Wednesday, December 29, 2021

21 Financial Events and Trends During 2021

 Between December 11 and 31, I have been tweeting about 21 key financial events that took place during 2021 using the hashtag #21MoneyTrends2021.  

Below is a written summary of these financial milestones and their impact on family finances.

1.     Income and Jobs- An unprecedented 1 in 4 American workers quit jobs in 2021 as people re-evaluated work requirements, personal values, career options, and work-life balance. There were many unfilled jobs and higher labor costs were passed on to consumers.


2.     Supply Chain Shortages- 2021 saw shipping delays for imported merchandise, retailers having difficulty getting inventory, unfinished products waiting for computer chips, and a truck driver shortage which delayed freight deliveries.


3.     Inflation- The U.S. inflation rate from November 2020 to November 2021 was 6.8%, the sharpest increase in the Consumer Price Index in 39 years (since 1982). Energy costs and used cars experienced some of the largest price increases.


4.     Car Prices- Average new vehicle prices reached $41,378 in August and used car prices rose around 40%. There was also reduced availability and limited selection of car features due to limited supply and high demand, the chip shortage, and factory shutdowns.


5.     Homeownership- Record low housing inventory led to a large increase in prices for new and existing homes. Demand for houses was strong due to low interest rates and adjusted housing priorities. Widespread bidding wars were reported nationwide.


6.     Rental Housing- Rental relief funds were distributed slowly at the local level and there were multiple eviction moratoriums. The final moratorium ended on 8/26/21 with a Supreme Court ruling. Some states/cities have moratoriums through dates in 2022.


7.     Insurance- COBRA premium assistance for health insurance was provided under the American Rescue Plan Act and Medicaid enrollment surpassed 80 million. There were also large premium increases nationwide for homeowners and flood insurance.


8.     Credit- Demand for credit returned to pre-pandemic levels. Applications for credit cards rose throughout 2021 and 26.5% of U.S. consumers reported (in October) applying for a credit card in the prior 12 months. There were also increased home equity loans.


9.     Loans- Student loan interest and collection was suspended through 1/31/22 and relief provisions were added for Public Service Loan Forgiveness. Average monthly payments in 2021 were $563, $397, and $450, respectively, for new, used, and leased vehicles.


10. Fraud- Top fraud categories reported by the Federal Trade Commission in a 2021 report were imposter, online, and internet services scams. There were also COVID-19 related scams including those for fake tests, vaccines, charities, and government benefits.


11. Income Taxes- Tax filing was pushed back to May 17 and advance child tax credits were sent to income-eligible families with children from July to December. There was also late notice of tax exemption for up to $10,200 of 2020 unemployment benefits.


12. Investing- 2021 saw increased Treasury Inflation-Protected Securities and Series I U.S. savings bond purchases due to inflation fears, meme stock (e.g., GME) and cryptocurrency trading, and increased environmental, social, and governance (ESG) investing.


13. Stock Market Events- The Dow Jones Industrial Average rose from $30,409 on 12/31/20 through 32kl, 33k, 34k, 35k, and 36k during 2021. There was also increased use of the Robinhood stock trading app and special purpose acquisition companies (SPACS).


14. Cryptocurrencies- Bitcoin traded above 50,000 for the first time in February and its total market value passed $1 trillion. Pipeline hackers were paid in crypto and funds were recovered. New products included non-fungible tokens (NFTs) and Bitcoin IRAs.


15. Retirement Planning- A new “life is short” mindset, especially among the affluent, prompted many workers to retire and required minimum distributions returned for taxpayers age 72+ with tax-deferred plans. More mandatory state run auto-IRAs were set up.


16. Social Security- A 2021 report from Social Security Trustees projected that Social Security can only pay full scheduled benefits until 2033, one year earlier than 2020 projections. Both Social Security and Medicare face long-term financing shortfalls.


17. American Rescue Plan Act- ARPA provided a third round of stimulus for many Americans and expanded child tax credits to be settled up on 2021 tax returns due in 2022. An extra $300 per week of unemployment benefits was extended for 25 weeks.


