The un-COLA
Richard Connor | Dec 13, 2021
SENIORS RECEIVING Social Security celebrated the recent announcement that their benefits will increase 5.9% this January. It’s the largest cost-of-living adjustment (COLA) in 40 years, and it’s based on a measure of inflation called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As the name implies, CPI-W is a “monthly measure of the average change over time in the prices paid by urban wage earners and clerical workers for a market basket of consumer goods and services.” The index jumped 5.9% between the third quarters of 2020 and 2021. There have been arguments for years that this index doesn’t accurately reflect spending by the elderly. Accordingly, in 1987, Congress directed the Bureau of Labor Statistics to develop a price index that better reflected elderly spending. This experimental inflation index for the elderly is known as CPI-E. CPI-E uses existing data, but changes its weightings to better represent modern elderly spending. For example, the elderly spend about twice as much on medical care as the rest of the population. Boston College’s Center for Retirement Research recently published an intriguing paper comparing the two indexes from 1983 to 2021. The elderly index has risen faster than CPI-W, consistent with the thought that seniors must grapple with higher inflation. But more recently, the gap has narrowed. In the first 20 years, CPI-E was 0.38 percentage point higher per year, on average, than CPI-W. For the period 2002-21, however, the elderly index was only 0.05 percentage point greater per year than the general inflation measure. The authors identify two main reasons for this—trends in medical and transportation costs. Medical inflation has slowed in the last 20 years, and the pandemic lowered medical inflation still further. As people avoided routine visits to the doctor, medical costs actually declined 0.4% in 2020.…
Read more » Cheat Sheets
Richard Connor | Feb 25, 2020
WHEN MY YOUNGEST son graduated college, he had two solid job offers. One would have allowed him to live at home for free and the other was halfway across the country. Guess which one he picked? In fairness, the job far from home was more interesting to him and provided a great start to his career. I remember him sitting down with his mother and me, and telling us he was planning to move to Texas. We discussed the job, benefits and salary. Then he asked a question I’ll never forget: How do I know this is enough to live on? I was working in the same industry, so I knew it was a good offer. But that doesn’t tell you what it takes to live in a different part of the country. I asked him to give me a few days to look into it. My first instinct was to create a budget in Excel and research costs in the Dallas-Fort Worth region. But instead, I searched for existing budget templates—and discovered Microsoft had templates available for free on the web. I downloaded a monthly budgeting template and got to work. It was logically constructed and easy to use. My son is an IT professional, tech savvy and way smarter than me, so I knew he would easily take to it. It had defined income and expense sections. The expense section was broken down into useful categories and easily customized. Being an engineer, I had to improve it. I added a separate worksheet that mimicked his future paystub, so he could see the impact of taxes, 401(k) contributions and other deductions—such as those for medical and dental insurance—on his take-home pay. I sent it to my son, and he added data on housing costs, utilities and so on. It showed…
Read more » Everyday Arbitrage
Richard Connor | Dec 27, 2022
SOME PROFESSIONAL investors make a living through arbitrage, exploiting small, short-term differences in the price of stocks, bonds, commodities and currencies. For the average investor, such trades can seem far too complicated. Still, I often look for opportunities for what I call “everyday arbitrage”—situations where I can take advantage of a difference in, say, tax rates or a product’s price. Here’s an example: In a recent article, I wrote about how 2022’s higher interest rates will significantly reduce the payouts that some retirees will receive from the 2023 lump-sum option on their pension. Today’s high-interest rates also mean that commercially available annuities are generating more income. This unique environment leads to an “interest-rate arbitrage” opportunity. A friend elected to file for her pension and receive a lump sum in 2022. She could then purchase an immediate lifetime annuity with the money and receive some 25% more than her pension plan’s monthly amount. Had she waited until 2023, her lump-sum payout would have been reduced by about 25%. I employed a tax arbitrage in 2017, which was a high-tax year for us. In March, I stopped working fulltime. I received a severance package and a vacation-time payout, started consulting work and began my pension. Coincidentally, my wife took a new job that paid her the highest salary of her career. All this meant 2017 was our highest income year ever, which pushed us into a higher marginal tax bracket. Our income would likely be lower in future years—which led to the tax arbitrage. In December, I opened a solo 401(k) and made a tax-deductible contribution equal to almost my entire consulting income for that year. In a subsequent year, I can withdraw this money as taxable income—but at a lower marginal tax rate. I’m now over age 59½, so there’s no…
Read more » Read the Fine Print
Richard Connor | Jan 14, 2020
