beneficiaries have struggled with increasing prices this year.

“The COLAs really are about people treading water; they’re not increases in benefits,” said Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare.

“They’re more trying to provide inflation protection so that people can maintain their standard of living,” Adcock said.

How much your Social Security check may be

Beneficiaries can expect to see the 2023 COLA in their benefit checks starting in January.

But starting in December, you may be able to see notices online from the Social Security Administration that state just how much your checks will be next year.

Two factors — Medicare Part B premiums and taxes — may influence the size of your benefit checks.

The standard Medicare Part B premium will be $5.20 lower next year — to $164.90, down from $170.10. Those payments are often deducted directly from Social Security benefit checks.

“That will mean that beneficiaries will be able to keep pretty much all or most of their COLA increase,” Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told CNBC.com this week.

That may vary if you have money withheld from your monthly checks for taxes.

To gauge just how much more money you may see next year, take your net Social Security benefit and add in your Medicare premium and multiply that by the 2023 COLA.

“That will give you a good idea what your raise will be,” said Joe Elsasser, an Omaha, Nebraska-based certified financial planner and founder and president of Covisum, a provider of Social Security claiming software.

How the COLA is tied to inflation

The COLA applies to about 70 million Social Security and Supplemental Security Income beneficiaries.

The change is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

The Social Security Administration calculates the annual COLA by measuring the change in the CPI-W from the third quarter of the preceding year to the third quarter of the current year.

Benefits do not necessarily go up every year. While there was a record 5.8% increase in 2009, the following two years had 0% increases.

“For seniors, because they spend so much on health care, those years were difficult,” Adcock said.

A similar pattern may happen if the economy goes into a recession, according to Johnson.

What the COLA means if you haven’t claimed benefits yet

If you decide to claim Social Security benefits, you will get access to the record-high COLA.

But you will also have access to it if you wait to start your benefit checks at a later date, according to Elsasser.

If you’re 62 now and don’t claim, your benefit is adjusted by every COLA until you do.

The amount of the COLA really should not influence claiming.

Joe Elsasser

CFP and president of Covisum

What’s more, delaying benefits can increase the size of your monthly checks. Experts generally recommend most people wait as long as possible, until age 70, due to the fact that benefits increase 8% per year from your full retirement age (typically 66 or 67) to 70. To be sure, whether that strategy is ideal may vary based on other factors, such as your personal health situation and marital status.

“The amount of the COLA really should not influence claiming,” Elsasser said. “It doesn’t hurt you or help you as far as when you claim, because you’re going to get it either way.”

How a record-high increase may impact Social Security’s funds

Social Security’s trust funds can pay full benefits through 2035, the Social Security Board of Trustees said in June.

At that time, the program will be able to pay 80% of benefits, the board projects.

Tetra Images | Tetra Images | Getty Images

The historic high COLA in 2023 could accelerate the depletion of the trust funds to at least one calendar year earlier, according to the Committee for a Responsible Federal Budget.

Higher wages may prompt workers to contribute more payroll taxes into the program, which may help offset that. In 2023, maximum taxable earnings will increase to $160,200, up from $147,000 this year.

What could happen to future benefit increases

While 2023 marks a record high COLA, beneficiaries should be prepared for future years where increases are not as high.

If inflation subsides, the size of COLAs will also go down.

Whether the CPI-W is the best measure for the annual increases is up for debate. Some tout the Consumer Price Index for the Elderly, or CPI-E, as a better measure for the costs seniors pay. Multiple Democratic congressional bills have called for changing the annual increases to that measure.

Read original article here

Business

‘I work just 3.5 days a week’

Leave a comment

In 2017, after I graduated from college, I started working as an engineer at an oil company. I was 23 and making $98,500 a year.

At first, I thought I had my dream job. But after seeing senior leaders work 60-hour weeks with routine travel, I realized that it wasn’t the lifestyle I wanted. My father passed away when I was three years old, so having family time was always very valuable to me.

Josh works less than four days a week and spends his much of his free time with his family.

Photo: Danny Mizicko for CNBC Make It

In 2018, I started experimenting with side hustles. I set a goal to make $3,450 a month (after taxes) from my hustles in order to support my lifestyle. As soon as I’d achieved that, I decided, I would quit my full-time job.

Today, I’ve accomplished my goal of being my own boss, and more. I left my engineering job in February 2021 to work on my side hustles full-time.

Last year, I made a little over $189,000 from my seven income streams:

  1. YouTube (Google AdSense): $82,349
  2. Fulfilled by Amazon: $13,886
  3. Patreon (coaching): $33,114
  4. Fiverr (product research): $29,014
  5. Affiliate marketing: $29,496
  6. Rental property: $1,272
  7. Taxable dividends: $639

Now I work just 22 hours a week. I take off Thursdays, Friday afternoons, and weekends. Whether it’s golfing with my grandpa, cooking family dinners or starting new business projects in my community, I have plenty of time to invest in the people and things that I care about most. 