18. Vaccination Finances- Economic consequences of not being vaccinated emerged throughout the year and include loss of a job, no “sick days” for work absences due to COVID, higher insurance premiums, and lack of access to events requiring vaccination.


19. U.S. Savings Rate- The U.S. savings rate dropped from 19.9% in January 2021 to 6.9% by November 2021. As many Americans got vaccinated, spending on travel and experiences increased and savings declining, putting pressure on supply chain shortages.


20. Financial Literacy Mandates- 26 states and Washington, DC introduced personal finance education mandate bills in 2021 and Ohio became the 10th state in the U.S. to require personal finance education. Advocacy efforts at the state level also increased.


21. Financial Anniversaries- 2021 was the 125th anniversary of the Dow Jones Industrial Average (started in 1896 with 12 companies) the 50th anniversary of the NASDAQ stock exchange, and 20th and 40th anniversaries of major tax laws passed in 2001 and 1981.

For additional information about these financial events and trends, a resource list is available at

This post provides general personal finance 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.


Wednesday, December 22, 2021

The Impact of Indexing: 13 Real World Examples

As we close out 2021 and get ready to welcome 2022, it is a good time to consider the impact of indexes (a.k.a., indices) on our financial lives. Many take effect upon the start of a new year. 

Some indexes adjust annual limits related to financial planning for inflation, some adjust interest earned or paid by consumers, and others measure the performance of something relative to a benchmark indicator.


So what, exactly, is an index? It is a number, either a flat dollar amount or a percentage, that is used to indicate a change in something (e.g., stock market performance) over time. 

Indexes typically reflect changes from a previous year or some other benchmark number. For example, the Consumer Price Index (CPI) measures changes paid by consumers for frequently-purchased retail goods and services.


There are many indexes that affect the financial lives of Americans on a regular basis. Below is a description of 13 common situations:

1.     Social Security Inflation Adjustments- Each year, the Social Security Administration announces inflation-adjusted percentages and numbers. In 2022, beneficiaries will receive a 5.9% cost of living adjustment (COLA). In addition, maximum taxable earnings will increase to $147,000, a quarter of coverage to $1,510, and the earnings limit under full retirement age to $19,560.


2.     Pension COLAs- Pension benefits for some retirees are also indexed for inflation. An example is pensions for federal government workers and military retirees and disabled veterans. Their COLA, like Social Security, is 5.9% (i.e., a $59 increase for every $1,000 of benefits) in 2022. Other pensions have frozen or suspended COLAs for their retirees (e.g., the New Jersey state pension plan).


3.     Income Tax Changes- Each year, income ranges for federal marginal tax brackets are indexed for inflation. The IRS publishes tables with the income ranges for four filing status categories and seven tax rates that currently range from 10% to 37%. Other tax numbers that get indexed are the standard deduction, certain tax credits, and the deduction for business-related and medical mileage.


4.     IRMAA Amounts- Income related monthly adjustment amounts (IRMAA) are extra charges that higher-income households pay for Medicare Part B and Part D premiums. The amount of income that triggers IRMAA is indexed annually for inflation. In 2022, IRMAA will be charged with a modified adjusted gross income above $91,000 (single) and $182,000 (married filing jointly).


5.     Estate and Gift Tax Exemption- The exemption amount in 2022 will be $12.06 million ($12,060,000), up from $11.7 million in 2021, for gifts and deaths that occur in 2022. In addition, the annual exclusion for gifts will increase to $16,000, up from $15,000.


6.     IRA Contribution Limits- The contribution limit changes occasionally based on an inflation-adjusted index formula. In 2022, however, limits remain the same as 2021: $6,000 for savers under age 50 and $7,000 (with a $1,000 catch-up) for those age 50+.


7.     Tax-Deferred Retirement Plan Limits- Like IRAs, maximum plan contributions are indexed for inflation. In 2022, retirement savers in 401(k)/403(b)/457 plans and the federal Thrift Savings Plan (TSP) who are under age 50 can contribute up to $20,500, a $1,000 increase from $19,500 in 2021. Older workers age 50+ can contribute up to $27,000 with a $6,500 catch-up contribution.


