USA Today - 09.10.2019

MONEY USA TODAY z WEDNESDAY, OCTOBER 9, 2019 z 3B

PERSONAL FINANCE

Every month, Social Security divvies
out nearly 64 million benefit checks,
many of which wind up in the hands of
retired workers. More than 3 out of 5 of
these retirees lean on their benefit to ac-
count for at least half of their monthly
income, with at least one analysis find-
ing that more than 15 million retired
workers are pulled out of poverty as a di-
rect result of this guaranteed payout.
Suffice it to say that Social Security is
very well our nation’s most valuable so-
cial resource.
That’s what makes next week so im-
portant. On Thursday, Oct. 10, these
nearly 64 million beneficiaries are going
to learn just how big of a “raise” they’ll
be receiving next year.

We’re less than a week away from
Social Security’s 2020 COLA reveal

Since 1975, Social Security’s annual
cost-of-living adjustment (COLA) has
been tethered to the Consumer Price In-
dex for Urban Wage Earners and Clerical
Workers (CPI-W). This is an inflationary
index with eight major spending
categoriesand countless subcategories,
all of which have respective weightings
and help to measure the inflation or de-
flation that urban and clerical workers
in the U.S. are facing. This is why I re-
ferred to the increase in pay for benefi-
ciaries as a “raise,” because COLA is de-
signed only to keep pace with the infla-
tion, not help people ahead.
On the second Thursday of the
month, the U.S. Bureau of Labor Statis-
tics (BLS) releases inflationary data
from the previous month. That means
on Oct. 10, the BLS will release the
CPI-W reading from September, which
is the last puzzle piece needed to calcu-
late Social Security’s 2020 COLA.
You see, despite the BLS reporting in-
flation data each and every month, So-
cial Security’s COLA is only calculated
using CPI-W readings from the third
quarter (July through September). The
other nine months can be useful for

tracking price trends, but they don’t fac-

tor at all into the eventual COLA passed

along to beneficiaries.

In order to calculate Social Security’s

COLA, the average CPI-W reading from

the third quarter of the current year is

compared with the average CPI-W read-

ing from the third quarter of the previ-

ous year. If the average reading has ris-

en, it signals year-over-year inflation, in

which case beneficiaries will receive a

“raise” that’s commensurate with the

percentage increase, rounded to the

nearest 0.1%.

In the rare event that deflation occurs

• if the average reading declines year
  over year – benefits would remain stat-
  ic. Social Security payoutscan’t decline
  because of deflation.

Social Security’s 2020 COLA likely

will be ...

So, what does the 2020 COLA have in

store for beneficiaries?

Last year, the average CPI-W reading

in the third quarter was 246.352. But the

two-month average for July and August

of this year is 250.174. That’s an increase

of 3.822 points, or 1.55% from the previ-

ous year. Considering that the percent-

age change rounds to the nearest tenth

of a percent, beneficiaries are looking at

a rough increase of about 1.6%. With the

average retired worker bringing home

$1,473.42 a month, we’re talking about a

raise of less than $24 a month.

Mind you, we still don’t have Septem-

ber’s data yet. But what is worth noting

is that last year’s CPI-W readings rose in

each of the important sequential

months. In other words, August’s read-

ing was higher than July, and Septem-

ber’s was higher than August. In 2019,

August’s reading actually dipped from

July, which doesn’t necessarily bode

well for September.

Perhaps the biggest year-over-year

difference can be found in energy

prices. On the bright side, hurricane

devastation has been minimal in the

United States this year. The downside to

that is it’s meant little oil and oil refining

disruption in the Gulf of Mexico and

eastern seaboard ports. A handful of

hurricanes led to substantial energy

inflationin 2017 and 2018, but the wind

has clearly been let out of the sails in

2019. With energy prices now a drag on
      overall inflation, beneficiaries are prob-
      ably looking at an overall COLA of 1.5%
      or 1.6% in 2020, in my best estimate.

The loss of purchasing power

remains a big drag for seniors

However, as is often the case for sen-

iors receiving Social Security, no

amount of COLA is going to be sufficient

to allow them to keep up with the true

inflation they’re facing. That’s because

the CPI-W is inherently flawed.