Here’s my best advice for turning your side hustle into your full-time gig, all while working less hours:

1. Don’t be afraid of trial and error.

With my early side hustles, I tried acquiring rental properties, then started placing ads in the backseat of Ubers and renting out my three-wheeled Polaris Slingshot motorcycle on Turo, an online car-sharing platform.

But none of those businesses were successful. It wasn’t until I began selling products on Amazon, using the Fulfillment By Amazon (FBA) service, that I started making real passive income.

All I had to do was find a generic product that was in demand and ship it to Amazon. My first product was $1,000 worth of headphones, then I moved to iPhone cases and sports equipment.

I grossed more than $25,000 in 2019 through my Amazon store. I wanted to share with others what I learned from my trial and errors, so I started a new project, which would later turn into my biggest income stream: starting my own YouTube channel.

2. Build a community around your expertise.

I launched my YouTube channel, Debt To Dollars, in February 2020. I committed to posting at least two videos per week at first. Over the next eight months, I gained 14,000 subscribers and 871,000 channel views.

Josh’s most lucrative income stream in 2021 was his YouTube account, where he made almost $83,000 from advertisements.

Danny Mizicko for CNBC Make It

While growing my audience, I realized that I wanted to connect more with my subscribers and build a real community. So in October 2020, I began mentoring students one-on-one for $50 a month on how to make money selling products on Amazon.

I currently use Patreon, a platform that provides business tools for content creators to run a subscription service, to host my coaching sessions.

In February 2021, I started my product research service on Fiverr, in which customers would pay me to find high-demand, low-competition products — trending toys, pet supplies or travel accessories — that they could sell on Amazon.

These community-based businesses helped me reach my long-awaited income goal of $3,450 per month.

3. Prioritize tackling debt.

I was able to quit my full-time job when I was making less than $4,000 per month because I had paid off all of my debts, except for my house and car.

There are plenty of methods you can use to pay down debt, but I personally like the “Debt Snowball” method because it helps you see your progress.

Here’s how it works:

  1. List all of your debts from smallest to biggest.
  2. Make the biggest payment on your smallest debt and the minimum payment on the rest.
  3. Repeat until you pay off the smallest debt, then continue on with your next smallest debt.

4. Set up the legal side of your business early.

It’s important to incorporate your business with your state for practical reasons, like asset protection and tax advantages. But I also believe there’s a psychological benefit.

I attribute some of my past failures to treating my side hustles like hobbies instead of businesses. Once I formed a Limited Liability Company (LLC) in Texas in 2019, I took everything more seriously and professionally. It’s not a coincidence that all of my businesses failed until then.

An LLC has some of the best features of a corporation or partnership, two other business structures that are also used by companies in the U.S. LLCs protect their owners from being held personally responsible for the business’ debts or liability, like a corporation.

But like a partnership, LLCs income “pass through” the business and are taxed the owner’s personal income, which makes filing taxes simpler.

You can form your own LLC by filing a certificate of organization in your state, which normally costs anywhere from $50 to $300. Many states list filing information on their Secretary of State website.

5. Find a schedule that works for you and stick with it.

When I was working my full-time job, I lacked motivation to work on my side hustles.

But once I put pen to paper and committed to a schedule, working on my business was part of my weekly routine. I chose to focus on my side hustles each weekday evening after work and every Saturday morning.

I still stick with a weekly schedule. I work Monday through Wednesday and a half day on Friday. Each day I’ll work four to six hours, with each hour blocked for a specific task.

One of the benefits of setting his own schedule is getting to play golf with his grandfather on Thursday mornings.

Photo: Danny Mizicko for CNBC Make It

If you don’t set aside specific times to work on your side hustle, your business may get lost in daily priorities.

6. Set up systems that will save you time in the future.

I invest in business models that require as little of my time as possible. It is the only way I am able to work 22 hours per week and still grow multiple income streams. But remember that automating things, and creating the most effective systems, can take time at first.

Every month, I reflect on where I spent most of my work hours and find ways to make those processes more efficient. For example, I used to spend four to eight hours per week editing videos.

I decided to outsource my video editing, but that also required some time up front to run the numbers to see where it fit into my budget, and find a great editor to do the work. But now that I already put time into doing that, I spend those hours growing my business in other ways, or working less.

7. Identify what makes you different.

Marketing is more than just advertising your product or service; it’s separating yourself from your competition by making your customer feel something. They’ll come back or, even better, tell their friends about you.

When I first started selling on Amazon in 2018, I used stock photos my supplier gave me for my product listings. Unsurprisingly, they blended in with every other product. And if someone did buy, they got their product in a boring, clear bag. There was nothing that made my customer experience special.

Once I learned the importance of providing something special, I started to take my own product photos, and I designed custom packaging. My sales spiked.

No matter what your business is, decide what makes you memorable and invest in it.

Josh Ellwood is the founder of Debt To Dollars. Follow him on Instagram and YouTube.