8.     Stock Market Performance- Every market trading day, indexes are used to measure the performance of different types of securities such as stocks. Examples include the Standard & Poor’s 500, Wilshire 5000, and Dow Jones Industrial Average (DJIA). The DJIA index closed on 12/31/20 at 30,409.56. During 2021, it rose through 31,000, 32,000, 33,000, 34,000, 35,000, and 36,000.


9.     Index Funds- Index funds are mutual funds that track a stock or bond index. They buy all the securities in an index, or a representative sample of it and provide about the same performance as the index they are tracking, fund expenses. Index funds have been in existence since 1976 when the fund known today as the Vanguard 500 Index Fund was launched. They maintain a significant cost advantage with many expense ratios less than two-tenths of one percent, compared to about 1.5% for average actively managed stock funds. Index funds also have low turnover (how often a fund buys and sells securities), which reduces transaction costs.


10. Pay Increases- It was widely reported that pay increased for many U.S. workers in 2021 as companies struggled to attract and retain workers. Many employers use a percentage of workers’ pay as a base to set raises or an index like the CPI. When pay for new hires increases, there is pressure to boost pay for experienced workers. During “The Great Resignation,” many workers quit jobs for better pay elsewhere.


11. Series I Bonds- With higher inflation in 2021, inflation-indexed I bonds received increased attention from investors. Twice a year- on the anniversary and semi-annual anniversary of a bond’s issue date- an investor’s I Bond is adjusted for inflation based on current inflation rates. From May 1 to October 31, 2021, I bonds earned 3.54%. From November 1 through April 30, 2022, the rate of return is 7.12%. Up to $10,000 of Series I bonds can be purchased electronically and bonds must be held at least 12 months. Another popular inflation-indexed federal government security in 2021 was Treasury Inflation-Indexed Securities (TIPS).


12. Variable-Interest Loans and Credit Cards- Compared with fixed-rate loans that have an interest rate (APR) that does not change, the interest rate on variable rate credit fluctuates according to changes in an underlying index such as the prime rate. The APR is often the designated index rate plus x%. Details about how APRs are set can be found in loan/credit card disclosure documents.


13. P-Fin Index- The TIAA Institute-GFLEC Personal Finance (P-Fin) Index, begun is 2017, measures multiple dimensions of U.S. household financial well-being and result changes over time. A comprehensive report based on survey data is issued annually.


In summary, indexes enable comparisons between, and adjustments to, various key numbers. What indexes will affect you in 2022?

This post provides general personal finance 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.

Thursday, December 16, 2021

How to Cut Health Care Costs

With high inflation currently, many families are closely examining their expenses. One category is health care, which takes a big chunk out of family budgets. This includes expenses for health insurance as well as deductibles, copayments, and coinsurance when medical bills occur. Costs can add up to many thousands of dollars annually.

In 2018, the average American household spent almost $5,000 per person on health care. What to do? Fight back as best you can by controlling any potential health care costs that you can. Consider these 11 money-saving tips:

¨     Ask About Health Care Costs- Request a ballpark price quote. According to an article in the Wall Street Journal, inquiring about costs and mentioning financial concerns may be enough to prompt your doctor to recommend a less expensive treatment or to simply monitor a condition “to see if it gets better on its own.”

¨     Negotiate Drug Costs- Ask questions. The above article also recommends discussing financial considerations about prescription drugs with your doctor. This can lead to receiving a supply of free drug samples that the doctor has on hand and/or a prescription for less expensive generic drugs (see below).

¨     Buy Generic Drugs- Ask your doctor or pharmacist if required prescription drugs are available as less expensive generic drugs. Generic drug savings can average hundreds of dollars over the course of a year. Also make sure that prescribed drugs are on your health care plan’s formulary (i.e., list of covered drugs).

¨     Compare Costs- Call around for prices to compare costs for diagnostic services (e.g., CT scan or bone density test) and lab work. The cost of a single procedure could vary by hundreds, even thousands, of dollars. Hospitals often charge higher prices than free-standing radiology providers and other medical service providers. Use the billing code from your doctor for an “apples to apples” comparison.

