Harry Sit's Blog, page 5
November 19, 2024
Get Kanopy Streaming From a Library as a Non-Resident
I mentioned in the previous post Retirees, a Rich Life Does Not Require Spending More Money that I learned history by watching a 6-hour documentary series The U.S. and the Holocaust on Kanopy.
New Ken Burns documentary ‘The U.S. and the Holocaust’ examines America’s response on YouTubeKanopy is a streaming video platform like Netflix. In addition to documentaries and The Great Courses, it has critically acclaimed movies and Oscar and film festival winners. The movies and documentaries aren’t necessarily new releases but the quality is great. It’s also ad-free. You can watch online on a computer, in its app on an Apple or Android phone or tablet, or through a streaming device or Smart TV platform such as Apple TV, Roku, or Google TV.
You can’t subscribe to Kanopy directly. Kanopy only sells to public and college libraries. It’s free if your library provides it. You create an account with Kanopy using your library card number and PIN. Then you look for the Kanopy app on your streaming device or Smart TV.
Public libraries are funded by property taxes. What the library in your city or county makes available depends on its budget, which depends on the population of the city or county. My small county has only one library branch in the entire county. It doesn’t have many books. Nor does it offer Kanopy. I had to get a library card from a different library to access Kanopy.
Larger Library in the StateIf your library doesn’t offer Kanopy, you may be able to get a card from a library that does in a major city in your state. You may not borrow any physical materials from that bigger library but the card is good for accessing digital materials such as Kanopy.
For example, Cleveland Public Library gives a library card to any resident in the state of Ohio. You don’t have to live in Cleveland.
When You Visit Another City
Permanent residents of Ohio are eligible for a free library card. Persons who go to school in Ohio, work on a permanent basis in Ohio, and those who own property in Ohio are also eligible for a free library card.
Cleveland Public Library
Some libraries in bigger cities allow visitors to apply for a card. If you have travel plans, you can check the policy of the library in that area. The card is still good after you go home.
For example, Santa Clara County Library in California only requires an address anywhere in the country. You can’t apply for a card online but you can apply in person when you happen to visit the area.
Pay as a Non-Resident
If you do not reside in the County but do have a United States mailing address, a Full-Membership Library Card can be provided to you, free, during your next library visit.
Santa Clara County Library
Some libraries specifically allow out-of-area residents to pay for a card. You don’t even need to live in the same state. It’s fair to charge a fee to non-residents because libraries are funded by property taxes.
For example, Houston Public Library allows residents outside Texas to purchase a card for $40 a year.
E-Books and Audiobooks
Apply for your library card in person at any Houston Public Library or online. Permanent Texas residents may join the library free of charge with proof of residency. Non-residents can purchase a temporary library card for $40/family, which is valid for 12 months.
Houston Public Library
Besides movie streaming through Kanopy, many libraries also provide e-books and audiobooks through the Libby app from Overdrive, which owns Kanopy. If your library provides these but you’ve never tried them, it’s worth setting them up.
To me, Kanopy is worth paying an annual fee when the library in my county doesn’t offer it. It’s great if your library offers it for free. In the worst case, if you pay a fee and don’t like it, chalk it up as contributing a small amount to support a public library.
Learn the Nuts and Bolts
The post Get Kanopy Streaming From a Library as a Non-Resident appeared first on The Finance Buff.
November 6, 2024
Retirees, a Rich Life Does Not Require Spending More Money
“How much can I safely withdraw from my portfolio?” is a frequently asked question among pre-retirees and new retirees. Ben Felix said it was 2.7%. Morningstar said it was 4.0%. Bill Bengen said it was 4.7%. Dave Ramsey said it was 8%. The higher the safe withdrawal rate, the more retirees can spend from their investment portfolios.
Researchers developed methods to raise the safe withdrawal rate. Some suggested using a guardrail system. Some suggested using annuities, whole life insurance, or a reverse mortgage. In any case, the implied message is that it’s desirable to have a higher withdrawal rate.
You also hear that it’s a challenge for new retirees to switch from saving to spending. Some financial advisors say a big part of their role is to encourage clients to spend more money. I also know YouTube and podcast shows that scold people for not living a rich life. A popular book Die With Zero encourages people to spend more money when they’re still young.
No doubt some people want to spend more but irrationally fear that doing so will jeopardize their future. Suggestions for overcoming this irrational fear include buying annuities, building a TIPS ladder, setting aside money in a separate “fun money” account, and creating spending targets and color-coded tracking systems to give oneself “permission to spend.”
However, I would say this emphasis on withdrawals and spending in retirement is misplaced. What matters in retirement is enjoyment and life satisfaction. Spending is a poor proxy for enjoyment and life satisfaction. The best things in life are (nearly) free. It’s OK not to spend more money when you go for enjoyment and life satisfaction.
Spending Requires Time and AttentionSpending always involves choices, which require time and attention to sort through. Retirees don’t need another job in figuring out how to spend their money. They may prefer to direct their time and attention elsewhere.
My wife and I spent several hundred thousand dollars on all sorts of materials and labor when we built our house last year. We’re happy with the final results but the process of spending all that money took a lot of time and mental energy.
Should we use this 10″ x 2.5″ blue rectangular tile or this 4″ x 4″ white square tile for our kitchen backsplash?
We want to paint the interior walls white. Does that mean White Dove, White Heron, Cloud White, or any other 50 shades of white?
We have hard water here. Do we want a water softener that uses salt pellets or a saltless water filtration and conditioning system?
Some people might say the problem was because we bought things and it would be better to spend money on experiences. Setting aside whether living in a house in which everything was hand-picked by ourselves is an experience, spending on experiences also requires choices, time, and attention.
Low Perceived ValueDid you say international travel? Where to go? When? For how long? Need visa? Which airline to use? Buy the tickets now or wait? Economy, Premium Economy, or Business Class? Use cash or points? Where to stay? What to see? Sign up for a tour or go on our own?
Observers of retirees not spending as much as they can afford mistakenly think those retirees must be afraid of running out of money. Besides not wanting to waste their precious time and energy on spending, retirees aren’t spending as much because they don’t see value in additional spending.
When we were building our house, I saw some neighbors put in these exposed beams on their ceilings:

I lost interest when I learned they were three-sided empty boxes purely for decoration.
Some other neighbors chose Wolf, Sub-Zero, and Thermador kitchen appliances. I’m sure those high-end appliances have some features normal appliances don’t have. I wasn’t interested in finding out what those features were because mainstream appliances had always worked well for me.
