x#37 Cars Social Security IRS  

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INFLATION AND YOUR CAR:

Once-depreciating vehicles are rising in value, and some recently purchased ones are worth more now than their original price.

With car companies still trying to resume normal levels of factory output, dealers have been left with a scarcity of new vehicles to sell at stores, pushing many buyers into the used-car market where they are also encountering limited options.  

Used-car prices rose 40.5% in January from a year ago, according to data released Thursday by the Labor Department, a jump that helped accelerate U.S. inflation to an annual rate of 7.5% last month, a new four-decade high.  

Cars that were $25,000 new three years ago are $25,000 today.

The average price paid for a new 2021 model-year vehicle in April was $38,585, according to J.D. Power. In January 2022—nine months later—that same model-year vehicle was selling for an average of $48,765 as a slightly used vehicle.  

SOCIAL SECURITY:

Retirees can start Taking Social Security benefits any time between ages 62 and 70, but for every month of delay, the payment increases. Benefits are also adjusted annually to reflect increases in the Labor Department’s CPI-W, a measure of inflation affecting blue-collar workers.  

For example, someone born after Jan. 1, 1960, who is entitled to $2,025 a month at age 62 would receive $3,587 before cost-of-living adjustments by holding off on claiming until age 70. With a 5% inflation adjustment, the benefit available at age 70 would be about $5,300.  

Cost-of-living increases start at age 62, whether you claim or delay, and continue for as long as you live. Based on the rise in third-quarter inflation, the increase for 2022 was 5.9%, the largest since 1982, according to Social Security Administration data.  BUT, inflation was up 7.5% last year.  So even though S.S. payments went up 5.9%, the buying power of S.S. payments declined by 1.6%.  

A person who postpones benefits until age 70 instead of 62 would have to live to 80½ years old to come out ahead.

TIPS

When inflation exceeds expectations, prices of ordinary bonds typically get hammered. That is when Treasury inflation-protected securities, or TIPS, tend to do well. 

Backed by the U.S. government, TIPS are bonds with principal and coupon payments that adjust to keep pace with the consumer-price index.

The bond market currently expects inflation over the next decade to average about 2.46%. That is the difference between the minus 0.51% inflation-adjusted yield on the 10-year TIPS and the 1.95% nominal yield on a regular 10-year Treasury note. If the CPI averages more than 2.46% over that time, TIPS will deliver a higher total return than Treasurys. If inflation is below 2.46%, the conventional Treasury will outperform.  

Stocks and Commodities 

In a 2021 study that looked at eight periods over the past century in which U.S. inflation was 5% or higher for at least six months and found that the inflation-adjusted return on stocks averaged minus 7% annualized.

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