Don’t miss:



Read original article here

Business

44% of Americans think they can achieve billionaire status

Leave a comment

Michael Bloomberg, (right) founder of Bloomberg LP, and Lloyd Blankfein, chairman and CEO of Goldman Sachs Group, at the 10,000 Small Businesses (1OKSB) Partnership Event in London on Dec. 14, 2016.

Chris Ratcliffe | Bloomberg | Getty Images

Mixed feelings about extreme wealth

At the same time, most Americans have a love-hate relationship with extreme wealth.

“There is a mounting disconnect,” the Harris report found: Six in 10 adults want to become a billionaire one day. Meanwhile, 40% said they despise billionaires. Many also said that billionaires have the responsibility to better society but aren’t doing enough.

As the rich get richer, 66% of adults see wealth inequality as a serious national issue, and nearly half of Americans, or 47%, believe that there should be a limit to wealth accumulation, the report also found. 

A mobile billboard in Washington, D.C., calling for higher taxes on the ultra-wealthy depicts an image of billionaire Jeff Bezos on May 17, 2021.

Drew Angerer | Getty Images

Of those polled, 24% said personal wealth should be capped at less than $1 billion, while 20% said it should be capped somewhere between $1 billion and $10 billion.

There are roughly 200 people in the U.S. who are currently worth more than $10 billion, according to Forbes’ annual ranking of the richest people. Among the top five, Jeff Bezos, Warren Buffett, Bill Gates and Elon Musk are all worth more than $100 billion.   

Meanwhile, extreme wealth inequality was exacerbated by the Covid pandemic, other reports also show.

The richest Americans have continued to benefit from owning equities and real estate, particularly last year when both the stock market and home values soared. As of the end of 2021, the top 1% owned a record 32.3% of the nation’s wealth.

On the flipside, the share of wealth held by the bottom 90% of Americans fell since before the pandemic, to 30.2% from 30.5%.

In the Harris poll, 58% of Americans were resentful of wealth accumulation over this period, when others suffered from the financial fallout brought on by the sudden economic downturn.

Taxing the ultra-rich gains support

“Right now, the average billionaire — there are about 790 of them or so in America — has a federal tax rate of 8%,” Biden tweeted.

The Billionaire Minimum Income Tax would assess a 20% minimum tax rate on U.S. households worth more than $100 million. Over half the revenue could come from those worth more than $1 billion.

But despite growing public support for higher taxes on the ultra-wealthy, billionaire tax proposals have failed to gain traction.

Subscribe to CNBC on YouTube.



Read original article here

Business

Worker Pay and Benefits Rose 1.3% in Second Quarter

Leave a comment

Worker pay and benefits are rising this year at the fastest pace on record, keeping pressure on historically high inflation.

Business and government employers spent 5.1% more on compensation for workers in the second quarter compared with the same period a year earlier, without adjusting for seasonality, the Labor Department said Friday. That marked the fastest annual pace on records back to 2001, eclipsing the 4.5% annual increase in the first quarter.

Wages and benefits for civilian workers increased a seasonally adjusted 1.3% in the second quarter, a slight slowdown from record-high growth of 1.4% in the first quarter as employers pulled back on benefits this spring. Wages and salaries for private-sector workers accelerated, growing 1.6% in the spring versus 1.3% during the first three months of the year.

The growth in compensation shows that employers continued to seek workers and increase wages in a historically tight job market, even as the economy shrunk in the second quarter.

“The rest of the economy might be slowing down, but wages are speeding up,” said

Nick Bunker,

economist at jobs site Indeed. “Competition for workers remains fierce as employers have to keep bidding up wages for new hires.”

A separate Commerce Department report Friday showed consumers boosted their seasonally adjusted spending by 1.1% in June, up from a revised 0.3% increase in May. Personal income rose by 0.6% last month.

The report showed that inflation as measured by the Federal Reserve’s preferred gauge, the personal-consumption expenditures price index, rose 6.8% in June from the year before, up from the 6.3% increase in the 12 months through May.

Economists say the latest employment-cost figures are a discouraging sign for Federal Reserve officials as they try to bring four-decade high inflation down to their target of 2%. Companies often pass on price increases to consumers to compensate for higher labor costs.

On Wednesday, the Fed lifted its benchmark interest rate to a range between 2.25% and 2.5%.

“The Fed is closely tracking the data for signs of a wage-price spiral,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note, describing when rising prices cause workers to demand higher wages, which in turn causes companies to raise prices. “These readings, which are showing no sign of easing, will only strengthen the Fed’s resolve to keep moving interest rates higher.”

Richard Moody, chief economist at

Regions Financial Corp.

, thinks wage growth will cool only gradually because employers are competing for a limited pool of workers. Job openings, at 11.3 million in May, have held well above prepandemic levels, and there are fewer workers seeking jobs than before Covid-19 took hold in the U.S.

Workers are also changing jobs at high rates. That dynamic is contributing to wage growth, as job switchers tend to reap bigger pay increases and put pressure on employers to raise pay for existing employees.

