Q&A About 2024 Events and Trends

As I noted in an earlier post, I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp, an organization that provides professional development for military family service providers. After the webinar, I answered follow-up questions from webinar participants. 

Below are some questions that were asked and my responses: 

If CPI (inflation) rates are coming, why are prices not coming down? What is the relation of one to the other?

Unfortunately, there is no direct relationship between the Consumer Price Index (CPI), which measures the rate of change in prices of a “basket” of goods and services over a 12-month period (e.g., 2.7% from 11/23 to 11/24), and prices for individual goods and services themselves (e.g., housing, child care, cars, food, and insurance). Therefore, even though inflation, as measured by the CPI, cooled somewhat during 2024 from 3.1% in January to 2.9% in December, prices on many items have not gotten lower for many reasons (e.g., rising labor and material costs, natural disaster losses, supply and demand issues). This is especially hard for young adults, who never experienced the aftermath of inflation before, to comprehend. Many expected prices to return to where they were five years ago before the pandemic. In addition, inflation “bubbled up” several times in 2024, reversing the CPI’s downward trajectory.

As mortgage interest rates come down, do you think we will find people who are more willing to move and/or buy other homes if refinancing at a lower rate will enable them to have more income to work with?

Yes, but it will take some time. Remember, about 60% of current homeowners with mortgages have interest rates below 4% and, as of 12/19/24, the average 30-year fixed mortgage rate was 6.72% (5.97% for 15-year mortgages). That is a big difference, which is contributing to the “rate lock effect” (sellers staying put) and a housing stock shortage. Eventually, as market interest rates for mortgages get closer to homeowners’ current interest rates, they may be more likely to sell.

With the U.S. savings rate based on disposable income, is this net income (after taxes)?

The U.S. personal savings rate, published by the Bureau of Economic Analysis (BEA), is calculated by dividing personal saving by disposable income in a series of steps as follows: 1. Start with personal income, 2. Subtract personal taxes, 3. Subtract personal outlays (i.e., expenses), and 4. Divide personal savings by disposable personal income. Disposable personal income is the portion of people’s incomes left after they pay taxes and spend money. For more details on the BEA personal savings rate formula, read more here.

Have you seen an increase in people choosing to lease a car instead of buying?

Leasing made a comeback in 2024 and now accounts for 25% of new vehicle purchases, up from 17% during COVID era inventory shortages. SUV vehicles dominate vehicles being leased and EV leasing is growing. For more details, read more here.  

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Barbservations About Social Security Fairness

After decades of failed attempts, H.R. 82, the Social Security Fairness Act (SSFA) passed both the House and Senate with bipartisan support and was signed into law by President Biden. The law will repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) that reduced public sector workers' earned Social Security benefits. 

For some Americans with lower incomes, passage of this bill will be life-changing. They lost (or would have lost) much of their own earned SS benefit and/or Social Security benefits as a spouse or widow(er) simply because they worked in a public sector job.

For me, the law is simply about fairness, not financial survival. Yes, it is personal. Full Disclosure: I am one of the about 2.8 million people affected by the Social Security Fairness Act. For the 32 years that I have been operating Money Talk and have been self-employed, I have paid (and still pay) 15.3% of net business earnings in FICA tax as both an employee and an employer. I also earned Social Security credits (i.e., quarters of coverage) from work during my teens and early 20s. 

After I ended my Rutgers Cooperative Extension career in January 2020 and started claiming a federal pension, my earned SS benefit took a big haircut due to the Windfall Elimination Provision (WEP). I wrote more about how I was “WEPed” in a 2023 blog post for 403bwise.

Some people have referred to folks like me who earned both Social Security and pension benefits in a derogatory way. They call us "double dippers." That is not true at all. Instead, we took the initiative (or found it financially necessary) to become "dual earners" (e.g., with side hustles or second jobs) or had a mix of public and private sector jobs throughout our careers. Either way, we met the qualifications for both types of benefits.

I recently listened to a Next Gen Personal Finance webinar about teachers with side hustles. One worked for Disney and another at a local stadium near his hometown. In the future, teachers in some states (note: 33 states opt-in to Social Security, 13 states (including DC) opt out, and 5 states allow school districts to opt-in or opt-out) and others with jobs not covered by Social Security will get full Social Security credit for their "outside" work. Like me, they will no longer have benefits earned from entrepreneurship or private sector jobs cut because they also had public sector employment. 

