Bob’s Journal for 11/3/22

Social Security Benefits Will Increase 8.7% for 2023; Don’t Let That Change Your Strategy

Because of the high inflation over the last 12 months, the 2023 cost of living adjustment (COLA) for Social Security benefits will be 8.7%, meaning benefits in 2023 will be 8.7% higher than in 2022.

Don’t let that change your strategy for claiming Social Security benefits. I regularly hear from readers who are thinking of accelerating the date they claim Social Security retirement benefits because they fear missing out on the COLAs, but don’t worry about that.

The benefit estimates you receive for Social Security won’t reflect this, but the COLA will be included in the benefits you eventually receive. The benefit estimates tell you the primary insurance amount (PIA), which is your benefit at full retirement age, as of age 62. Once you turn 62, the Social Security Administration stops factoring inflation in the benefits estimates it issues.

But when you claim benefits, the PIA will be updated for the COLAs that occurred after age 62. Any additional adjustments, such as credits for waiting to claim benefits after full retirement age, also will be reflected in the benefit you eventually receive.

This is one of the reasons why I say that Social Security understates benefits in its estimates. It doesn’t want people complaining to their congressional representatives that their benefits are less than Social Security estimated.

Don’t let inflation and inflation forecasts change your Social Security claiming strategy. You won’t miss out on an inflation adjustment by claiming benefits earlier than planned and, in fact, will receive a lower benefit than you would from waiting.

2022: A Record Year for Stocks

U.S. stock indexes are likely to set a record in 2022, but it’s not a positive record.

By mid-October, the S&P 500 had negative returns from the previous day’s close on almost 57% of trading days. The record for the highest percentage of negative-return days is 58.3%, set in 1974.

The S&P 500 rebounded after mid-October. If the rebound lasts, the S&P 500 will avoid setting a record for dismal performance in 2022. But if the late October rally proves to be brief, as the rally over the summer did, a series of negative days to close out the year could set a record.

The S&P 500 is working on another undesirable record in 2022, the frequency of days when the index declined 1% or more from the previous day’s close.

The worst two years on that measure were 2008, when the index declined 1% or more on 29.6% of trading days, and 2002, when the index declined that amount on 28.6% of trading days, according to Bespoke Investment Group.

So far in 2022, the S&P 500 lost 1% or more on 26.7% of trading days to take third place in the rankings. A market slide to close out the year could cause 2022 to take this record as well.

It Now Is Less Expensive to Hear Better

The Food and Drug Administration finally eased the rules on hearing aids in August. Now, many people will be able to hear better at much lower cost.

The FDA approved over-the-counter purchases of hearing aids without a prescription and without a doctor’s exam or a fitting by an audiologist for people with mild to moderate hearing loss.

The FDA estimated that the change will save consumers as much as $3,000 per pair of hearing aids and benefit about 30 million Americans.

A number of retailers have announced that they are selling hearing aids in their stores or through their websites, and more will do so in the future.

Hearing aid industry groups supported the deregulation but also caution consumers that avoiding a hearing exam could keep more serious conditions from being diagnosed.

The Data

Personal income increased 0.4% in September after rising the same amount in August. Compensation increased by 0.5%, indicating wage inflation continues.

Increases in personal consumption expenditures (PCE) continued to outpace income, with PCE rising by 0.6% in September, following the same jump in August.

The Fed’s preferred measure of inflation, the PCE Price Index, rose by 0.3% in September after climbing by the same amount in August. Over 12 months, the index increased 6.2%. Prices for goods soared 8.1% over 12 months, while prices of services increased 5.3%.

Excluding food and energy, the PCE Price Index increased 0.5% in September and 5.1% over 12 months.

The number of job openings increased by 437,000 in September after declining in August, according to the JOLTS (Job Openings and Labor Turnover Survey) report. That brought the number of job openings back near the all-time high reached in late 2021.

The number of workers hired during September decreased by 252,000, and the number of workers quitting jobs declined by 123,000 from August’s level.

The private sector added 239,000 new jobs in October, according to the ADP Employment Report. Most of the new jobs were created in leisure and hospitality. Many other sectors of the economy lost jobs during the month.

The Consumer Sentiment Index from the University of Michigan was 59.9 at the end of October, slightly higher than the 59.8 level at mid-month.

Sentiment about current conditions improved while expectations for the future declined. Expectations of inflation over the next year increased to 5% from 4.7%.

Pending home sales declined 10.2% in September and were 31% lower than 12 months earlier.

Durable goods orders increased 0.4% in September, following a 0.2% hike in August.

But after excluding the volatile transportation sector, orders decreased 0.5% in September. Orders for non-defense and non-transportation durable goods, which is considered a good measure of business investment, declined by 0.7% in September. That follows a 0.8% decline in August.

The ISM Manufacturing Index was 50.2 in October, down from 50.9 in September and the lowest level since mid-2020.

The PMI Manufacturing Index increased to 50.4 at the end of October, compared to 49.9 in mid-month. The October reading, however, is the second-lowest, end-of-month level for the index since second quarter of 2020.

The Kansas City Fed Manufacturing Index for October came in at negative 22, compared to a positive 2 in September. Almost all factors in the index were worse in October than in September, and also were lower than 12 months earlier.

The Dallas Fed General Business Activity Index declined in October to negative 19.4 from negative 17.2 in September. The Production Index also declined in October, falling to 6.0 from 9.0 in September.

The first estimate of GDP for the third quarter indicated the economy grew at a 2.6% annualized rate in the quarter. But just as the negative growth estimates of the two previous quarters over-estimated the weakness of the economy, the latest estimate overstates the strength of the economy.

Because of the way GDP is calculated, changes in imports and inventories again overshadowed the real changes in economic activity during the quarter.

The estimate for the third quarter showed that the housing market continues to be hurt by rising interest rates. Residential investment decreased for the sixth consecutive quarter and declined by 26.4% in the third quarter.

Consumer spending increased at a slower rate, rising only 1.4% in the third quarter after increasing 2% in the second quarter.

New unemployment claims increased by 3,000 to 217,000 in the latest week.

Continuing claims increased to 1.438 million from 1.383 million.

The Markets

The S&P 500 lost 0.10% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 2.49%. The Russell 2000 increased 3.04%. The All-Country World Index (excluding U.S. stocks) added 1.18%. Emerging market equities advanced 1.78%.

Long-term treasuries rose 2.01% for the week. Investment-grade bonds increased 1.31%. Treasury Inflation-Protected Securities (TIPS) added 0.34%. High-yield bonds gained 0.86%.

In the currency arena, the U.S. dollar advanced 0.70%.

Energy-based commodities increased 1.89%. Broader-based commodities rose 1.26%. Gold declined 0.32%.

Bob’s News & Updates

My next book will be “Retirement Watch: The Essential Guide to Retiring in the 2020s.” The official publication date is Jan. 3, 2023. You can make a pre-publication order or learn more about the book by clicking here and here, respectively.

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It’s received 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.