A home in the neighborhood was advertised as a furnished rental. It said all their furnishings came from RH. When I mentioned this to my wife, she asked “What’s RH?“
I’m driving a 2005 Honda Accord. It’s been with me for 20 years. I know how it works. It takes me wherever I want to go. I can afford a new car but a new car would still take me to the same places. I don’t see why I should spend time figuring out whether I should want an EV, a hybrid, or a gas-powered car, which brand, model, trim, and options, or whether they’re still charging thousands over MSRP with a long wait to get a new car.
I’m not depriving myself of decorative faux beams, high-end appliances, upscale home furnishings, or a new car when I’m happy with what I have now. Getting out of my way to get them would be a distraction.
Spending Is a Poor Proxy for EnjoymentI spent a full month in Switzerland in the summer of 2022. I enjoyed it and wrote a blog post about it. The trip cost over $10,000 all-in.
A neighbor gave away a 20-year-old cheap bike by the curb last year. Walmart sells a new bike much better than this for under $200 today.

I pumped some air into the tires and it still worked. I hadn’t ridden a bike since college. I started riding it in the neighborhood, in town, and eventually on a gravel road by a lake, which gave me this view in the spring:

Riding a bike got me to places I hadn’t been. I rode this old cheap bike over 60 times in a year.
Looking back, I can honestly say that the cheap bike gave me more joy than the $10,000 vacation in Switzerland. I enjoyed both but it doesn’t mean that expensive international travel (experience!) must be more enjoyable than a cheap bike (things!).
And that’s my biggest problem with the book Die With Zero. It falsely equates spending with enjoyment as if the more you spend the more you’ll enjoy life. Spending can induce or enhance some enjoyment but there’s only a thin overlap between the two. Fixating on spending misses the true source of enjoyment.

The blogger Frugal Professor included this chart in his blog post The Spending Tradeoff — Opportunity Costs vs Utility. The green dotted line shows the relationship between spending and happiness when you have a different mindset.

He concluded that if you shift your mindset, you unlock a superpower in which your happiness is largely uncorrelated with your spending once you hit a modest point C.
The Best Things in Life Are FreeAn advantage of retirement is having more free time. I can’t believe the endless enjoyable activities that cost little to no money.
I do beginner yoga by following videos by Yoga With Adriene on YouTube. It’s free.
I do some bodyweight exercises — pushups, squats, plank, lunges, and bird dogs. You need at most a $20 exercise mat.
I take a book to read on my favorite park bench under a tree by a pond. It’s free.
My Favorite Park Bench on YouTubeI learned history when I watched a 6-hour documentary series The U.S. and the Holocaust by Ken Burns. It’s free on Kanopy through the public library. Kanopy also has The Criterion Collection films and educational courses by The Greatest Courses.
The U.S. and the Holocaust on YouTubeI walk up a hill when I’m not riding a bike. It’s free and it’s good for both physical and mental health. This was the view last week (our home is down there in the middle):

We had booked travel to the Dolomites region of Italy this summer.
Dolomites, Italy: Tirolean Culture and Alpine Adventures – Rick Steves’ Europe Travel Guide on YouTubeAs the dates drew closer, we asked why we wanted to be tourists in Italy when we were enjoying our activities locally. Our home is more comfortable than a hotel. The food we cook is healthier than restaurant food. We don’t need to deal with potential flight delays, crowds, theft, or getting sick.
So we canceled the trip (experience!) and used the money to buy two new bicycles (things!). We had so much fun learning mountain biking as beginners. Every ride put a big smile on our faces. I rode 19 times for a total of 28 hours since I bought the bike at the end of August. I’m in the back in this compiled video:
Beginner Mountain Biking – Fall 2024 on YouTubeI agree with Christine Benz when she said this on X:
Contrarian point of view: The whole "spend on experiences" mantra is overstated.
— Christine Benz (@christine_benz) September 4, 2024
The most worthwhile experiences involve connecting with other human beings and that can be done very cheaply AND OFTEN–e.g., walking with a friend or inviting people to dinner.
No bucket lists!
“Memory dividends” don’t only come from a once-in-a-lifetime experience such as flying 50 friends to an island, renting out an entire hotel, and booking your favorite band for a private performance (this was an example in the book Die With Zero). They also come from more frequent simple joys that cost nearly nothing.
OK to UnderspendA rich life isn’t about spending money. The best things in life are free. You won’t worry much about the safe withdrawal rate if you look for enjoyment and life satisfaction in the right places. It isn’t a character flaw if you’re not spending as much as you can afford.
I like this answer to the question Why is determining a withdrawal rate or method so difficult? on the Bogleheads Forum:
For most of us here, the only way to make this difficult is an effort to try to spend as much as you possibly can without running out.
We are not trying to do that, so it’s not difficult for us.
Wanderingwheelz
It’s not difficult for us either. We focus on enjoying the best things in life regardless of whether it requires spending money. If it does, we spend the money (we paid $6,000 for our two bicycles). Otherwise we don’t concern ourselves with whether we’re “underspending.”
What do you do when the money pile grows and grows?
Giving, whether to family or charities, is completely different from spending. Money given to young people and charities means a lot to them. Seeing the results of your help brings back enjoyment and life satisfaction. Look for ways to give to family and charities. Give early and give often.
Learn the Nuts and Bolts
The post Retirees, a Rich Life Does Not Require Spending More Money appeared first on The Finance Buff.
October 6, 2024
Roll Over an Unnecessarily Complicated SIMPLE IRA
My wife mentioned to her friends that I know a thing or two about personal finance and investing. One of her friends — I’ll call him Jake (not his real name) — changed jobs recently. He asked me to look at his retirement plan account from his previous employer.
I asked Jake what type of account it was. He didn’t know. He thought it was a Roth IRA but I told him an employer plan wouldn’t be a Roth IRA because a Roth IRA is a personal account. He sent me a recent statement, which shows it’s a SIMPLE IRA.
Lower Contribution LimitsA SIMPLE IRA is an oddball in workplace retirement plans. It can only be offered by a small employer with no more than 100 employees. The employer sets up a SIMPLE IRA plan and each employee sets up a SIMPLE IRA under the plan.
Both the employee and the employer contribute to the account, as they do in a 401(k) plan. The annual contribution limit is lower. The employee contribution limit in a SIMPLE IRA is about 30% less than the employee contribution limit in a 401(k). The age-50+ catch-up contribution limit is less than half of the same limit in a 401(k). Don’t ask me why.
SECURE Act 2.0 raised the SIMPLE IRA contribution limit by 10% for employers with 25 or fewer employees. Employers with 26-100 employees can also have the higher contribution limit if they increase their match or non-elective contributions.