This is huge and will affect many teachers/school staff and those with long public sector careers (e.g., police officers and firefighters) or other types of jobs not covered by Social Security who still managed to earn the 40 quarters of coverage required to be eligible for benefits like I did. That is the reason for this post....to spread the word. Be sure to check this out if you or your family are affected by this law. 

Finally, it is important to note that the Social Security Fairness Act will put more stress on an already precarious government program as its opponents rightly pointed out. The 2024 Social Security Trustees report projected depletion of the trust fund by 2035, necessitating an accompanying 17% benefit cut. Congress will need to decide on potential remedies to shore up Social Security (e.g., raising the wage cap, FICA tax, tax on Social Security, and/or full retirement age) in the years ahead. 

Keep paying attention to Social Security-related legislation. This post that I wrote for 403bwise provides additional information. It is certainly possible that the WEP and GPO could be tweaked and restored in some way. People are already talking about more means-tested WEP and GPO 2.0 formulas with better data analysis capabilities than what the government had in 1983, when the now newly repealed WEP and GPO first went into effect. 

One final thought: it is generally wise to accumulate retirement savings in an IRA, employer tax-deferred retirement savings plan, and/or taxable (brokerage) account. Do not rely on a pension and/or Social Security alone.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Financial Highlights of 2024

My one-person company, Money Talk (read: me), may be the only entity in the U.S. that does a “deep dive” summary for clients of each year’s personal finance research, events, and trends. I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp and wrote a blog post about 2024 financial milestones for 403bwise.

Why look back on the past year? For insights about how to manage money during the year ahead. Below are ten data points that caught my attention during 2024:

SHED Study- The 2024 Federal Reserve Survey of Household Economics and Decision-making (SHED) study found that 63% of adults could cover a $400 emergency with cash. Conversely, 37% of survey respondents could not. Not surprisingly, inflation was reported as the top financial concern.

Value of Financial Education- A study by Tyton Partners and Next Gen Personal Finance calculated a lifetime benefit of about $100,000 per student as a result of taking a one-semester course in personal finance. Impacts resulted from avoiding high-cost debt and larger retirement savings.

Retirement Planning and Longevity- Healthview Services issued a white paper cautioning consumers and financial advisors not to automatically assume a life expectancy of age 95 in retirement savings calculations and to consider health status and chronic diseases as key variables.

Inflation- The Consumer Price Index (CPI), which measures price changes over a 12-month period (e.g., November 2023 to November 2024), was “sticky” in 2024. The CPI was 3.1% in January and 2.7% in November. At two points during the year, the CPI trended upward after previously declining.

Interest Rates- There were three Federal Reserve interest rate cuts during 2024 totaling 1% bringing the federal funds rate to a range between 4.25% and 4.5%. Consumers were impacted as borrowers (e.g., lower interest on credit cards) and as savers (e.g., lower interest on money market funds).

Credit Cards- Annual percentage rates (APRs) on bankcards hovered around 20% during 2024 and the average APR on retail credit cards was over 30%. One reason: record high margins charged by credit card issuers above the prime rate or other metrics that variable rate credit cards are tied to.

Housing- “Rate lock gridlock” continued during 2024 with an estimated 60% of homeowners having mortgage interest rates below 4% and unwilling to sell their homes, which would require them to have a higher rate mortgage. Home affordability fell to low levels not seen since the 1980s.

Savings- The U.S. personal savings rate declined throughout the year from 5.5% in January to 4.4% in November. In addition, banks started to pay lower annual percentage yields (APYs) on savings accounts after the Federal Reserve started cutting interest rates.

Investing- Both the stock market and cryptocurrency (e.g., bitcoin) had noteworthy gains in 2024 but also major price pullbacks. In short, volatility was the name of the game. Major stock market indices all reached fresh highs (e.g., the DJIA started at 37,715 and crossed 45,000 before retreating).

Taxes- Final regulations for required minimum distributions by non-spouse beneficiaries of tax-deferred plans were finalized and the IRS processed tax returns through its new Direct File program.

What’s next for 2025? Time will tell. Best wishes for happiness, success, and financial well-being.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

My Final Quarterly Webinar Summary of 2024

 As 2024 winds down next week, it’s time for my final quarterly summary of take-aways from recent personal finance classes, conferences, and webinars that I attended. Below are some “nuggets” that you might find useful in your personal financial planning:

Offense and Defense- Financial offense involves earning money from one or more sources (e.g., paycheck, interest). Financial defense is spending what you earn with a plan. Just like football teams, offense and defense are both very important to achieve financial well-being. 