Jerry Pugh,

who owns 15 locations of suburban Atlanta-based gym franchise Workout Anytime, said many long-term employees have left for other industries or higher pay over the past year and a half, keeping the gyms in constant hiring mode. Mr. Pugh said the facilities need general managers, sales staff, personal trainers and fitness directors.

Workout Anytime gyms are dealing with staff turnover and higher wages—factors also affecting employers in other industries.



Photo:

Kevin C. Cox/Getty Images

“You can still get quality employees, but the price you’re having to pay is much higher than it was before Covid,” said Mr. Pugh. “Everybody wants more money than they’ve ever wanted.”

Mr. Pugh’s gyms are paying higher commission rates to personal trainers than a year ago, and they also are paying trainers $12 to $14 an hour for “floor hours,” in which they try to pull in new members for their services. That is up from an hourly rate of $10 a year ago. The gyms recently started offering other incentives, including paying for some high-performing employees’ personal-training or nutrition certifications.

To offset some of the higher labor costs, the gyms raised rates for new members by 99 cents a month at the end of last year. The basic monthly membership price is now $19.99. Mr. Pugh said the company is weighing another price increase.

Workers’ wage gains are largely falling behind inflation. Adjusted for inflation, private-sector wages and salaries fell 3.1% in the second quarter from a year earlier.

Wages for leisure and hospitality workers started surging last year as restaurants, bars and hotels reopened and struggled to find workers. There are signs that wage growth in the sector remains strong but is cooling as more workers trickle into the labor force.

Carrols Restaurant Group Inc.,

which operates more than a thousand Burger King locations and dozens of Popeyes restaurants, is seeing some slight easing of wage pressures. Average hourly wages for team members increased 13.6% from a year earlier in the company’s fiscal first quarter, compared with 14.2% in the fourth quarter, said

Anthony Hull,

chief financial officer of the Syracuse, N.Y.-based company.

“Hiring pressures are stabilizing as we are seeing an increase in application flow,” Mr. Hull said in an earnings call in May. The company has paid more to team members who acted as managers by opening and closing the restaurants. Mr. Hull said he expects those cost pressures to cool as turnover among managers declines.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

70% of Americans think a recession is coming. How to prepare

Leave a comment

Woman on her back pushing shopping cart in supermarket aisle

David Espejo | Getty Images

Experts are weighing the odds as to how likely a recession is and how fast it could come upon us.

Most Americans — 70% — already believe an economic downturn is on its way, according to a new survey from MagnifyMoney. The online survey was conducted between June 10 and 14 and included 2,082 respondents.

A recession is defined as a significant economic decline that lasts more than a few months.

The biggest recession warning sign, which 88% of respondents pointed to, is high inflation.

Respondents also reported seeing signs of an economic downturn in housing and rent prices, with 61%; rising interest rates, 56%; the stock market, 55%; declines in consumer spending, 42%; and rising unemployment, 36%.

Some of those perceptions may lean on how people feel about the economy, rather than hard numbers. While the U.S. economy still has bright spots — including a strong overall job market and rising wages — higher prices have raised Americans’ feelings of financial insecurity, according to Matt Schulz, chief credit analyst at LendingTree, which owns MagnifyMoney.

“When something as fundamental to people’s every day lives as gas prices and grocery bills goes sky high, it really has a huge impact on the way people look at things,” Schulz said.

New inflation data expected to be ‘highly elevated’

Forthcoming inflation data could further fuel consumer’s feelings of concern.

The Consumer Price Index, which measures the average change in prices over time for certain goods and services, climbed 8.6% in May from the previous year, the highest increase since 1981.

New data for June is slated to be released on Wednesday.

“We expect the headline number, which includes gas and food, to be highly elevated, mainly because gas prices were so elevated in June,” White House press secretary Karine Jean-Pierre said during a Monday press briefing.

However, those June numbers are already out of date because energy prices have since fallen substantially, she said.

“The President’s number one economic priority is tackling inflation,” Jean-Pierre said. “And looking ahead, there are a number of reasons why we expect those high prices to ease over the coming months.”

What people are doing to prepare for a recession

The biggest worry people citied about a looming recession is the inability to pay their bills, with 44%, according to the MagnifyMoney survey.

In order to prepare for a downturn, many are focused on keeping their spending in line — 62% of respondents said they are cutting back on spending, while 39% are sticking to a budget. Those steps can be important in the event of a job loss or other financial setback, experts say. Others are building emergency savings, with 26%.

MagnifyMoney respondents also reported taking steps to shore up their income streams, with 24% working a side gig and 6% improving job performance. Another 6% reported adjusting their investment portfolio.

Meanwhile, 11% of respondents said they are doing nothing.

Reducing debt can have a ‘significant’ effect

There are proactive steps individuals can take now to get themselves in a better financial position, according to Schulz.

One in 4 respondents in the MagnifyMoney survey reported paying down debt as a way to get their finances ready for an economic downturn. As the Federal Reserve raises interest rates, people may want to consider their options to control their personal interest rates on their debts, he said.