There was no Roth version of SIMPLE IRA before 2023. All contributions before 2023 were pre-tax. SECURE Act 2.0 authorized Roth SIMPLE IRA starting in 2023 but it’s optional. Each employer’s plan must allow it before employees can choose the Roth option. Most brokers haven’t updated their plans to allow it yet. For example, both Fidelity’s and Schwab’s SIMPLE IRA plans still only allow pre-tax contributions. As a result, most employers haven’t been able to update their SIMPLE IRA plans to add the Roth option yet.
Expensive BrokerThe employer usually sets up a SIMPLE IRA plan with a broker. It’s helpful if the employer knows better to set up the SIMPLE IRA plan with a mainstream broker such as Fidelity or Charles Schwab but many small employers are sold the SIMPLE IRA plan by an expensive full-service broker.
The SIMPLE IRA plan is an employer-sponsored plan but the SIMPLE IRA accounts under the plan are technically personal accounts. Unlike a 401(k), a SIMPLE IRA plan doesn’t offer a menu of investment options. Each employee can invest in anything they want in the SIMPLE IRA. The full-service broker can charge loads and/or asset management fees in the SIMPLE IRA.
In theory, an employee can open a SIMPLE IRA at any financial institution of their choice under some SIMPLE IRA plans (“5304 SIMPLE”). In practice, employees don’t know they have this choice. The employer also discourages setting up accounts elsewhere because they want to send payroll contributions to only one place. It’s next to impossible for an employee to open a SIMPLE IRA at a different broker without the employer’s participation. As a result, employees go with the flow and use the broker chosen by the employer.
Jake’s SIMPLE IRA was like that. His former employer had a full-service broker “help” all the employees with investments in their SIMPLE IRA. The broker put three actively managed mutual funds in his account. Those funds were C shares with an expense ratio of 1.4% – 1.9% plus a backend load of 1% on shares sold within 12 months.
Escape Hatch After Two YearsOne upside of a SIMPLE IRA is that it has an escape hatch after two years. Unlike a 401(k) account, which has to stay with the employer’s plan until the employee terminates employment or reaches age 59-1/2, an active employee can roll over the SIMPLE IRA after participating in the SIMPLE IRA plan for two years.
If you have a bad SIMPLE IRA with an expensive broker, you can transfer it to a Traditional IRA after bearing it for two years. New contributions will still go into the SIMPLE IRA but you can roll over the existing money to a Traditional IRA for lower fees and keep rolling over once a year or however frequently you prefer. The broker that has your SIMPLE IRA may charge a transfer-out fee for each transfer.
You’re stuck if you’re still within the first two years. Even if you already terminated employment, a SIMPLE IRA can only roll over to another SIMPLE IRA in the first two years. In theory, you can set up a SIMPLE IRA elsewhere to accept the rollover. In practice, it’s difficult to find a broker to set up a SIMPLE IRA on your own without an employer.
Rollover to Traditional IRAFortunately, Jake already had the SIMPLE IRA for longer than two years. I called both Fidelity and Schwab to confirm that they could accept the existing C shares mutual funds in his SIMPLE IRA and they wouldn’t charge a commission to sell those funds. I told Jake he could open a Traditional IRA with either Fidelity or Schwab and submit a Transfer of Assets request through the new account. He chose Fidelity. The shares came over after a week. The broker for the SIMPLE IRA charged him $125 for the transfer.
I suggested waiting until the purchase history came over through the ACATS transfer before selling those expensive actively managed funds. This reduced the backend load charged by the funds because the backend load doesn’t apply to older shares. I also suggested buying a Fidelity Freedom Index Fund with the proceeds. Fidelity didn’t charge a fee for selling the expensive funds or buying the target date index fund. The expense ratio of the Fidelity Freedom Index Fund is 0.12%, which is less than 1/10th of the expense ratio of those old funds. I showed Jake how to turn on dividend reinvestment.
Jake is happy when it’s all done. I’m happy I was able to help him. The rollover was unnecessarily complicated because his SIMPLE IRA was with an expensive broker. His former employer didn’t know better. He had no choice but to go with whatever the employer had set up. Jake is in his twenties. Getting a retirement account out of the hands of an expensive broker at an early age will have a positive impact on his retirement.
If you’re reading this blog, you know more about these subjects than people in your circles. Young people working for small employers especially tend to have bad retirement plans. Let them know you have this knowledge. Help them when they ask. It’s rewarding to set a young person on the right track.
Learn the Nuts and Bolts
The post Roll Over an Unnecessarily Complicated SIMPLE IRA appeared first on The Finance Buff.
Rolling Over an Unnecessarily Complicated SIMPLE IRA
My wife mentioned to her friends that I know a thing or two about personal finance and investing. One of her friends — I’ll call him Jake (not his real name) — changed jobs recently. He asked me to look at his retirement plan account from his previous employer.
I asked Jake what type of account it was. He didn’t know. He thought it was a Roth IRA but I told him an employer plan wouldn’t be a Roth IRA because a Roth IRA is a personal account. He sent me a recent statement, which shows it’s a SIMPLE IRA.
Lower Contribution LimitsA SIMPLE IRA is an oddball in workplace retirement plans. It can only be offered by a small employer with no more than 100 employees. The employer sets up a SIMPLE IRA plan and each employee sets up a SIMPLE IRA under the plan.
Both the employee and the employer contribute to the account, as they do in a 401(k) plan. The annual contribution limit is lower. The employee contribution limit in a SIMPLE IRA is about 30% less than the employee contribution limit in a 401(k). The age-50+ catch-up contribution limit is less than half of the same limit in a 401(k).
SECURE Act 2.0 raised the contribution limit by 10% for employers with 25 or fewer employees. Employers with 26-100 employees can also have the higher contribution limit if they increase their match or non-elective contributions.
There’s no Roth version of a SIMPLE IRA. All contributions to a SIMPLE IRA are pre-tax.
BrokerThe employer usually sets up a SIMPLE IRA plan with a broker. It’s helpful if the employer knows better to set up the SIMPLE IRA plan with a mainstream broker such as Fidelity or Charles Schwab but many small employers are sold the plan by an expensive full-service broker.
Unlike a 401(k), a SIMPLE IRA plan doesn’t offer an investment options menu. Each employee can invest in anything they want in the SIMPLE IRA. The full-service broker can charge loads and/or asset management fees in the SIMPLE IRA.
Such is the case with Jake’s SIMPLE IRA. His former employer had a full-service broker “help” all the employees with their investments in the SIMPLE IRA. The broker put three actively managed mutual funds in his account. Those funds are C shares with an expense ratio of 1.4% – 1.9% plus a backend load of 1%.
Two-Year Jail TimeOne upside of a SIMPLE IRA is that it has an escape hatch after two years. Unlike a 401(k) account, which has to stay with the employer’s plan until the employee terminates employment or reaches age 59-1/2, an active employee can roll over the SIMPLE IRA after participating in the SIMPLE IRA plan for two years.