IT’S THAT TIME of the year—when we should all reevaluate how much we’re saving in our employer's 401(k). The 2020 contribution limit is $19,500, up $500 from 2019’s level. For those age 50 and older, the catchup contribution was also raised by $500, to $6,500, so these folks can invest as much as $26,000 in 2020. In addition, it’s a good time to check we’re getting the most out of our 401(k). What are the rules on the employer match? Are we leaving any of that “free money” on the table? How about the plan’s investment options? Are we happy with our choices? Does the recent runup in stocks mean we need to rebalance our mix of stocks, bonds and cash investments? If your spouse also has a 401(k), you might look at both plans in concert—as well as any other investments—and make decisions to get the best out of each plan. For instance, there were many years when my plan’s investment options were superior to those in my wife’s plan, so we skewed her contributions toward her plan’s better options and I then adjusted my holdings to round out our family’s portfolio. Some of our retirement and taxable accounts might appear stock- or bond-heavy, but at the aggregate level we’re comfortable with our allocation. In doing your New Year’s 401(k) evaluation, be sure you understand any nuances that could cost you money. I ran into this when my employer sold my division to a private equity firm. Over the next several years, our benefits changed somewhat, but not too dramatically. There was, however, a subtle change to our 401(k) plan that took a few years to come to light and caused a lot of heartache for the employees that were affected. The situation had to do with “super savers”—employees…
Read more » Compare and Contrast
Richard Connor | Oct 28, 2021
IT’S OPEN SEASON for many of us—time to choose our health insurance for the year ahead. It’s a topic I got seriously interested in when I took over management of 500 mathematically astute engineers. They challenged me daily to understand how the various plans stacked up against each other. I spent a lot of time looking at various ways to assess the value of the different plan choices, and came up with a framework that worked for my family. This is also the time of year when Chicago financial researchers Morningstar publishes its annual review of health savings accounts (HSAs). These are another favorite topic of mine because of their triple tax-deductibility. My wife and I were able to accumulate a decent sum that we’re now using in retirement to help pay medical costs while we wait to reach the Medicare eligibility age of 65. I’ve spoken with dozens of people over the years about their benefit choices, and there always seems to be a group that wants the highest-priced plan, regardless of the underlying cost structure. They see plans with high deductibles and high out-of-pocket costs as unaffordable. They often pay so much more in premiums, however, that their total cost is greater. My advice: As a first step when comparing plans, figure out each plan’s lowest possible cost and maximum possible cost. The lowest possible cost is the sum of your premiums for the year. The maximum possible cost is that premium total plus the maximum out-of-pocket cost. Say you have two choices. The first is a top-notch health plan with monthly premiums of $700, maximum family deductible of $2,000, a 20% copay after meeting the deductible, and a maximum family out-of-pocket cost of $6,000. The lowest possible cost is 12 months of $700 premiums, or $8,400. The…
Read more » Doing Trumps Owning
Richard Connor | Nov 23, 2021
ONE OF MY FAVORITE tenets espoused on HumbleDollar is the emphasis on using our hard-earned money to buy experiences rather than possessions. As you get older, you feel like you have enough things. Indeed, my wife and I spent much of the past year getting rid of excess stuff when we downsized. Meanwhile, the pandemic has put on hold some of the experiences we look forward to. Prior to 2020, in 24 of the previous 25 years, my wife’s family had held a reunion in the Outer Banks of North Carolina over the Thanksgiving week. Due to the pandemic, we skipped last year. We’re planning to reconvene this year, and the excitement is palpable. We’ll be 46 strong, representing four generations. We have two toddlers who were born since the last reunion in 2019. They’ll be meeting cousins, aunts and uncles for the first time. As the family has grown, the size of the house we rent—and its price—have also grown. We’re now up to 27 bedrooms and about $13,000 for the week. We spilt the cost among the five families. I think it’s one of the year’s most worthwhile expenditures. My wife and I, and our two adult sons and their wives, agreed years ago that we don’t need or want presents. But we try to find time to share experiences. Since both of our sons live in or near New York City, we’ve hosted the family at some Broadway shows. In January 2020, weeks before COVID-19 hit New York, we saw Come From Away on Broadway. It’s a wonderful show about how the people of Gander, Newfoundland, opened their town and homes to thousands of travelers who were diverted there on 9/11. Broadway prices are pretty high, but I always enjoy the amazing talent on display. Add to…
Read more »
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Retirement Toys
Mark Crothers | May 4, 2026
The reality of Social Security and Medicare- My real life experience.
R Quinn | May 4, 2026
How much to provide a college student monthly?
Chris | Apr 25, 2026
Is saving really that hard? Nope, not for the great majority of Americans.
R Quinn | Apr 28, 2026
Investing Fundamentals: A Simple Guide for Beginners
W.D. Housley | Apr 24, 2026
Ageing and the Open Road
ArticleMark Crothers | May 2, 2026
Mark Crothers is a retired small business owner from the UK with a keen interest in personal finance and simple living. Married to his high school sweetheart, with daughters and grandchildren, he knows the importance of building a secure financial future. With an aversion to social media, he prefers to spend his time on his main passions: reading, scratch cooking, racket sports, and hiking.
Tax Free Income Trap, Dealing With MAGI
DAN SMITH | Apr 21, 2026
A Life You Build
Jeff Peck | Apr 19, 2026
Blood Money
Michael Flack | Mar 28, 2026
New Face, old scam
Jim Wasserman | May 2, 2026
How Far Behind is the IRS?
Larry Sayler | Apr 29, 2026
First Place
Jonathan Clements | Sep 6, 2024
Wall Street Trap
ArticleAdam M. Grossman | May 2, 2026