2009 cpi-u

[W2R]

The BLS has released the 2009 CPI-U figures, which (perfect or not) many of us use for our computations. They are included in this table of historical CPI-U values.

The meaningful number here, to me, is the change in CPI-U averaged throughout the year which for 2009 (compared with 2008) is -0.40%. This is the first decrease in over 50 years.

Looking at other information on the U.S. Bureau of Labor Statistics website, it looks like the decrease was in good part due to the decrease in the prices for fuel oil, gasoline, and other petroleum products.

Sure makes my investment returns in 2009 look nice. Not that I believe that the CPI-U is the "be all and end all" measure of inflation, but it is one that many use.

 

[BOBOT]

Hmph, I guess my cola'd pension won't get a bump this year.

 

[Leonidas]

Seems Houston is on a different schedule than the rest of the country - CPI-U is up 2.7% year-over-year. My COLA is figured on the local CPI so I guess I'll get a raise this next April.

 

[W2R]

Seems Houston is on a different schedule than the rest of the country - CPI-U is up 2.7% year-over-year. My COLA is figured on the local CPI so I guess I'll get a raise this next April.

Interesting. It is probably a coincidence but 2.7% is also reported on the text document I linked to in the first post, I believe as the "December over December" increase. I have been using the yearly average increase figure. Not sure which one is most commonly used.

 

[TromboneAl]

Hmph, I guess my cola'd pension won't get a bump this year.

If the CPI is accurate for you, you should celebrate this result: "My pension is staying same even though the cost of living has decreased." IOW, you are getting a raise because the pension designer's didn't consider that CPI might decrease.

 

[Nords]

If the CPI is accurate for you, you should celebrate this result: "My pension is staying same even though the cost of living has decreased." IOW, you are getting a raise because the pension designer's didn't consider that CPI might decrease.

Like insurance, inflation adjustments are one of those situations where you really don't want to win big...

 

[Leonidas]

Interesting. It is probably a coincidence but 2.7% is also reported on the text document I linked to in the first post, I believe as the "December over December" increase. I have been using the yearly average increase figure. Not sure which one is most commonly used.

Might just be a coincidence. This was the text of a press release from BLS a week ago Friday.

HOUSTON-GALVESTON-BRAZORIA CONSUMER PRICE INDEX – DECEMBER 2009 (PDF)
Area Prices Down in December, but Rise over the Year

Prices in the Houston-Galveston-Brazoria area fell 0.4 percent during November and December, the U.S. Bureau of Labor Statistics reported today. Regional Commissioner Stanley W. Suchman noted that decreases occurred in five of the eight major categories. During the year ended in December 2009, local prices increased 2.7 percent, primarily as a result of a sharp annual increase in motor fuel costs. These data are based on the Consumer Price Index for All Urban Consumers (CPI-U).

Then again, the numbers are exactly opposite of what you found. I'll have to look at the charts again, I only looked at Houston and not the national numbers. But that will have to wait until after supper, it's taco night after all.

 

[jdw_fire]

Interesting. It is probably a coincidence but 2.7% is also reported on the text document I linked to in the first post, I believe as the "December over December" increase. I have been using the yearly average increase figure. Not sure which one is most commonly used.

well the feds use 3rd quarter average over 3rd quarter average (a little of both) for SS and fed pensions.

 

[BOBOT]

If the CPI is accurate for you, you should celebrate this result: "My pension is staying same even though the cost of living has decreased.

I understand your point, but I have the distinct impression that things are not getting cheaper - at least where we are. AND, our cola is only 1-for-1 with the CPI for the 1st 3 points, and 1/2 -for-1 after that, with a max increase of 5%. So in high CPI years we'll be losing ground.

Edited to say that our pensions are pretty small because we RE, so it's not that big a deal. But still.

 

[W2R]

I understand your point, but I have the distinct impression that things are not getting cheaper - at least where we are. AND, our cola is only 1-for-1 with the CPI for the 1st 3 points, and 1/2 -for-1 after that, with a max increase of 5%. So in high CPI years we'll be losing ground.

Since the most marked reduction from 2008-2009 in prices used to compute the CPI-U seems to be lowered prices of gas, heating oil, and other petroleum products, I don't notice lower prices either. I live in the south, where natural gas is usually used instead of heating oil, and I don't drive much (less than 4,000 miles per year).

Luckily since 2010 is the first year for which I will be making withdrawals from my portfolio, the reduction in CPI-U will not affect my withdrawal.

 

[walkinwood]

W2R, Please share the reasons why you use the average CPI-U over the year instead of the Dec to Dec number.

I plan to use the Dec to Dec number.

 

[W2R]

W2R, Please share the reasons why you use the average CPI-U over the year instead of the Dec to Dec number.

I plan to use the Dec to Dec number.