If you have a bad SIMPLE IRA with an expensive broker, you can transfer it to a Traditional IRA after bearing it for two years. New contributions will still go into the SIMPLE IRA but you can roll over the existing money to a Traditional IRA for lower fees and keep rolling over once a year or however frequently you prefer. The broker that has your SIMPLE IRA may charge a transfer-out fee for each transfer.
You’re stuck if you’re still within the first two years. Even if you already terminated employment, a SIMPLE IRA can only roll over to another SIMPLE IRA in the first two years. In theory, you can set up a SIMPLE IRA on your own to accept the rollover. In practice, it’s quite difficult to find a broker to set up a SIMPLE IRA without an employer’s participation.
Rollover to Traditional IRAFortunately, Jake already had the SIMPLE IRA for longer than two years. I told him he could open a Traditional IRA with either Fidelity or Schwab and submit a Transfer of Assets request through the new account. Jake chose Fidelity. The shares came over in about a week.
I suggested waiting until the purchase history came over through the ACATS transfer before selling those expensive actively managed funds. This reduced the backend load charged by the funds because the backend load drops off on older shares. I also suggested buying a Fidelity Freedom Index Fund with the proceeds. Fidelity didn’t charge a fee for selling the expensive funds or buying the target date index fund. I showed Jake how to turn on dividend reinvestment.
Jake is happy when it’s all done. I’m happy I was able to help him. The rollover was unnecessarily complicated because his SIMPLE IRA was with an expensive broker. His former employer didn’t know better. Nor did he. He just went with whatever the employer had set up. Jake is 29. Getting a retirement account out of the hands of an expensive broker at an early age has a positive impact on his retirement.
If you’re reading this blog, you know more than people in your circles. Young people working for small employers especially tend to have bad retirement plans. Let them know you have this knowledge. Help them when they ask. It’s rewarding to set a young person on the right track.
Learn the Nuts and Bolts
The post Rolling Over an Unnecessarily Complicated SIMPLE IRA appeared first on The Finance Buff.
September 18, 2024
Follow This Rule to Avoid Long Holds and Account Restrictions
I read this post on Reddit a while ago: Vanguard closed my account for fraudulent activity.
I sold a property, received my payment via check and decided to invest the money in Vanguard. I opened a Vanguard account online and linked my bank, transferred $10 to my Cash Plus account, opened a brokerage account and deposited my check on Friday to the brokerage account. The check was accepted. On Tuesday, I received a call from the check issuer that the check cleared. I logged in Vanguard and I can see it was processed but not available till after 7 days. Everything seems easy, so I thought. Later the same day, I tried to log in and I got an error message, “Access to your account has been disabled. Please contact us.” I called Vanguard and spoke to a rep. They told me my account is being reviewed by the research team and they will be contacting me in 72 hours. I waited 72 hours and called again. Same response. 2 days later, I received a voicemail from the Vanguard fraud team.
“Hello, this is the fraud team calling to let you know the account you inquired about has been restricted due to fraudulent activity. The attempts to bring funds into the account have been rejected. Any electronic bank transfer can be recalled through your bank. Again the account is permanently restricted and there will not be a follow-up to this issue.”
This poster eventually got the money back when Vanguard returned the money to the check issuer.
This type of fraud restriction isn’t limited to Vanguard. Fidelity has had a wave of fraud attacks recently. Criminals recruited existing customers as collaborators (“mules”) for a 50/50 split to make fake deposits and withdraw the money.
Fidelity turned up their anti-fraud measures to thwart these attacks. Many customers reported seeing their accounts restricted, debits declined, Bill Pay canceled, mobile deposit limit cut to $1,000, or the deposit hold times extended to up to 21 days. No doubt many of these are false positives. Attacks from existing customers recruited as mules are the most difficult to combat. It’s hard to distinguish who’s legit and who’s knowingly or unknowingly working with criminals.
I use Fidelity for all my spending. As I mentioned in the previous post Ditch Banks — Go With Money Market Funds and Treasuries, I have under $100 in outside bank accounts. All my cash is in a Fidelity account in money market funds and Treasuries. All my bills are paid out of this Fidelity account. It’ll cause problems if Fidelity restricts my account. I’m not concerned about that possibility because I follow this one simple rule:
Make all deposits by ACH push.
An ACH push is initiated at the same place where the money currently resides (see ACH Push or Pull: The Right Way to Transfer Money). Employer or government direct deposits also come in by ACH push. I make all deposits to my Fidelity account by ACH push. For example, when I transfer the credit card rewards earned in a Bank of America account to Fidelity, I initiate the ACH at Bank of America (see How to Link Another Account to Bank of America for ACH Push).

Money received by ACH push is trusted money. It’s available right away because the receiving institution isn’t responsible for it. You have nothing to worry about having your account flagged for fraud when all the money coming into the account comes by ACH push.
The Reddit poster at the beginning of this post didn’t follow this rule. I venture to say that everyone who had their Fidelity account restricted recently also didn’t follow this rule. Check deposits and ACH pulls are untrusted by the receiving institution. Not every check deposit or ACH pull will get the account restricted for fraud concerns but those who had their account restricted most likely had made check deposits or ACH pulls.
My Fidelity account is functioning normally as usual. I wouldn’t have known this storm was happening if I hadn’t read Reddit. My mobile check deposit limit is still a whopping $500,000 per day although I have no physical checks to deposit. All debits for estimated taxes, credit card bills, utility bills, and PayPal and Venmo payments went out without a hitch. I don’t know what the hold time will be if I do an ACH pull right now because I don’t make deposits by ACH pull anyway. I initiated another ACH push from Bank of America to my Fidelity account as a test. The money arrived the next day and it was available immediately as expected. No hold.
Learn the Nuts and Bolts
The post Follow This Rule to Avoid Long Holds and Account Restrictions appeared first on The Finance Buff.
Follow This Rule to Avoid Getting Your Account Restricted for Fraud
I read this post on Reddit a while ago: Vanguard closed my account for fraudulent activity.
I sold a property, received my payment via check and decided to invest the money in Vanguard. I opened a Vanguard account online and linked my bank, transferred $10 to my Cash Plus account, opened a brokerage account and deposited my check on Friday to the brokerage account. The check was accepted. On Tuesday, I received a call from the check issuer that the check cleared. I logged in Vanguard and I can see it was processed but not available till after 7 days. Everything seems easy, so I thought. Later the same day, I tried to log in and I got an error message, “Access to your account has been disabled. Please contact us.” I called Vanguard and spoke to a rep. They told me my account is being reviewed by the research team and they will be contacting me in 72 hours. I waited 72 hours and called again. Same response. 2 days later, I received a voicemail from the Vanguard fraud team.
