How do TIPS help fight inflation?

How do TIPS help fight inflation?

 

One way to help protect your portfolio against a sudden spike in inflation is by investing in Treasury Inflation-Protected Securities (TIPS).

 

TIPS are guaranteed by the federal government as to the timely payment of principal and interest. They are sold in $100 increments and available in maturities of 5, 10, and 30 years. The principal is automatically adjusted twice a year to match any increases or decreases in the Consumer Price Index (CPI). If the CPI moves up or down, the Treasury recalculates your principal.

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How do economists measure inflation, and why does it matter to investors?

 

How do economists measure inflation, and why does it matter to investors?The Federal Open Market Committee (FOMC) adjusts interest rates to help keep inflation near a 2% target. The FOMC’s preferred measure of inflation is the Price Index for Personal Consumption Expenditures (PCE), primarily because it covers a broad range of prices and picks up shifts in consumer behavior. The Fed also focuses on core inflation measures, which strip out volatile food and energy categories that are less likely to respond to monetary policy.

 

The typical American might be more familiar with the Consumer Price Index (CPI), which was the Fed’s favorite inflation gauge until 2012. The Consumer Price Index for All Urban Consumers (CPI-U) is used to determine cost-of-living adjustments for federal income taxes and Social Security.

 

The CPI only measures the prices that consumers actually pay for a fixed basket of goods, whereas the PCE tracks the prices of everything that is consumed, regardless of who pays. For example, the CPI includes a patient’s out-of-pocket costs for a doctor’s visit, while the PCE considers the total charge billed to insurance companies, the government, and the patient.

 

The PCE methodology uses current and past expenditures to adjust category weights, capturing consumers’ tendency to substitute less expensive goods for more expensive items. The weighting of CPI categories is only adjusted every two years, so the index does not respond quickly to changes in consumer spending habits, but it provides a good comparison of prices over time.

 

According to the CPI, inflation rose 2.1% in 2016 — right in line with the 20-year average of 2.13%.1 This level of inflation may not be a big strain on the family budget, but even moderate inflation can have a negative impact on the purchasing power of fixed-income investments. For example, a hypothetical investment earning 5% annually would have a “real return” of only 3% during a period of 2% annual inflation.

 

Of course, if inflation picks up speed, it could become a more pressing concern for consumers and investors.

 

U.S. Bureau of Labor Statistics, 2017 (data through December 2016)

Medicare and Your Employer Health Plan

 

Medicare and Your Employer Health PlanIf you plan to continue working after you reach age 65, you may be wondering how Medicare coordinates with your employer’s group health plan. When you’re eligible for both types of coverage, you’ll need to consider the benefits and costs, and navigate an array of rules.

 

How does Medicare work with your group health plan?

 

You can generally wait to enroll in Medicare if you have group health insurance through your employer or your spouse’s employer. Most employers can’t require employees or covered spouses to enroll in Medicare to retain eligibility for their group health benefits. However, some small employers can, so contact your plan’s benefits administrator to find out if you’re required to sign up for Medicare when you reach age 65.

 

If you have Medicare and group health coverage, both insurers may cover your medical costs, based on “coordination of benefit” rules. The primary insurer pays your claim first, up to the limits of the policy. The secondary insurer pays your claim only if there are costs the primary insurer didn’t cover, but may not pay all the uncovered costs.

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Life Is for the Living, and So Is Life Insurance

Life Is for the Living, and So Is Life Insurance

 

Life can be busy. The requirements of work and family often leave little time to step back and think about where you’ve been and where you’re heading. But as your responsibilities grow, so does the need to evaluate what would happen if life for you stopped. September is Life Insurance Awareness Month and a good time to reflect on how life insurance can help those you leave behind — the living.

 

Your spouse or life partner

 

A successful marriage is often predicated on sharing and providing for one another, and that includes each other’s financial obligations. If you were suddenly no longer in the picture, would there be enough money to pay for your final expenses, cover debt, and buy some time to allow your significant other to adjust to a new way of life? Life insurance can provide funds to cover immediate expenses and income to help support your surviving loved one.

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For Women, a Pay Gap Could Lead to a Retirement Gap

 

For Women, a Pay Gap Could Lead to a Retirement Gap

Women in the workforce generally earn less than men. While the gender pay gap is narrowing, it is still significant. The difference in wages, coupled with other factors, can lead to a shortfall in retirement savings for women.

 

Statistically speaking

 

Generally, women work fewer years and contribute less toward their retirement than men, resulting in lower lifetime savings. According to the U.S. Department of Labor:

  • 56.7% of women work at gainful employment, which accounts for 46.8% of the labor force
  • The median annual earnings for women is $39,621 — 21.4% less than the median annual earnings for men
  • Women are more likely to work in part-time jobs that don’t qualify for a retirement plan
  • Of the 63 million working women between the ages of 21 and 64, just 44% participate in a retirement plan
  • Working women are more likely than men to interrupt their careers to take care of family members
  • On average, a woman retiring at age 65 can expect to live another 20 years, two years longer than a man of the same age

All else being equal, these factors mean women are more likely than men to face a retirement income shortfall. If you do find yourself facing a potential shortfall, here are some options to consider.

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