Many may choose to use the Dec to Dec number and that might be the better choice. I have no idea. I am a new retiree and new to this so I am just now trying to figure this out.

My thinking was that my true cost of living is affected more by the average consumer prices throughout the year than the point value in Dec only, due to volatility in monthly prices even when seasonally adjusted.

 

[jdw_fire]

Many may choose to use the Dec to Dec number and that might be the better choice. I have no idea. I am a new retiree and new to this so I am just now trying to figure this out.

My thinking was that my true cost of living is affected more by the average consumer prices throughout the year than the point value in Dec only, due to volatility in monthly prices even when seasonally adjusted.

the year average year over year change seems to lag the dec year over year change which maybe putting you over a year behind on keeping current with inflation, so be careful, this could be really hurt in periods of high inflation (maybe even in any inflation)

 

[W2R]

That's a good point. After reading it, I went off to read and learn on the BLS website and found a discussion in the FAQs, at

Consumer Price Index Frequently Asked Questions

It includes the following paragraph, which covers much of what each of us was saying regarding Dec to Dec vs annual averages:

From a statistical perspective, each of these types of indexes has its advantages. A 12-month percent change from, say, December-to-December, is arguably a more recent estimate of price change than an annual average percent change. Said another way, the December-to-December percent change is the most recent 12-month percent change in a year, while the annual average percent change reflects the change in the average index for all 12 months of one year to the average index for all 12 months the next year.
The December-to-December index percent change, however, tends to be more volatile than the percent change in the annual average index. Annual average indexes are based on 12 monthly data points which, when averaged, reduce volatility by smoothing out the highs and lows. These two types of calculations are explored in greater detail in the report, "Math Calculations..." at http://www.bls.gov/cpi/cpimathfs.pdf . To illustrate the differences that can arise between the two methods of calculation, take the situation which occurred in 2008 when the percent changes varied widely between these two approaches, largely as a result of the fluctuating cost of gasoline. The U.S City Average All items index increased just 0.1 percent from December 2007 to December 2008; only five months earlier (from July 2007 to July 2008) this index had risen 5.8 percent. Annual average percent changes for the last few years during this period, on the other hand, have been in a much narrower range.

 

[walkinwood]

W2R, Thank you for researching it. I'll read up on it too.

 

[walkinwood]

W2R,

2010 is my 2nd year of semi-ER. Since I take 4% of my portfolio as my budget, I want to keep track of my budget v/s a more typical COLA'd SWR based on the portfolio value at ER. So far, I'm far behind, which given the returns of 2008, is understandable (& safer in the long run).

Besides average v/s end of year, adjusted v/s non-adjusted, you've got me thinking about which particular index to use.

The Social Security COLA increase is based on the CPI-W. They take the average of the CPI-U for July/August/Sept and compare it to the same time the a year earlier. This is not the exact measurement since they do some other calculations on it.

http://www.ssa.gov/OACT/COLA/latestCOLA.html

Going by that calculation, the COLA is -2.1%.

I scanned the Bengen papers and could only find a reference to the use of inflation from the Ibottson data. Does anyone know for sure what index he used for inflation?

I gave away my copy of Bob Clyatt's book (hoping to inspire a friend), so can someone investigate what he used?

Interesting!

 

[W2R]

Good questions.

In a sense, the method by which SS computes its index almost seems like an attempt to combine the advantages of the Dec over Dec index with those of the annual average index. To me this raises indecision to a fine art.

I am not sure which index was used by Benggen or by Clyatt. The index used by Benggen is probably very relevant since his paper was the basis for the 4% SWR in the first place (if my memory is correct). I am glad that I have a year before I need to figure this out.

 

[walkinwood]

W2R,
IIRC, your SWR is so conservative, that it shouldn't matter in the least which one you pick!

Me, on the other hand, I'm back to work in year 2! It is very much a part-time job right now, and I'm feeling good about it. ("enjoying" would be too strong a word)

 

[Nords]

I am glad that I have a year before I need to figure this out.

Have you already read Bud Hebeler's articles?
Articles

 

[W2R]

Have you already read Bud Hebeler's articles?
Articles

No!! Thank you so much for the link. Looks like a lot of interesting stuff there.

 

[JustNtime]

Cola'd Pensions

Have you already read Bud Hebeler's articles?
Articles

Nords isn't taking SS at 62 a no brainer for you, with both you and your wife getting cola'd gov't pensions.

When I look at projected total of my pension and early SS, I wonder how we'll spend it all. Well, we probably won't and the surplus will go into savings and investments. <Just like it has over the past 7+ yrs of ER.> Perhaps there's an argument to be made for waiting for an even larger amount, if you really don't need the money. But what would I be waiting for and what would I be spending the extra on. It's alot like the decision to ER. Waiting will always get you more dollars, but not necessarily more enjoyment.