“Hello, this is the fraud team calling to let you know the account you inquired about has been restricted due to fraudulent activity. The attempts to bring funds into the account have been rejected. Any electronic bank transfer can be recalled through your bank. Again the account is permanently restricted and there will not be a follow-up to this issue.”
This type of fraud restriction isn’t limited to Vanguard. Fidelity has had a wave of fraud attacks recently. Criminals recruited existing customers as collaborators (“mules”) for a 50/50 split to make fake deposits and withdraw the money.
Fidelity turned up their counter-fraud measures to thwart these attacks. Many customers reported seeing their accounts restricted, debits declined, Bill Pay canceled, mobile deposit limit cut to $1,000, or the deposit hold times extended to up to 21 days. No doubt many of these are false positives. Attacks from within are the most difficult to combat. It’s hard to distinguish who’s legit and who’s knowingly or unknowingly working with criminals.
I use Fidelity for all my spending. As I mentioned in the previous post Ditch Banks — Go With Money Market Funds and Treasuries, I have under $100 in outside bank accounts. All my cash is in a Fidelity account in money market funds and Treasuries. All my bills are paid out of this Fidelity account. It’ll cause problems if Fidelity restricts my account. I’m not concerned about that possibility because I follow this one simple rule:
Make all deposits by ACH push.
An ACH push is initiated at the same place where the money currently resides (see ACH Push or Pull: The Right Way to Transfer Money). Employer or government direct deposits also come in by ACH push. I make all deposits to my Fidelity account by ACH push. For example, when I transfer the credit card rewards earned in a Bank of America account to Fidelity, I initiate the ACH at Bank of America.

Money received by ACH push is trusted money. It’s available right away because the receiving account isn’t responsible for it. You have nothing to worry about having your account flagged for fraud when all the money coming into the account comes by ACH push.
The Reddit poster at the beginning of this post didn’t follow this rule. I venture to say that everyone who had their Fidelity account restricted also didn’t follow this rule. Check deposits and ACH pulls are untrusted by the receiving institution. Not every check deposit or ACH pull will get the account restricted or flagged for fraud but those who had their account restricted most likely had made check deposits or ACH pulls.
My Fidelity account is functioning normally as usual. I wouldn’t have known this storm was happening if I hadn’t read Reddit. My mobile check deposit limit is still a whopping $500,000 per day although I have no physical checks to deposit. All debits for estimated taxes, credit card bills, utility bills, and PayPal and Venmo payments went out without a hitch. I don’t know what the hold time will be if I do an ACH pull right now because I don’t make deposits by ACH pull anyway. I just initiated another ACH push from Bank of America to my Fidelity account. I expect it to be available immediately upon arrival as usual.
Learn the Nuts and Bolts
The post Follow This Rule to Avoid Getting Your Account Restricted for Fraud appeared first on The Finance Buff.
September 11, 2024
2024 2025 Tax Brackets, Standard Deduction, Capital Gains, QCD
My other post listed 2024 2025 401k and IRA contribution and income limits. I also calculated the inflation-adjusted tax brackets and some of the most commonly used numbers in tax planning for 2025 using the published inflation numbers and the same formula prescribed in the tax law. These calculations have been confirmed by the IRS Rev. Proc. 2024-40.
Table of Contents2024 2025 Standard Deduction2024 2025 Tax Brackets2024 2025 Capital Gains TaxNet Investment Income Tax2024 2025 Estate and Trust Tax Brackets2024 2025 Qualified Charitable Distributions (QCD) Limit2024 2025 2026 Medicare Part B and Part D IRMAA2024 2025 Gift Tax Exclusion2024 2025 Savings Bonds Tax-Free Redemption for College Expenses2024 2025 Standard DeductionYou don’t pay federal income tax on every dollar of your income. You deduct an amount from your income before you calculate taxes. About 90% of all taxpayers take the standard deduction. The other ~10% itemize deductions when their total deductions exceed the standard deduction. In other words, you’re deducting a larger amount than your allowed deductions when you take the standard deduction. Don’t feel bad about taking the standard deduction!
The basic standard deduction in 2024 and 2025 are:
20242025Single or Married Filing Separately$14,600$15,000Head of Household$21,900$22,500Married Filing Jointly$29,200$30,000Basic Standard DeductionSource: IRS Rev. Proc. 2023-34, Rev. Proc. 2024-40.
People who are age 65 and over have a higher standard deduction than the basic standard deduction.
20242025Single, age 65 and over$16,550$17,000Head of Household, age 65 and over$23,850$24,500Married Filing Jointly, one person age 65 and over$30,750$31,600Married Filing Jointly, both age 65 and over$32,300$33,200Standard Deduction for age 65 and overSource: IRS Rev. Proc. 2023-34, Rev. Proc. 2024-40.
People who are blind have an additional standard deduction.
20242025 estimatesSingle or Head of Household, blind+$1,950+$2,000Married Filing Jointly, one person is blind+$1,550+$1,600Married Filing Jointly, both are blind+$3,100+$3,200Additional Standard Deduction for BlindnessSource: IRS Rev. Proc. 2023-34, Rev. Proc. 2024-40.
2024 2025 Tax BracketsThe tax brackets are based on taxable income, which is AGI minus various deductions. The tax brackets in 2024 are:
SingleHead of HouseholdMarried Filing Jointly10%$0 – $11,600$0 – $16,550$0 – $23,20012%$11,600 – $47,150$16,550 – $63,100$23,200 – $94,30022%$47,150 – $100,525$63,100 – $100,500$94,300 – $201,05024%$100,525 – $191,950$100,500 – $191,950$201,050 – $383,90032%$191,950 – $243,725$191,950 – $243,700$383,900 – $487,45035%$243,725 – $609,350$243,700 – $609,350$487,450 – $731,20037%Over $609,350Over $609,350Over $731,2002024 Tax BracketsSource: IRS Rev. Proc. 2023-34.
The 2025 tax brackets will be:
SingleHead of HouseholdMarried Filing Jointly10%$0 – $11,925$0 – $17,000$0 – $23,85012%$11,925 – $48,475$17,000 – $64,850$23,850 – $96,95022%$48,475 – $103,350$64,850 – $103,350$96,950 – $206,70024%$103,350 – $197,300$103,350 – $197,300$206,700 – $394,60032%$197,300 – $250,525$197,300 – $250,500$394,600 – $501,05035%$250,525 – $626,350$250,500 – $626,350$501,050 – $751,60037%Over $626,350Over $626,350Over $751,6002025 Tax BracketsSource: IRS Rev. Proc. 2024-40.