More from Personal Finance:
65% of Americans earning $100,000 or more are ‘very concerned’ about inflation
5 steps you can take now to financially prepare for a recession
3 ways to deal with inflation, rising rates and your credit

For those with good credit, a 0% transfer credit card can by “very, very helpful,” Schulz said.

For those who don’t have good credit, a low interest personal loan may help reduce the interest you’re paying on your balances.

By calling the issuer for a current credit card, you may be able to negotiate a lower rate. That has worked for about 70% of people who have asked in the past year, according to Schulz.

“Any of those moves can reduce your rates significantly more than the amount that the Fed is raising them by on a monthly basis, so it can be a really significant thing,” Schulz said.

Read original article here

Business

High inflation points to bigger Social Security COLA in 2023

Leave a comment

Joe Raedle | Getty Images News | Getty Images

Social Security beneficiaries could see another record cost-of-living adjustment in 2023, based on the latest government data showing persistent high inflation.

But that increase may not be enough to pare the loss in buying power recipients have experienced over the years, according to a new analysis from The Senior Citizens League, a non-partisan advocacy group.

A popular inflation measure, the Consumer Price Index for All Urban Consumers, known as the CPI-U, was up 8.3% over the past 12 months, staying near 40-year highs, according to April data released on Wednesday.

More from Personal Finance:
More Americans living paycheck to paycheck as inflation climbs
Where consumers plan to cut spending amid record-high prices
Americans say inflation has ‘negative impact’ on goals

Meanwhile, the index the Social Security Administration uses to calculate cost-of-living adjustments each year, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, increased by 8.9% over the last 12 months.

That points to a cost-of-living adjustment of 8.6% for 2023, based on the April data, according to The Senior Citizens League.

That is down from the group’s 8.9% COLA estimate based on March CPI data. At that time, the CPI-W had increased 9.4% over the past year.

Social Security beneficiaries saw a 5.9% bump to their monthly checks in 2022, the highest increase in about 40 years.

To be sure, a bigger cost-of-living adjustment for 2023 is not guaranteed.

To calculate the COLA each year, the Social Security Administration compares CPI-W data from the third quarter to the third quarter of the prior year.

If inflation subsides, there is the possibility of a lower adjustment, or even no increase, for next year or in 2024.

Much of that will depend on how fast the Federal Reserve’s efforts to tamp down inflation by raising interest rates takes effect, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.

“I think the action at the Fed is going to slow things down,” Johnson said.

One possibility is inflation may become deflation, where prices start going down very rapidly, she said.

However, even another record high cost-of-living adjustment may not be enough to stop the loss of buying power people who rely on those benefits have already seen over the years.

Social Security benefits have lost 40% of their buying power since the year 2000, according to a new analysis by The Senior Citizens League.

“People who have been retired the longest have really been impacted the most, because they’ve had a cumulative effect where their COLA hasn’t been keeping up,” Johnson said.

The sharpest drop in purchasing power ever recorded by the group occurred between March of last year and this March, when it dropped 10 percentage points.

Fastest-growing costs for older Americans from March 2021 to March 2022

Item Cost in March 2021 Cost in March 2022 % Increase
1. Home heating oil $2.86 $5.13 79%
2. Gasoline (gallon) $2.86 $4.33 51%
3. Used vehicles (numeric data) 153.873 208.216 35%
4. Propane gas (gallon) $2.30 $2.98 30%
5. Eggs (dozen) $1.63 $2.05 26%
6. Bacon (lb.) $5.85 $7.20 23%
7. Oranges (lb.) $1.27 $1.48 16.5%
8. Coffee (lb.) $4.67 $5.41 16%
9. Medicare Part B premium $148.50 $170.10 14.5%
10. Ground chuck (lb.) $4.31 $4.87 13%

Source: Senior Citizens League, based on Bureau of Labor Statistics data through March.

Read original article here

Business

Social Security retirement age reaches 67. Some say it may go higher

Leave a comment

Many Americans eagerly look forward to a time when they can stop working and officially set their status to “retired.”

But when asked what age they anticipate that could be, there isn’t a consensus.

The average age when people say they hope to retire is 62, according to one survey.

That is also the age at which people can first claim Social Security retirement benefits, so long as they are eligible based on their work records.

However, people receive reduced benefits for claiming early. If they wait until full retirement age to claim — generally 66 or 67, depending on when they were born — they receive the full benefits which they have earned. If they wait until age 70, they stand to get an 8% per year benefit increase over their full retirement age.

More from Life Changes:

Here’s a look at other stories offering a financial angle on important lifetime milestones.

Meanwhile, the House of Representatives last week approved a retirement bill that would push out the age for required minimum distributions on certain savings accounts to 75, up from the current age of 72. That change, if it passes the Senate, would be gradually phased in by 2032.