In addition, I can't help but believe at some point there will be means testing to reduce benefits or increase taxes even more than current provisions. Taking a smaller amount over a longer period of time seems safer. I'd even take reduced benefits at 60 or even earlier, if I could.

 

[Lsbcal]

Many may choose to use the Dec to Dec number and that might be the better choice. I have no idea. I am a new retiree and new to this so I am just now trying to figure this out.

My thinking was that my true cost of living is affected more by the average consumer prices throughout the year than the point value in Dec only, due to volatility in monthly prices even when seasonally adjusted.

When I adjust our spending budget for inflation I use the Dec-Dec figures. Probably doesn't really matter that much in any given year as we spend what's needed to enjoy life and meet obligations. If you look at how TIPS interest rates are calculated (the index ratio) based on the CPI-U, they use the monthly data and not averages. Here's a representative link: Institutional - 2-3/8% 5-YEAR TREASURY INFLATION-PROTECTED SECURITIES (TIPS) Due April 15, 2011

 

[Nords]

Nords isn't taking SS at 62 a no brainer for you, with both you and your wife getting cola'd gov't pensions.

I've read a lot and thought about it, but I haven't done the math yet. As far as the IRS is concerned, the sooner spouse & I start taking SS the sooner we can start paying 25% taxes on it.

I only have 24 years of work history; the rest is zeroes. So far our earnings histories are almost equal and we're only a year apart in age. Our latest SS estimates are around $1000/month (each) at age 62 rising to $1800/month at age 70. We both expect to live past 100 (she has four Ashkenazim grandparents who proved it) and I'll probably get nagged too much to be able to stray very far off the beaten path. No doubt there's some advantageous combination of file/suspend with one of us at age 62 and the other at age 70.

Between now and my 62nd birthday (in 2022) I don't think there's much political risk to SS benefits, but there might be quite a bit of means-testing/taxation risk from the IRS.

In 10 or so years, when I'm around age 60, I'll do the spreadsheet from hell to see what happens if we take it at ages 62 or 70, invest it for estate planning, or invest it for charitable foundation planning, or donate it to charity. I suppose we could also see what happens if we spend it as fast as we get it, but we're not doing that right now.

Ooh, I know, we could assess the effects of taking SS at age 62 and using it to accelerate our mortgage payments!

 

[JustNtime]

Well, interesting Nords, particularly from a tax bracket perspective. It looks assured that at least 85% of our SS will be taxable and I suppose that will likely go to 100% eventually. Further there won't be much room, if any to top off our current tax bracket even with the reduced benefits at age 62. Waiting to 66 will almost definitely move us into a higher bracket.

I converted an SP index fund in Dec to top off last years tax bracket. Right now at a modest loss. Should the fund head further south before Oct. I may want to recharacterize. Which will be going the wrong way in conversions to Roths. I am considering doing another major conversion this year with the splitting of taxes in 11 & 12 to fill those tax brackets. By paying the taxes from after tax money, it is like contributing those taxes to a Roth. Since I have no earned income and don't expect any <except stop/loss pay, if they ever finish processing it>, I can't normally contribute to an IRA any more. So this is definitely a plus. Converting all the traditional IRAs to Roths should leave us the flexibility to take or not take funds without tax consequence. And to save and invest without the proceeds being taxed. Of course, losses aren't deductible which of late has been somewhat aggravating. But then again losses always are. As long as the gains offset most or all of the losses, I don't let it get me down.

I suppose that is all off topic. But a cpi-u question, our military pensions didn't receive a cola this year due to dropping of the cpi. Will our next cola increase be calculated from the difference in Sep 10 minus Sep 09 or Sep 08 cpi's. Obviously using Sep 09 should get us the higher raise and would be a little bonus for NOT getting a cola this yr. I think this is the way I-bonds work following a period of deflation. Anyone know?

 

[W2R]

W2R,
IIRC, your SWR is so conservative, that it shouldn't matter in the least which one you pick!

Until I claim my SS at age 66, my SWR is a little under 3.5% and when I start getting SS I will probably take around 2.5% - 3.0%. And really, 3.5% is more than I can spend. So in a sense you're right - - it really doesn't matter which one I pick. Still, if I am going to bother to compute CPI at all, why not do it using the correct index for my purposes? It would bother me a lot to intentionally use incorrect values. I am always fighting perfectionist tendencies as a recovering "little miss perfect" and seriously, something like this would keep me up at night.

Me, on the other hand, I'm back to work in year 2! It is very much a part-time job right now, and I'm feeling good about it. ("enjoying" would be too strong a word)

Glad you are feeling good about it. Part time work is better than full time work and it helps to have a good attitude whatever life brings.