A common misconception is that when you get into a higher tax bracket, all your income is taxed at the higher rate and you’re better off not having the extra income. That’s not true. Tax brackets work incrementally. If you’re $1,000 into the next tax bracket, only $1,000 is taxed at the higher rate. It doesn’t affect the income in the previous brackets.
For example, someone single with a $70,000 AGI in 2024 will pay:
First 14,600 (the standard deduction)0%Next $11,60010%Next $35,550 ($47,150 – $11,600)12%Final $8,25022%Progressive Tax RatesThis person is in the 22% tax bracket but only a tiny fraction of the $70,000 AGI is taxed at 22%. Most of the income is taxed at 0%, 10%, and 12%. The blended tax rate is only 10.3%. If this person doesn’t earn the final $8,250, he or she is in the 12% bracket instead of the 22% bracket but the blended tax rate only goes down slightly from 10.3% to 8.8%. Making the extra income doesn’t cost this person more in taxes than the extra income.
Don’t be afraid of going into the next tax bracket.
2024 2025 Capital Gains TaxWhen your other taxable income (after deductions) plus your qualified dividends and long-term capital gains are below a cutoff, you will pay 0% federal income tax on your qualified dividends and long-term capital gains under this cutoff.
This is illustrated by the chart below. Taxable income is the part above the black line, after subtracting deductions. A portion of the qualified dividends and long-term capital gains is taxed at 0% when the other taxable income plus these qualified dividends and long-term capital gains are under the red line.

The red line is close to the top of the 12% tax bracket but they don’t line up exactly.
20242025Single or Married Filing Separately$47,025$48,350Head of Household$63,000$64,750Married Filing Jointly$94,050$96,700Maximum Zero Rate Amount for Qualified Dividends and Long-term Capital GainsSource: IRS Rev. Proc. 2023-34, Rev. Proc. 2024-40.
For example, suppose a married couple filing jointly has $70,000 in other taxable income (after deductions) and $25,000 in qualified dividends and long-term capital gains in 2024. The maximum zero rate amount cutoff is $94,050. $24,050 of the qualified dividends and long-term capital gains ($94,050 – $70,000) is taxed at 0%. The remaining $25,000 – $24,050 = $950 is taxed at 15%
A similar threshold exists on the upper end for qualified dividends and long-term capital gains. When your other taxable income (after deductions) plus your qualified dividends and long-term capital gains are above a cutoff, you will pay 20% federal income tax instead of 15% on your qualified dividends and long-term capital gains above this cutoff.
20242025Single$518,900$533,400Head of Household$551,350$566,700Married Filing Jointly$583,750$600,050Married Filing Separately$291,850$300,000Maximum 15% Rate Amount for Qualified Dividends and Long-term Capital GainsSource: IRSRev. Proc. 2023-34, Rev. Proc. 2024-40.
Net Investment Income TaxNet Investment Income Tax (NIIT) is a 3.8% tax on the portion of interest, dividends, and capital gains that makes your modified adjustable gross income exceed these thresholds:
MAGI ThresholdSingle$200,000Head of Household$200,000Married Filing Jointly$250,000Married Filing Separately$125,000Net Investment Income Tax MAGI ThresholdThese thresholds are fixed by law. They are not adjusted for inflation. You pay a 3.8% tax on the amount your MAGI exceeds these thresholds or your total interest, dividends, and capital gains, whichever is less.
Suppose you’re married filing jointly and you have $300,000 MAGI, which includes $10,000 in interest, dividends, and capital gains. Although your MAGI exceeds the $250,000 threshold by $50,000, you will pay 3.8% in NIIT on only $10,000 because you have only $10,000 in net investment income.
Suppose you’re married filing jointly and you have $260,000 MAGI, which includes $150,000 in interest, dividends, and capital gains. Although you have $150,000 in net investment income, you will pay 3.8% in NIIT only on $10,000 because your MAGI exceeds the $250,000 threshold by only $10,000.
2024 2025 Estate and Trust Tax BracketsEstates and trusts have different tax brackets than individuals. These apply to non-grantor trusts and estates that retain income as opposed to distributing the income to beneficiaries. Grantor trusts (including the most common revocable living trusts) don’t pay taxes separately. The income of a grantor trust is taxed to the grantor at the grantor’s tax brackets.
Here are the tax brackets for estates and trusts in 2024 and 2025:
2024202510%$0 – $3,100$0 – $3,15024%$3,100 – $11,150$3,150 – $11,45035%$11,150 – $15,200$11,450 – $15,65037%over $15,200over $15,650Estate and Trust Tax BracketsSource: IRS Rev. Proc. 2023-34, Rev. Proc. 2024-40.
2024 2025 Qualified Charitable Distributions (QCD) LimitPeople older than 70-1/2 can make Qualified Charitable Distributions (QCD) from their Traditional IRA directly to qualifying charitable organizations. QCDs count toward the Required Minimum Distribution (RMD).
Your total QCDs can’t exceed $105,000 in 2024. The limit will go up to $108,000 in 2025.
The QCD limit is per person. If you’re married, both you and your spouse can make QCDs up to the limit separately from your respective IRAs.
Source: IRS Notice 2023-75, author’s calculations.
2024 2025 2026 Medicare Part B and Part D IRMAAPeople on Medicare Part B and Part D pay a higher Medicare premium when their Modified Adjusted Gross Income from two years ago crosses certain thresholds. I track these in Medicare Part B IRMAA Premium MAGI Brackets.
2024 2025 Gift Tax ExclusionEach person can give another person up to a set amount in a calendar year without having to file a gift tax form. Not that filing a gift tax form is onerous, but many people avoid it if they can. This gift tax exclusion amount will increase from $18,000 in 2024 to $19,000 in 2025.
20242025Gift Tax Exclusion$18,000$19,000Gift Tax ExclusionSource: IRS Rev. Proc. 2023-34, Rev. Proc. 2024-40.
The gift tax exclusion is counted by each giver to each recipient. As a giver, you can give up to $18,000 each in 2024 to an unlimited number of people without having to file a gift tax form. If you give $18,000 to each of your 10 grandkids in 2024, you still won’t be required to file a gift tax form. Any recipient can also receive a gift from an unlimited number of people. If a grandchild receives $18,000 from each of his or her four grandparents in 2024, no taxes or tax forms will be required.
2024 2025 Savings Bonds Tax-Free Redemption for College ExpensesIf you cash out U.S. Savings Bonds (Series I or Series EE) for college expenses or transfer to a 529 plan, your modified adjusted gross income must be under certain limits to get a tax exemption on the interest. See Cash Out I Bonds Tax Free For College Expenses Or 529 Plan.
Here are the income limits in 2024 and my estimates for 2025. The limits are in a phase-out range. You get a full exemption if your income is below the lower number in the range. You get no exemption if your income is above the higher number in the range. You get a partial exemption if your income falls within the range.