The proposal reflects a reality that many people today are generally healthier than generations past and therefore are living and working longer, said Mark J. Warshawsky, a senior fellow at the American Enterprise Institute and former deputy commissioner for retirement and disability policy at the Social Security Administration.

“It should cascade to other official ages throughout the tax code and the government’s programs, Social Security included,” Warshawsky said.

To be sure, no imminent changes to the Social Security program are in the works.

“It has and will continue to be the third rail of politics because of the public sensitivity around the issue,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

That does not mean there is no urgency around the issue, however.

The trust funds that the Social Security Administration relies on to pay benefits are projected to become depleted in 2034. At that time, 78% of promised benefits will be payable, the government agency said last year.

To shore up the program, lawmakers have a choice of increasing taxes on benefits, raising payroll taxes or increasing the retirement age. Any enacted changes could include a combination of all three.

Of note, Social Security advocates are staunchly against tweaking the Social Security retirement ages.

“An increase in the full retirement age is just a benefit cut,” said Joe Elsasser, founder and president of Covisum, a provider of Social Security claiming software.

How the retirement age could change

President Ronald Reagan signs the Social Security Act Amendment into law on April 20, 1983.

Corbis | Getty Images

Retirement ages were last altered in 1983 under then-President Ronald Reagan.

Those changes, which raised the full retirement age to 67 from 65, are still being phased in today.

Even just the bump up to age 66 from 65 represented a 5% benefit cut, Elsasser noted.

Many experts expect that any future changes could push up the Social Security retirement age. Notably, the Social Security 2100 Act: A Sacred Trust, introduced by Rep. John Larson, D-Conn., last year, would leave those thresholds unchanged and, in some respects, make benefits more generous. But the legislation has a five-year timeframe.

Separately, the Social Security Administration has scored the financial effects other proposals to change the age thresholds could have on the program.

Just in 20 years, we’ve seen a substantial increase in the retirement age.

Mark J. Warshawsky

senior fellow at the American Enterprise Institute

“I expect that at some point in the not too distant future, Congress will agree on a Social Security package that includes some type of adjustment to the retirement age,” Akabas said. “Whether that’s in two years or 10 years, it’s very difficult to predict.”

Experts say it’s possible the full retirement age could get pushed up by a year or two, which could be gradually phased in.

Additionally, lawmakers could also raise the initial age for eligibility for retirement benefits from 62, as well as the highest age for delaying benefits and earning benefit increases from 70.

Adjustments could make it so the most vulnerable — those who are forced to retire at the earliest possible age — don’t see the same type of benefit reduction, Akabas noted.

How to plan for future benefits

Geber86 | Vetta | Getty Images

In 2000, the average age at which people retired was roughly 61 or 62. Two decades later, it’s around 66, according to government data, Warshawsky said.

“Just in 20 years, we’ve seen a substantial increase in the retirement age,” Warshawsky said. “People really, really are working longer.”

Anecdotally, Elsasser said he sees more people retiring earlier than they had anticipated as their work prospects change.

That highlights the importance of planning ahead, so you anticipate whatever your retirement years bring. Admittedly, that can be tricky, given that Social Security could be susceptible to change.

If you’re 60 and up, there is less reason to worry any prospective changes would affect your benefits, Elsasser said.

But if you’re 45 to 60 years old, it’s reasonable to plan for benefit reductions of about 5%, he said. For those who are even younger, a 10% to 15% cut is possible.

Moreover, people of all ages should also plan for worst-case scenarios in which the program does reach a point where it can only pay a portion of benefits, which may prompt as much as a 24% benefit cut for retirees.

“The real importance of planning is just making sure you have all your bases covered,” Elsasser said.

Read original article here

Business

Inflation Weighed on Consumer Spending Growth in February

Leave a comment

Consumer spending growth, a key engine of the economy, slowed sharply in February, as the Omicron surge of Covid-19 eased and inflation accelerated amid Russia’s invasion of Ukraine.

U.S. households boosted their sending at a seasonally adjusted 0.2% pace in February from the month before, down from a revised 2.7% rate in January, when spending rebounded from an Omicron-related dip in December, the Commerce Department said Thursday.

Household incomes rose in February as the unemployment rate dropped and employers scrambled to hire new workers. Personal income increased by 0.5% in February over the prior month, a pickup after it was nearly flat in January, but inflation rose more quickly. Income after taxes, adjusted for inflation, fell for the seventh straight month in February to the lowest level since March 2020, the Commerce Department said.

The data add up to a picture of the economy growing as shoppers benefit from a strong labor market and rising wages, but see those gains eroded by rising inflation, economists said.

Inflation “will be an even bigger drag in March with surging energy prices in the wake of the Russian invasion of Ukraine,” said

Gus Faucher,

chief economist at the

PNC Financial Services Group.

Consumer prices rose 0.6% on the month and 6.4% on the year, a new 40-year peak as measured by the department’s personal-consumption expenditures price index, the Federal Reserve’s preferred gauge. Annual core PCE inflation, which strips out volatile food and energy prices, rose to 5.4% in February.