¨     Find an App- Use an app to get information about the cost of various medical procedures for people with different types of insurance in different parts of the country. Examples include New Choice Health and Fair Health. Be sure to read their underlying assumptions. New Choice Health, for example, provides a Great Price, Fair Price, and Expensive Price for procedures as well as a list of local service providers and their price range.

¨     Focus on Prevention- Practice good health habits that reduce the risk of costly medical problems. Examples include regular health screening exams (e.g., colonoscopies and mammograms), nutritious food, exercise, washing hands frequently, and flossing teeth.

¨     Get Prescription Deals- Order a 90-day supply by mail instead of buying a 30-day supply from a local pharmacy. The savings are generally 15% to 35% on monthly copayments. Another good way to save on prescription drug costs is to use a website/app like GoodRx and WeRx to search local pharmacy prices and apply available coupons and discounts.

¨     Try to Negotiate Discounts- Ask for a price break if you pay with cash when you are responsible for all or part of a medical bill (e.g., services from an out-of-network provider). Cash payments save a doctor or hospital the processing fee on credit cards. Sometimes, the cash payment may be lower than what insurance provides.

¨     Follow Health Insurance Rules- Read the “fine print” in your health insurance policy regarding referrals to specialists and pre-certification for medical procedures. Not knowing the rules for your health plan can result in denial of coverage for a claim.

¨     Use Free Health Care Services- Take advantage of free or low-cost community health fairs, well-child clinics, flu shots, gyms, and other health and medical services available at your workplace or in your community. Do the same thing for services, such as free rabies clinics, for pets.

¨     Check for Billing Errors- Request an itemized statement of your medical procedures and their costs and review it for errors. Report errors to the service provider promptly and request a revised billing statement. It is estimated that 80% of all medical bills contain errors, often due to incorrect billing codes.

Wednesday, December 8, 2021

Umbrella Insurance: Do You Need It?

Like an umbrella that covers your head to protect you from a rainstorm, an umbrella liability policy “covers” your other property insurance, thereby providing additional protection.

Policy benefits start where other polices end. For example, after claims exceed $300,000 of liability coverage on an underlying auto or homeowners policy. 

Umbrella policies provide coverage for $1 million, or million-dollar increments above a policyholder's underlying auto, boat, and/or homeowners/renters insurance liability limits.

Another good term to describe how umbrella liability policies work is “piggybacking.” 

If you were sued for $850,000 for injuries caused to others and had $300,000 of underlying property insurance liability coverage, a $1 million umbrella policy would cover the remaining $550,000, thereby “piggybacking” $550,000 onto $300,000. 

Umbrella policies also pay for legal fees involved in a lawsuit.

To summarize, umbrella insurance protects policyholders’ assets from large claims when they are found at fault. 

People typically purchase a policy when they accumulate significant ($1 million+) assets that require protection against potential lawsuits and liability judgments.

Below are some key points to consider:

¨     Umbrella policies protect assets and/or future earnings from damages arising from lawsuits or settlements

¨     Premiums typically cost about $250 to $400 annually for an initial $1 million of coverage; shop around

¨     Additional increments of $1 million of coverage typically cost about another $150 to $250 per year

¨     Policies typically require the purchase of underlying homeowners and auto insurance from the same company

¨     Policy discounts may be available when various types of property insurance are “bundled” together

¨     Umbrella policies can protect against charges of libel and slander

¨     Policies also cover damages arising from service as a director or officer of a non-profit organization board


Don’t think you need umbrella insurance? Consider these possible liability scenarios:

¨     A neighbor’s child dives into your pool and is paralyzed

¨     A delivery person or mailman breaks a leg on icy steps and sues for lost earnings and damages

¨     A non-profit board you serve on is sued for negligence and has inadequate coverage for its officers

¨     Your teenager driver child causes a multi-car auto accident resulting in fatalities

¨     You have a swimming pool, hot tub, or dog and live in a neighborhood with small children

¨     You are sued for damages involving a boat that you rented on vacation

¨     You employ a contractor, nanny, or housecleaner that does not carry liability or worker’s comp insurance

¨     Your child hosts an unauthorized party with alcohol in your absence and drunken guests get injured

¨     You are found liable for property damage caused by a car that you rented overseas


A key point to consider is that the scope of injury claims can be large dollar amounts that are well above standard policy limits and are generally outside of your control. For example, medical bills and/or property damage resulting from an accident or replacing decades of lost wages for a seriously injured high earner.


