Reuters Money

Medicare will cut Social Security’s “raise” in 2012

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A girl tries to climb a snow-packed wall in a labyrinth at the Sapporo Snow Festival in Sapporo in northern Japan February 5, 2008.  REUTERS/Yuriko Nakao (JAPAN)After two years without an inflation adjustment, the Social Security Administration is expected to announce a 2012 cost-of-living adjustment (COLA) of more than 3 percent next week. That would be a sizable raise in this economy, and very welcome news to seniors hit hard by rising costs, slumping home equity and very low returns on fixed-income investments.

But the good COLA news will come with a nasty kicker. Many seniors will see a substantial part of the COLA consumed by a higher premium for Medicare Part B (doctor visits and outpatient services), which usually is deducted from Social Security payments. The situation sheds light on the complex interaction of Social Security COLAs and Medicare premiums — and it underscores the critical importance of the Super Committee deficit deliberations on possible cuts to future COLAs.

The annual Social Security COLA is determined by a formula that averages inflation for the third quarter, as reflected by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). No COLA was awarded in 2010 or 2011 due to a quirky spike in the third quarter of 2008, which resulted in a whopping 5.8 percent COLA for 2009. By law subsequent Social Security payments couldn’t rise until the CPI-W exceeded the 2008 level.

This year, the third quarter CPI-W has been running high as a result of higher energy costs. September inflation numbers will be released on October 19th, and most analysts forecast a resulting 2012 COLA greater than 3 percent. Indeed, some expect a number close to 3.5 percent or more.

5 ways to make a bond ladder work for you

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http://blogs.reuters.com/reuters-money/files/2011/10/ladder.jpgThe mention of bond laddering often makes one think of retirees sitting on the sidelines of the market, buying individual bonds with staggered maturities to goose up their yields, but lately it’s not such a doddering strategy.

With bond yields low, savings account interest rates microscopic and stock volatility scary, younger investors and even college savers are starting to embrace the time-honored laddering strategy. If can work for people who don’t want to lock up all of their money in long-term investments but want more yield than they can typically get in short-term savings vehicles.

Hedging can end your retirement panic now

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Even with the most recent market agita, there’s no reason for you to worry long-term about your retirement funds.

Is my head in the clouds? As darkly volatile as this moment in personal investing may seem, it’s actually a golden age for portfolio insurance. Retirement worries as we know it can come to an end — if you know how to hedge properly. There are plenty of retail tools available to that end.

The case for financial repression: Mild inflation, low interest rates

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Rick Ashburn is a chartered financial analyst and the founding Principal Chief Investment Officer of Creekside Partners, based in Lafayette, California. The opinions expressed here are his own.

As the two – or is it three? – political parties in Washington lurch toward a budget agreement, what are the longer-term implications of the situation we find ourselves in? We have a lot of public debt combined with the rather serious economic headwinds that rapid deficit reduction always entail. And at the same time that we need to reduce our debt load relative to GDP, our real GDP growth is likely to be sub-par.

Why Social Security COLA cuts will whip up a fight

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If you want to tick off a senior, just mention Social Security’s cost-of-living adjustment (COLA). The COLA has been on auto-pilot since 1975, when the first automatically-adjusted benefit adjustment was made, using a formula tied to the Consumer Price Index. A COLA was awarded every year from that time until 2008, but since then — nada.

Uncle Sam’s stinginess resulted from a quirky spike in the CPI-W — the index now used to determine the COLA — in the third quarter of 2008. Just before the economy crashed, the CPI-W spiked temporarily due to a big increase in energy prices. The result was a whopping 5.8 percent COLA for 2009. Social Security payments can’t rise until the CPI-W exceeds the 2008 level — and they can’t fall under federal law — so benefits were held level in 2010 and 2011.

Investing: A little inflation isn’t such a bad thing

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We’re in a three-headed hydra economy now. There’s the threat of burgeoning inflation, joblessness and a rotten housing market.

Yet the idea that rampant inflation will trigger an investment debacle is perhaps overblown. A touch of inflation can be a good thing and it depends on how you invest.

How to invest for long-term inflation

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It’s no secret that food and energy prices are volatile and rising of late. Yet what’s missing from the latest inflation hand-wringing is what’s down the road. Some commodities are becoming scarcer and that will drive long-term inflation.

While few invest based on scarcity, it’s a prudent long-term strategy. This is not something that will turn up in the latest inflation numbers. In the most recent Consumer Price Index report, core inflation climbed at a 1.3-percent annual rate in April. Gasoline prices accounted for half the increase.

The next great threat: 5 ways to battle inflation

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As the U.S. deals with one pernicious threat, another one looms: Inflation.

Consumer prices, led by food and energy increases, are the highest they’ve been in two and a half years.

Forecasts can be distracting, so you need to avert your eyes from the headlines. Yes, I know gold hit $1,500 an ounce, silver hit $50 and the dollar was headed for the dungeon, but there’s a household impact you need to gauge first.

Scary and scarier: rising prices and rising rates

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Data expected out of Washington this week may raise anxiety levels of investors and consumers who are already worried about inflation and rising interest rates.A gasoline pump is seen hanging at a petrol station in central Seoul April 6, 2011. REUTERS/Lee Jae-Won

On April 12, the Bureau of Labor Statistics reported that U.S. import prices jumped in March. We’ll also get data on producer prices on April 14 and consumer prices on April 15. But here’s what we already know: It costs more to fill your car, and your belly. And what doesn’t run on food or fuel?

Why market-neutral funds may come up short

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A trader works on the floor at the New York Stock Exchange, March 21, 2011.  REUTERS/Brendan McDermidDoes the prospect of inflation, higher oil prices and double-dip housing recession keep you up at night? Long-short or market-neutral funds seem ideal for nervous nellies. They attempt to blunt your downside risk by “shorting” stocks while giving you a piece of the upside.

Brokers are aggressively hawking these funds — sometimes referred to as “alternative investments” — to conservative investors as a way to blunt market risk.