In February, the wave of Covid-19 infections from the Omicron variant faded, leading consumers to spend more on services like dining in restaurants and traveling. Services spending rose by 0.9% in February, the most since last July, while goods spending declined by 1%, largely due to lower spending on vehicles as prices continued to rise and supply chain issues hurt availability.

The shift toward services spending shows consumers rebalancing after Omicron hurt demand for restaurant meals and entertainment and forced some Americans to cancel travel plans.

Russia’s attack on Ukraine helped push the price of oil to over $100 a barrel for the first time since 2014. Here’s how rising oil costs could further boost inflation across the U.S. economy. Photo illustration: Todd Johnson

Travel, both for leisure and business, has rebounded faster than expected from Omicron, airline executives said. Major U.S. airlines said earlier in March that their revenues in the first quarter of 2022 will likely be at the high end of what they had expected at the start of the year, or better.

Kim Cook, owner of an Overland Park, Kan., travel agency, said that airline ticket and hotel prices aren’t deterring her customers.



Photo:

im Cook

Kim Cook, the owner of Love to Travel, a tropical destinations-focused travel agency in Overland Park, Kan., said that her customers aren’t letting high airline ticket and hotel prices deter them from booking trips, especially with large groups of friends and family.

“They say, ‘I know it’s going to be pricey, but we haven’t been anywhere in two years, we really want to do this,’” Ms. Cook said. After building up savings during the pandemic, “they’ve got the money to burn.”

New applications for U.S. unemployment benefits rose slightly last week, but remained near historic lows, indicating a strong labor market in which employers are holding on to their workers amid high demand.

Consumers are sending mixed signals about how they feel about the direction of the economy. The Conference Board’s consumer-confidence index for March showed that consumers are optimistic about the Covid situation and the labor market but are concerned about the future impacts of Russia’s invasion of Ukraine on inflation. The invasion pushed up energy and commodity prices, adding to snarled supply chains and goods shortages that were already exacerbating price pressures.

“The outlook going forward is definitely not as rosy as it was,” said Alex Lin, an economist for

Bank of America.

“We’re expecting growth to slow down and consumer spending to slow with it.”

While companies for the most part say they can pass along price increases, they warn there are limits to what consumers will be willing to tolerate before high prices begin to cut into demand.

Inflation and shortages have already pushed consumers to switch from more expensive brands to cheaper options, survey data show. About 70% of U.S. shoppers said they had purchased a new or different brand than they had prepandemic, according to a survey conducted from May 2020 to August 2021 by private-label consulting company Daymon Worldwide Inc.

Meghna Marathe, a consultant in Jersey City, N.J., said that impending parenthood has made her more cost-conscious.



Photo:

Meghna Marathe

“Prices will force the consumer to shift,” said

Lindsey Piegza,

chief economist at

Stifel Financial Corp.

“When you’re talking about disrupting two economies that play major roles in energy and agriculture, that will affect consumer staple prices.”

Meghna Marathe, a 29-year-old consultant in Jersey City, N.J., is expecting her first child in August with her husband. She said impending parenthood has made her much more cost-conscious than she usually is, a change that has only been exacerbated by inflated prices.

“I’ve always kind of been able to, for the most part, not hesitate to purchase something,” she said. Now, when she is out shopping for the baby, she is more cost-conscious and focused on what the baby needs, rather than what might be “just fun to have.”

“A lot of expecting moms go into stores and see all the cute stuff they can buy for the nursery—I’ve been window-shopping, but I haven’t bought any of that,” she said.

Write to Gabriel T. Rubin at gabriel.rubin@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Omicron Starts to Slow U.S. Economy as Consumer Spending Flags

Leave a comment

The number of diners seated at restaurants nationwide was down 15% in the week ended Dec. 22 from the same period in 2019, a steeper decline than in late November, data from reservations site OpenTable show. U.S. hotel occupancy was at 53.8% for the week ended Dec. 18, slightly below the previous week’s level, according to STR, a global hospitality data and analytics company.

Rising case numbers are leading many businesses to close for a short period, entertainment venues to cancel shows, universities to shift classes online and offices to delay or reverse reopening plans.

“We are still on track for very strong fourth-quarter consumption, but I am now seeing that that momentum continues to fade,” said

Aneta Markowska,

chief economist at Jefferies LLC.

Still, low unemployment, substantial savings and briskly rising wages are giving Americans money to spend. Many are also eager to go out and gather with family after nearly two years of social-distancing protocols. In the 10 days through Dec. 22, the number of travelers passing through Transportation Security Administration checkpoints was more than double the number of passengers flying in the same period of 2020, though still below 2019 levels.

Employers are clinging to workers in a tight labor market. Jobless claims, a proxy for layoffs, were unchanged at 205,000 in the week ended Dec. 18, the Labor Department said Thursday. Claims are hovering near the lowest level in more than half a century despite rising concerns about Omicron.