20242025Single, Head of Household$96,800 – $111,800$99,500 – $114,500Married Filing Jointly$145,200 – $175,200$149,250 – $179,250Income Limit for Tax-Free Savings Bond Redemption for Higher EducationSource: IRS Rev. Proc. 2023-34, Rev. Proc. 2024-40.
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August 30, 2024
2024 2025 Cap on Paying Back ACA Health Insurance Subsidy
[Updated on August 30, 2024.]
The ACA health insurance subsidy, aka the premium tax credit, is set up such that, for the most part, it doesn’t matter how much subsidy you receive upfront when you enroll. The upfront subsidy is only an estimate. The final subsidy will be squared up when you file your tax return next year.
If you didn’t receive the subsidy when you enrolled but your actual income qualifies, you get the subsidy as a tax credit when you file your tax return. If the government paid more subsidies than your actual income qualifies for, you pay back the difference on your tax return.
Repayment CapThere’s a cap on how much you need to pay back. The cap varies depending on your Modified Adjusted Gross Income (MAGI) relative to the Federal Poverty Level (FPL) and your tax filing status. It’s also adjusted for inflation each year. Here are the caps on paying back the subsidy for 2024 and 2025.
MAGI2024 Coverage2025 Coverage< 200% FPLSingle: $375Other: $750Single: $375
Other: $750< 300% FPLSingle: $950
Other: $1,900Single: $975
Other: $1,950< 400% FPLSingle: $1,575
Other: $3,150Single: $1,625
Other: $3,250>= 400% FPLNo CapNo CapACA APTC Repayment Cap
Source: IRS Rev. Proc. 2023-34, author’s calculations.
No Cap Above 400% of FPLThe repayment caps in 2024 and 2025 apply only when your actual income is below 400% of FPL. There’s no repayment cap if your actual income exceeds 400% of FPL — you will have to pay back 100% of the difference between what you received and what your actual income qualifies for.
Large Change in IncomeThe caps are also set sufficiently high such that the amount you need to pay back will fall below the cap unless there’s a big difference between your actual income and your estimated income at the time of enrollment.
For example, suppose you’re married filing jointly and you estimated your income would be $50,000 in 2024 when you enrolled. Suppose by the time you file your tax return, your income turns out to be $60,000. Because your income is $10,000 higher than you originally estimated, you qualify for a lower subsidy now. You will be required to pay back the $1,596 difference. The cap doesn’t really help you because this $1,596 difference is well under the $3,150 repayment cap.
In addition, because you’re required to notify the healthcare marketplace of your income changes during the year in a timely manner so that they can adjust your advance subsidy, normally the difference between the advance subsidy you received and the subsidy you finally qualify for should be well under the cap. The cap helps only when your income increases close to the end of the year to make it too late to adjust your advance subsidy.
Easier for SinglesStill, a late income change can happen, and the change can be large enough to make the difference in the health insurance subsidy higher than the repayment cap. This is true especially when you’re single with a lower repayment cap.
For example, suppose you’re single and you estimated your income would be $30,000 in 2024 when you enrolled. Suppose in December 2024 you decide to convert $20,000 from a Traditional IRA to a Roth IRA. This pushes your income to $50,000. The extra $20,000 income lowers your health insurance subsidy by $2,866, but because your repayment cap is $1,575, you only need to pay back $1,575. You get to keep the other $1,291. In this case, you’re better off asking for the subsidy upfront during enrollment. If you only wait until you file your tax return, you won’t benefit from the repayment cap.
Bottom line: You should try to estimate your income conservatively and qualify for as much subsidy as you can upfront when you enroll. Maybe it won’t help. Maybe it will.
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August 22, 2024
How to Keep a Google Voice Number Permanent for 2FA
It was reported in the news that an obscure background-check company National Public Data was hacked. Hackers published on the dark web millions of stolen names, dates of birth, Social Security Numbers, current and previous addresses, phone numbers, and email addresses.
This hack follows many other hacks. You should assume by now that your name, date of birth, Social Security Number, address, phone number, and email address are all out in the open. So freeze your credit and protect your tax return (see How To Freeze and Unfreeze Your Credit With Experian, Equifax, and TransUnion and Stop Tax Return Fraud: Sign Up for the IRS IP PIN Program).
Password Reset AttackWe should also realize that many financial institutions use this same set of personal information to handle password resets. Thieves don’t need to crack your complicated long password when they can easily reset the password by giving your name, date of birth, Social Security Number, and zip code.
The best practice to secure your financial accounts is to use security hardware for 2-factor authentication (see Security Hardware for Vanguard, Fidelity, and Schwab Accounts). However, most banks and credit unions don’t support security hardware, which is another reason to ditch banks and use a broker.
Many financial institutions will send a one-time code to the phone number on file. In that case, as someone said on the Bogleheads forum, the security of your account rests in the hands of the customer service rep of your cell phone provider.
If someone has access to my phone number + easy to discover tidbits of information about me (name, date of birth, social security number, and home zip code). They can get my username, reset password, log in to the account, and conduct business as normal. Is that true? Yes, I have tried it myself (and maybe you should give it a try too).
If someone convinces your cell phone provider that you lost your phone, or they trick you into reading them the one-time code from the cell phone provider, they can transfer your phone number to a phone that they control. Now the security codes from your financial accounts will go to their phone. They reset your password and gain access to your accounts.
Use Google VoiceOne way to prevent your phone number from being transferred away is to use a Google Voice number for your financial accounts. Google Voice gives you a number that can receive text messages. The messages appear in the Google Voice app or on Google Voice’s website. A Google Voice number can be transferred to another provider only by logging into your Google account. Your Google Voice number is secure after you secure your Google account with a hardware security key.
Google requires some outbound activities on the Google Voice number once in a while to keep the number active. Google will revoke the number if they don’t see such activities. The required activities include:
Making a call or answering a callSending a text messageListening to the voicemailOnly receiving text messages doesn’t count. Google sends a warning email if they don’t see any of these activities periodically. They give you 30 days to generate the required activities to keep your Google Voice number.
Make Google Voice Number PermanentGenerating the required outbound activities after receiving a warning email works fine. Still, it would be a bummer to lose the Google Voice number that you use for important financial accounts if you miss the deadline. There’s a way to make your Google Voice number permanent and not risk having it revoked by Google. It takes a one-time effort and costs a little money but it’s worth it.
Here’s what you need:
A spare old unlocked phoneA month of minimal cell phone service on a new lineA $20 payment to GoogleThe idea is that you activate a new line for minimal service from a cell phone provider and you transfer (“port”) that new phone number to Google Voice. Google Voice treats a ported-in number as yours to keep. They won’t take it away even if you don’t have any outbound activities on that number.