Couple Finances- One study found that 43% of couples merge all their money, 34% have a joint account for shared expenses only, and 23% keep all their money separate. There is no one “right” way for couples to set up financial accounts but many experts do advise paying bills in proportion to each spouse’s income in proportion to total household income.

Working Past Age 70- Benefits of continued work include: increased Social Security (if earnings replace low-earning years from young adulthood), increased retirement plan savings, the “still working exception” for required minimum distributions (RMDs), continued access to employer benefits, and fewer years to support yourself without a paycheck in later life. Pitfalls are possibly triggering a Medicare sign-up penalty and premium surcharges called IRMAA.

Retirement Challenges- Five issues in later life are longevity (outliving savings), stock and bond market volatility, inflation (reduced purchasing power), cognitive decline, and sequence of return risk. The latter is when an investment downturn occurs early in retirement, people need to sell shares for living expenses, and funds are no longer available for a rebound. Also, with tax-deferred retirement plans subject to RMDs, savers are “in a partnership with the IRS.”

Diagnostic Tools- Useful documents to understand an individual or couple’s finances for planning purposes are net worth and cash flow calculations, saving and investment account statements, and income tax returns. Investors should also review their portfolio (e.g., asset allocation weights and investment performance) “for 2-3 hours every 2-3 years.”

Emerging Adulthood- Many adult children are still on “the family payroll” with only 45% of young adults age 18-34 completely financially independent from their parents. Sometimes, subsidies total thousands of dollars that parents could have saved for retirement. For example, a transfer of $8,000 to adult children over the course of a year for rent, auto insurance, cell phone, etc. could have funded the maximum 2024 IRA contribution for a worker age 50+.

Prenup Analogy- A prenuptial agreement, a legally binding contact between soon-to-be married individuals, is similar to an auto insurance policy. You are planning for the possibility of an accident (i.e., divorce), but want to do everything possible to avoid it. Every married couple has a prenup: one they prepare themselves or decisions made according to state law.

Barbservations From a Free Dinner Seminar

Not a week goes by that I don’t receive colorful tri-fold invitations to free meal seminars for investments and preplanned burials and cremations. Sometimes as many as five a week. Living in a 55+ community in a state (Florida) with many older adults undoubtedly makes me a target. 

Recently, some neighbors and I decided to attend an investment seminar, primarily to see the venue, which is a high-end private golf club in a gated community that is not generally open to the public. I also figured that I would get some useful content for a blog post in addition to the free meal.

Below are five “Barbservations” about the seminar format, content, and take-aways:

You Will Get Hungry- I typically eat dinner around 6:30 pm, which is when the presentation was slated to start. Actually, it was more like 6:45 pm. The meal did not get served until 7:45 pm. Luckily, I expected this might happen and brought a granola bar to tide me over when my stomach started to growl loudly. I couldn’t help wondering if everyone else was getting very hungry also. I saw a few people looking at their watches.

Content Did Not Match the Invitation- Ten topics were listed in the seminar invitation. Only a few were actually addressed in the presentation, which included the presenter’s life story, topics not listed on the invitation, and a variety of “industry-speak” phrases (e.g., “duly licensed”). There were, however, several very instructive stories (e.g., a client who never changed a beneficiary designation from his deceased father to his wife, had no contingent beneficiary, and the asset took 13 months to go through probate, thereby delaying much needed income to the spouse).

Changes in Guaranteed Income- This is an important topic for retired married couples, who comprised the bulk of the audience. A story was shared about a couple that had $6,000 in income and only $2,000 when the wife was widowed and lost all pension benefits and was left with only one Social Security check. I’m not sure why this was so. Fear mongering? Under the 1984 Retirement Equity Act, workers cannot waive survivor benefits without the written consent of their spouses. There should not be any unexpected surprises. Take-away: a good question for spouses to ask each other is “If you die first, how much money will I receive?”

Fees Erode Wealth Accumulation- The presenter asked for a show of hands to answer questions about attendees’ knowledge of prices for consumer purchases (e.g., food and gas). He then went on to make the point that, unlike food and gas prices, many investors do not know what they pay in fees for investments and investment advisory services. Point well taken. If someone pays 2% of a $100,000 portfolio in fund + advisor fees, that is $2,000 a year and $20,000 in ten years!

Payable on Death Designations- The presenter rightly noted that Payable on Death (PoD) designations on bank accounts (as well as Transfer on Death (ToD) on investments) are a form of estate planning so non-retirement account assets can pass free of probate. Like beneficiaries, PoD and ToD designations must be kept updated. An excellent piece of advice was to keep adding PoDs to new CDs that rollover from previous CDs because they are a new contract.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.