Bob’s Journal for 10/17

Social Security Inflation Adjustments for 2025 Are Set

The Social Security Administration (SSA) last week released the cost-of-living adjustments (COLAs) for 2025, based on the Consumer Price Index through September.

In January 2025, benefits payable to Social Security beneficiaries will increase 2.5%. The SSA estimates this will increase the average benefit by $50 per month.

The COLA averaged 2.6% over the last 10 years and was 3.2% in 2024. The maximum benefit for those who begin receiving benefits in 2025 will be $4,018, up from $3,822 in 2024.

The average monthly benefit in 2025 will be $1,976 for all retired workers. The average benefit for a couple in which each spouse receives benefits will be $3,089.

Beneficiaries who have a “my Social Security” account on the agency’s website can view their 2025 benefit levels online in early December. Others will wait to receive a letter from SSA.

In other inflation adjustments, the maximum amount of earnings subject to the Social Security payroll tax in 2025 will increase to $176,100.

Social Security beneficiaries who are younger than their full retirement age and have earned income from working will have benefits reduced $1 for each $2 of earned income above $23,400.

In the year a beneficiary with earned income reaches full retirement age, benefits will be reduced $1 for each $3 earned over $62,160. Once a beneficiary reaches full retirement age, there’s no benefit reduction for earned income.

U.S. Government Interest Payments to Consume More of Federal Revenue

The U.S. government’s interest expense payments are taking a larger share of revenues, and the shares of revenues going to interest payments is likely to increase in coming years.

The percentage of government revenue that goes to interest payments matters, because it could affect the number of investors willing to buy U.S. treasury debt.

The government isn’t paying down debt. Instead, when one set of bonds matures, the government refinances them by issuing another set of bonds.

Before buying new bonds, investors are likely to look at what analysts call the coverage ratio, or the relationship between cash flow and interest payments. The greater the percentage of cash flow going to interest expenses, the lower the coverage ratio is and the more precarious the debtor’s situation is.

For a little perspective, when Greece had its financial crisis in 2009-2011, the share of government revenues that went to interest payments each year was 13.4%, 14.7% and 16.8%, according to Joshua Rauh, a finance professor.

The U.S. government this year will pay 18.2% of its revenue as interest expense, and that will rise to 20.2% in 2025. The interest expense first exceeded 18% in 1991, before declining beginning in the late 1990s.

In 2025, the interest expense of the U.S. government will exceed 20% of revenues for the first time.

If the tax revenues earmarked for Social Security are excluded, the share of revenue going to interest expenses rises to 25.1% this year and 27.9% in 2025. It was 25.8% in 1991.

The Congressional Budget Office projects in 2034 interest will be 22.9% of revenues.

But the CBO forecast is based on an estimate that interest rates won’t change much over the next 10 years, moving from 3.36% in 2025 to 3.38% in 2034.

Rauh did his own estimates. If interest rates paid by the government increase by only about one percentage point over 10 years to 4.4%, interest payments would be 29.7% of revenue in 2034, or 40.4% when Social Security revenues are excluded.

Rauh projected that if interest rates increase a little each year to become 6.8% in 2054, interest would be 62.3% of revenue, or 81.9% if Social Security taxes are excluded.

Rauh has other estimates and comments in his essay linked above. The main point is that if the government doesn’t establish a plan to reduce the deficit and pay down some debt, then the Federal Reserve is likely to have to finance part of the debt through inflation. Investors then might demand higher interest rates or could decline to purchase treasury bonds.

Another of Rauh’s points is that either scenario could happen sooner than many people think if we experience higher inflation or some other unexpected economic event.

Financial Advisors, Clients Aren’t Communicating on Retirement Issues

There’s a huge gap between the advice financial advisors say they give clients and the issues clients say they are receiving advice about, according to new research.

There are seven key topics clients say they want advice about but that many say their advisors aren’t providing.

Most clients say they want to know about required minimum distributions, and advisors say they provide that advice. But only a little over half of clients say they’ve had discussions with advisors on the topic.

Other issues clients want discussed and say are neglected by their advisors are non-financial aspects of retirement, protected lifetime income, tax minimization, income planning, monthly budgeting and drawing down financial accounts.

Fortunately, we cover all those issues and more in detail in Retirement Watch.

I’ve long said that most financial advisors often don’t have time to discuss all the aspects of retirement finances in detail with their clients. That’s why even those who have financial advisors should use Retirement Watch to enhance the experience with their advisors.

The Data

The Consumer Sentiment Index from the University of Michigan declined to 68.9 in mid-September from 70.1 at the end of August. Sentiment about both current conditions and expectations fell in the first half of the month.

The Consumer Price Index (CPI) increased 0.2% in September, the same rate as in August. Over 12 months, the CPI rose 2.4% through September and 2.5% through August.

The core CPI, which excludes food and energy prices, increased 0.3% in both September and August. Over 12 months, the core CPI was up 3.3% through September and 3.2% through August.

The Producer Price Index (PPI) was unchanged in September after rising 0.2% in August. Over 12 months, the PPI was 1.8% higher through September and 1.9% through August.

The core PPI increased 0.1% in September and 0.2% in August. The core PPI was 2.8% higher through the 12 months ending in September, up from 2.6% through August.

The Empire State Manufacturing Index plummeted to negative 11.9 in October, the worst reading since May. The latest number is down sharply from positive 11.5 in September.

New unemployment claims jumped by 33,000 to 258,000 in the latest week. But the number of claims likely was distorted by the effects of Hurricane Helene, and that distortion is likely to continue for a while.

Continuing claims, which lag a week behind new claims, increased to 1.861 million from 1.819 million.

The Markets

The S&P 500 rose 1.15% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 1.60%. The Russell 2000 increased 2.52%. The All-Country World Index (excluding U.S. stocks) fell 1.22%. Emerging market equities dropped 2.16%.

Long-term treasuries lost 0.08% for the week. Investment-grade bonds increased 0.17%. Treasury Inflation-Protected Securities (TIPS) added 0.04%. High-yield bonds gained 0.18%.

In the currency arena, the U.S. dollar gained 0.87%.

Energy-based commodities fell 2.57%. Broader-based commodities lost 1.93%. Gold advanced 1.49%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.

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.