Over 80% of umbrella policy losses are related to automobile use, which is something to consider if you have a long commute to work or have to drive on roads that can become treacherous in icy winter weather.


One large personal injury claim can put years of accumulated savings for retirement and/or decades of future earnings at risk. If you are fortunate enough to earn a good salary or to have been able to build wealth over time, consider protecting your hard-earned money with umbrella insurance. 

Even if you are not a millionaire, your future income and assets could be at jeopardy with a large claim. For around $25/month, you can have $1 million in liability protection and peace of mind.

Thursday, December 2, 2021

Are Extended Warranties Worth the Cost? It Depends


Shopping season is in high gear and it happens almost every time that someone buys large appliances, a computer, a cell phone, a big screen television, a new or used car, and exercise equipment, such as a treadmill. 

While ringing up the purchase or checking out online, you are asked “Would you like to buy an extended warranty?”

An extended warranty (a.k.a., service contract or protection plan) is purchased separately from the purchased item that it is for. Like term life insurance, it is a form of insurance for “big ticket" purchases. 

Extended warranties cover specific risks associated with an item for a limited period of time in exchange for a fee that customers pay.

Are extended warranties a good idea? Many consumer advocates say no because they are a great profit center for retailers. Some have even used descriptions like “steer clear” and “money down the drain.” 

However, the best answer to this question is probably “it depends.”

Consider the following factors and decide for yourself for each item that you buy when the “Would you like to buy an extended warranty?” question is asked:

¨     Frequency of Use- Around 10% of extended warranties ever get used. Appliances and electronic items generally don’t need repairs during the covered time period (usually 2 to 5 years after purchase). Take the time to research the odds that specific items might need repairs during the extended warranty period.

¨     Cost- Extended warranties can be expensive and can increase the purchase price of items up to 20%. Many shopping experts recommend purchasing high quality brands with positive consumer reviews to lessen the risk of having to have items repaired.

¨     Value- To put things in context, research the median cost of repairs for various items (e.g., a refrigerator) using a resource like Consumer Reports. In many cases, the cost of an extended warranty may be similar to a typical repair bill, which may not ever be needed.

¨     Self-Insurance- To hedge your bets about needing future repairs without an extended warranty, consider setting aside several hundred dollars for each “big ticket” item that you buy in an earmarked savings account. Use this money to repair or replace items as needed.

¨     Exclusions- Extended warranties often contain exclusions such as normal “wear and tear” and accidental damage (e.g., spilling coffee on a laptop). Review the “fine print” before signing any documents and also inquire about the process for submitting claims and locating service providers, especially for online purchases.

¨     Other Coverage- Free extended warranty coverage may already be provided by the product manufacturer or a credit card rewards program. Check out what coverage is already available and for how long.

¨     Possible Exceptions to the Rule- A few products might be good candidates for extended warranties due to their service repair history and cost. Examples include smart phones, treadmills, laptop computers, and large screen televisions. Again, research the service history of specific items and the median cost of repairs.

An extended warranty fee may seem “cheap” compared to the cost of a big-ticket item with sales tax, but it is not a purchase requirement. If you are going out to shop for a “big ticket” item, do some background research about various makes and models and their service history before you are put on the spot with an impulse decision.

Remember, too, that complex purchases with multiple moving parts and speed can often lead to poor purchasing decisions. Many “big ticket” purchases (e.g., cars and cell phones) come with a fair amount of “paperwork” and some people agree to extended warranties to simply “speed things up.”

For additional information about extended warranties, review the Consumer Reports article, “Why You Should Steer Clear of Extended Warranties.”

Loud Budgeting: A Financial Discipline Strategy

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