As a bonus, after you port in a new number to Google Voice, you can keep your original Google Voice number as a secondary number in your account, which is also not subject to the outbound activity requirements. This gives you two permanent Google Voice numbers. You can use one number and have your spouse use the other number, or you can use one number for financial accounts and the other number for non-financial accounts.
You can add a new line for a month to the family plan with your current cell phone provider. If that costs too much, several low-cost cell phone providers offer talk-and-text plans for $10/month or less. They’ll send you a SIM card if your spare old phone needs a SIM card. Or they can work with eSIM if your old phone supports eSIM. You only need to activate the new line and confirm it’s working before you ask Google to port that number to Google Voice.
You’ll need the account number and the port-out PIN from the cell phone provider. Search for the name of your provider and “port-out PIN” to find out how to obtain that information. Google charges $20 for porting the number. It takes 1-2 days to complete. Google will send an email when it’s done. That email also tells you how to keep your original Google Voice number as a permanent secondary number. You can test your new Google Voice number by texting to it and seeing the text in the Google Voice app or website.
I did this last month. Getting a new phone number with minimal service on a spare old phone and porting the number to Google Voice took some legwork. It cost less than $30 and now I have two permanent Google Voice numbers. Knowing those numbers won’t be taken away makes it worth the effort.
***
I use a Google Voice number as the phone number on file in all my financial accounts. Even if an account supports security hardware or an authenticator app, it often still sends security codes and alerts to the phone number on file. I want that phone number securely under my control.
I turn on 2-factor authentication in all accounts:
1. If the account supports security hardware (Yubikey or Symantec VIP token), I use security hardware.
2. If the account supports authenticator apps (Google Authenticator, Microsoft Authenticator, Authy, …), I use an authenticator app.
3. If an account only supports sending security codes by text message, I give my Google Voice number and receive the code in the Google Voice app.
4. If an account doesn’t accept a Google Voice number, I close my account.
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August 14, 2024
2025 Social Security Cost of Living Adjustment (COLA)
Retirees on Social Security receive an increase of their Social Security benefits each year known as the Cost of Living Adjustment or COLA. The COLA was 3.2% in 2024. Retirees on Social Security will once again receive a COLA in 2025 but it won’t be as big as the one in 2024 because inflation has cooled down.
Table of ContentsAutomatic Link to InflationCPI-WQ3 Average2025 Social Security COLAMedicare PremiumsRoot for a Lower COLAAutomatic Link to InflationSome retirees think the COLA is given at the discretion of the President or Congress and they want their elected officials to take care of seniors by declaring a higher COLA. They blame the President or Congress when they think the increase is too small.
It was done that way before 1975 but the COLA has been automatically linked to inflation for nearly 50 years. How much the COLA will be is determined strictly by the inflation numbers. The COLA is high when inflation is high. It’s low when inflation is low. There’s no COLA when inflation is zero or negative, which happened in 2010, 2011, and 2016.
CPI-WSpecifically, the Social Security COLA is determined by the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-W is a separate index from the Consumer Price Index for All Urban Consumers (CPI-U), which is more often referenced by the media when they talk about inflation.
CPI-W tracks inflation experienced by workers. CPI-U tracks inflation experienced by consumers. There are some minor differences in how much weight different goods and services have in each index but CPI-W and CPI-U look practically identical when you put them in a chart.

The red line is CPI-W and the blue line is CPI-U. They differed by only smidges in 30 years.
There’s also a research CPI index called the Consumer Price Index for Americans 62 years of age and older, or R-CPI-E. This index weighs more by the spending patterns of older Americans. Some researchers argue that the Social Security COLA should use R-CPI-E, which has increased more than CPI-W in the last 30 years.

The green line is R-CPI-E. The red line is CPI-W. R-CPI-E outpaced CPI-W in 30 years between 1993 and 2023 but not by much. Had the Social Security COLA used R-CPI-E instead of CPI-W, Social Security benefits would’ve been higher by 0.1% per year, or a little over 3% after 30 years. That’s still not much difference.
Regardless of which exact CPI index is used to calculate the Social Security COLA, it’s subject to the same overall price environment. Congress chose CPI-W 50 years ago. That’s the one we’re going with.
Q3 AverageMore specifically, Social Security COLA for next year is calculated by the increase in the average of CPI-W from the third quarter of last year to the third quarter of this year. You get the CPI-W numbers in July, August, and September. Add them up and divide by three. You do the same for July, August, and September last year. Compare the two numbers and round the change to the nearest 0.1%. That’ll be the Social Security COLA for next year.
2025 Social Security COLAThe average of CPI-W from the third quarter in 2024 increased by 2.5% compared to the average of CPI-W from the third quarter in 2023. Therefore, the 2025 Social Security COLA will be 2.5%. It is lower than the 3.2% Social Security COLA in 2024 because inflation has come down.
Medicare PremiumsIf you’re on Medicare, the Social Security Administration automatically deducts the Medicare premium from your Social Security benefits. The Social Security COLA is given on the “gross” Social Security benefits before deducting the Medicare premium and any tax withholding.
Medicare announced that the standard Part B premium will increase from $174.60/month in 2024 to $185/month in 2025. The increase in healthcare costs is part of the cost of living that the COLA is intended to cover. You’re still getting the full COLA even though a part of the COLA will be used toward the increase in Medicare premiums.
Retirees with a higher income pay more than the standard Medicare premiums. This is called Income-Related Monthly Adjustment Amount (IRMAA). I cover IRMAA in 2024 2025 2026 Medicare IRMAA Premium MAGI Brackets.
Root for a Lower COLAPeople intuitively want a higher COLA but a higher COLA can only be caused by higher inflation. Higher inflation is bad for retirees.
Whether inflation is high or low, your Social Security benefits will have the same purchasing power. You should think more about the purchasing power of your savings and investments outside Social Security. When inflation is high, even though your Social Security benefits get a bump, your other money loses more value to inflation. Your savings and investments outside Social Security will last longer when inflation is low.
You want a lower Social Security COLA, which means lower inflation and lower expenses.
Some people say that the government deliberately under-reports inflation. Even if that’s the case, you still want a lower COLA.
Suppose the true inflation for seniors is 3% higher than the inflation numbers reported by the government. If you get a 3% COLA when the true inflation is 6% and you get a 7% COLA when the true inflation is 10%, you are much better off with a lower 3% COLA together with 6% inflation than getting a 7% COLA together with 10% inflation. Your Social Security benefits lag inflation by the same amount either way, but you’d rather your other money outside Social Security loses to 6% inflation than to 10% inflation.
Root for lower inflation and lower Social Security COLA when you are retired.
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