Consumers boosted their spending by 0.6% last month, a slowdown from 1.4% growth in October, the Commerce Department reported Thursday. Economists attributed part of the November slowdown to consumers shifting their holiday purchases a month earlier, amid warnings of potential shortages due to supply-chain problems.

For now, economists expect the highly contagious Omicron variant to cause a short-term soft patch for spending and broader economic growth as some people stay home.

Many economists have lowered their growth projections for early 2022 due to growing concerns about the latest surge in coronavirus cases. The forecasting-firm Oxford Economics now expects U.S. gross domestic product to grow at a 2.5% annual rate in the first quarter, down from a previous estimate of 3.4% growth.

Much of the difference in output could be delayed, rather than lost altogether. Economists at Nomura lowered GDP forecasts for the current quarter and the first quarter of 2022, in part reflecting forecasts for weaker consumer spending tied to Omicron. However, they expect growth to pick up in the second half of next year as pandemic-induced supply-chain disruptions ease and inventory investment that was pushed off materializes.

Though each wave of rising Covid-19 cases appears to be less detrimental to the economy than the one before it, some economists say that Omicron poses different threats.

As the cost of groceries, clothing and electronics have gone up in the U.S., prices in Japan have stayed low. WSJ’s Peter Landers goes shopping in Tokyo to explain why steady prices, though good for your wallet, can be a sign of a slow-growing economy. Photo: Richard B. Levine/Zuma Press; Kim Kyung Hoon/Reuters

For instance, Omicron is hitting the Northeast harder than other recent virus surges. Businesses in the region tend to be more willing to impose their own restrictions to curtail the virus than some other areas of the country, said Ms. Markowska of Jefferies.

The economy is also further into the reopening process than earlier in the pandemic, meaning Omicron has the potential to reverse reopenings rather than just delay them, Ms. Markowska said. She said that office occupancy might decline due to Omicron’s spread, which could damp demand for services such as cafeterias.

CNN President

Jeff Zucker

on Saturday told staffers the network was closing its offices with the exception of those who need to be there to perform their jobs.

Ford Motor Co.

,

Uber Technologies Inc.

and

Alphabet Inc.’s

Google all delayed office returns recently amid Omicron’s spread.

Bars in New York and Nashville announced temporary closures due to breakthrough infections among staff. A museum at the University of Illinois at Chicago said it would shut its doors for over a month and only offer virtual tours amid the rapid spread of the Omicron variant.

Some of the most popular Broadway shows, including “Hamilton” and “The Lion King,” have canceled performances through Christmas. Harvard University said it would start the winter semester online for three weeks to reduce density on campus.

Omicron is also keeping some sick workers at home for a period. This sort of dynamic could further restrain factories’ ability to pump out goods. Product shortages have been a major impediment to consumers’ ability to spend.

“It’s not that there’s a lack of demand for goods; in fact, that’s been one of the big surprises of 2021,” said

Andrew Hollenhorst,

chief U.S. economist at

Citigroup Inc.

“It goes back to the supply chain. You just cannot source these goods.”

A dearth of available goods could drive inflation higher. The personal-consumption expenditures price index, which is the Federal Reserve’s preferred inflation gauge, rose 5.7% in November from a year earlier, the fastest increase since 1982, the Commerce Department said Thursday. So-called core prices, which exclude volatile food and energy items, increased 4.7% year-over-year in November, the highest reading since 1989.

That meant after adjusting for inflation, consumer spending was unchanged in November from October, and after-tax personal income fell 0.2%.

So far, fast-rising costs don’t appear to be derailing consumers’ appetite to spend, though some individuals are concerned about the longer-term outlook for inflation.

David Esguerra,

a 35-year-old from Phoenix, said he has seen prices rise rapidly. Pet-grooming services—including a bath and nail trimming—for his terrier mix Sofie have shot up to about $80 from $60 last year. Croissants at the farmers market cost roughly $6 this year, up from $4 in 2020, he said.

The supply-chain engineer’s pay raise this year was below the rate of inflation. As a result, he has adjusted his spending habits. For instance, he sought out furniture on secondhand markets like Craigslist to outfit his new home, and he is cutting back on purchases of clothes, shoes and phone accessories.

Mr. Esguerra isn’t overly concerned about his ability to afford daily necessities in the short term. He worries, though, about whether this bout of inflation will last. “My concern is more about long-term, how is this going to affect my financial future?” he said. “Is inflation going to stay high?”

Waning fiscal stimulus could also influence some contours of the economy’s growth path. After the pandemic hit in spring 2020, the federal government responded with expanded unemployment benefits of up to $600 extra a week, multiple rounds of stimulus checks and a boost in the 2021 child tax credit by as much as $1,600 per child.

Americans are now running through large piles of extra cash they accumulated as a result of government stimulus. As they deplete their savings, some workers might re-enter the labor force and help businesses fill job openings and meet production needs. With a much smaller share of worker incomes coming from government stimulus spending, wage growth will become a more important source of spending power in the coming months.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com and Harriet Torry at harriet.torry@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here