As I’d mentioned, the CPI-W mea-

sures the spending habits of urban and

clerical workers, who often are of work-

ing age and aren’t receiving a Social Se-

curity payout. More important, these

are folks that have markedly different

spending habits than retired workers,

which make up more than 70% of all

program beneficiaries.

A December 2011 BLS analysis that

compared the CPI-W and Consumer

Price Index for the Elderly (CPI-E) – a

measure focused on the spending hab-

its of households with persons ages 62

and older – found that CPI-E medical

care spending was double that of the

CPI-W, with housing expenditures also

notably higher. What this means is that

important costs to seniors, such as

medical care and shelter, aren’t being

given enough weight in the CPI-W.

Meanwhile, lesser important expenses,

such as education, apparel, and trans-

portation, bear more weight.

According to an analysis from The

Senior Citizens League, the purchasing

power of Social Security dollars has de-

clined by 33% for seniors since 2000.

What $100 in Social Security income

bought in 2000 now only allows retired

workers to buy $67 worth of those same

goods and services. Without reforming

how the program’s inflation is mea-

sured, seniors are liable to continue re-

ceiving inadequate “raises” regardless

of the COLA they receive.

The Motley Fool is a USA TODAY con-

tent partner offering financial news,

analysis and commentary. Its content is

produced independently of USA TODAY.

Look for a Social Security ‘raise’ on Oct. 10

Sean Williams
The Motley Fool

GETTY IMAGES

Millennial women are not grabbing
the financial bull by the horns, a study
by UBS reveals.
UBS measured what it calls defer-
ment of financial decisions. The shock-
ing statistic is not that 54% of baby
boomer women defer financial deci-
sions to their husbands but that 56% of
millennial women defer.
The trend is moving in the wrong di-
rection.
In my first column, we discussed that
the average age of a widow in the USA is
59, and 30 is the average age of women
when they divorce. Consistently, we see
in study after study that women either
defer or lack confidence in their judg-
ment when it comes to financial matters
and investing in particular.
Women young and old should inform
themselves, and the men who love them
should insist they do so. There are fi-
nancial realities few of us are prepared
for when we experience life-changing
events. When I became widowed in
2017, I discovered three harsh realities I
want to share with married women who
may become single whether they want
to or not.
zYour income tax rate will rise.
Mine did. I went from filing married
jointly to filing single. As a single filer,
your deductions are much lower than
those for married couples. In 2019, sin-
gle filers can claim a standard deduction
of $12,200, and married couples filing
jointly can claim a standard deduction
of $24,400. The discrepancy between
single and married filers tax rates also is
noteworthy. If you are in, say, the 22%
tax bracket, you get there much quicker
as a single filer with $39,476 in annual
taxable income vs. $78,951 for your mar-
ried neighbors.
zYou will lose half the profit ex-
emption in your home.The tax code
provides for a $250,000 capital gains
exemption for individuals who sell a
home. For a married couple, the capital
gains exemption doubles to $500,000.
The difference in the proceeds from sell-

ing a home for a single woman can be

significant. Plan for it, if possible.

zDon’t count on Social Security.I

am not an expert on Social Security. I

learned that neither are most people

who work for the agency. I spoke to vari-

ous agency representatives and combed

the website with conflicting results. It

feels like a lose-lose parlor game to me.

The best advice I can give you is to meet

with a representative before you need

to. There are nuances to the survivor’s

benefit. There are income limitations

before turning 66 years old that women

need to understand. And don’t forget,

Social Security payments are subject to

tax.

The final gut punch for me? I learned

the extremely high cost of filing an es-

tate tax return was no longer deductible

in 2018. Deductibility was one of the ca-

sualties of the Tax Cut Jobs Act of 2017.

The IRS sent a survey asking for my in-

put on the cost of filing an estate tax re-

turn. Call me cynical: I tossed each

questionnaire in the garbage. When I

became single, it didn’t seem to me Un-

cle Sam cared one whit.

Develop a plan before you are forced

to. Inform yourself. And whatever you

do, no matter your age, don’t defer – en-

gage in the financial discussion.

Nancy Tengler is chief investment

strategist at Tengler Wealth Manage-

ment, ButcherJoseph Asset Manage-

ment. She is the author of “The Women’s

Guide to Successful Investing.”

Women, take control

of your financial future

Nancy Tengler
Special to USA TODAY

Women young and old should inform

themselves financially; you never know

when a life-changing event will

happen.GETTY IMAGES