MONEY early retirement

Get These 3 Variables Right and Retire Earlier

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Chris Clor/Getty Images

Most people overestimate what they'll need to live comfortably in retirement. The more realistic you are, the sooner you might be able to kick back.

How do you know if you can retire? Despite all the attention given to your retirement “number”—your total savings—there are several other important variables that go into the retirement equation. If you want an accurate estimate for when you could retire, you must choose reasonable values for each one of them. Get these numbers wrong, either too optimistic or too pessimistic, and it could throw off your retirement calculations by years.

In my experience, people tend to be overly pessimistic about their retirement variables. Maybe it’s all the “bad” news about retirement. Or maybe it’s an abundance of caution around this critical life decision. But if you can be realistic about these numbers without being reckless, you can potentially accelerate your retirement and the freedom it brings.

Even if you have a financial adviser, it’s a good idea to become familiar with the key retirement variables yourself. Yes, some math is required, but it’s pretty simple. And there are easy-to-use retirement calculators that can handle the details for you. So let’s take a look at these important retirement parameters.

1. Living expenses. It’s common to assume that your retirement living expenses will be a fixed percent of your pre-retirement income. But if your lifestyle is unique in any way, especially if you’re a diligent saver, these income-based estimates can be wildly inaccurate. The best way to know your expenses is to actually track them yourself. One expert says you can retire on less than 60% of your working income, which is consistent with my personal experience.

And the news about expenses gets better: The typical retirement calculation automatically increases your living expenses every year by the rate of inflation. That sounds reasonable at first glance. Yet research shows that most people’s expenses decline as they age. Studies show decreases from 16% to as much as 40% over the stages of retirement. Even with higher health-care costs, you simply can’t consume as much at 80 as you did at 60.

2. Inflation rate. Inflation remains a critical retirement variable, because it can influence your fixed living expenses and the real returns on your investments. Many fear higher inflation in the future. Pundits have been expecting it for more than a decade. Although conditions might favor higher inflation down the road, nobody knows for sure when or how it will arrive. In my opinion, trying to plan for extreme inflation is not sensible. And many retirees, myself included, experience a personal inflation rate that is below the government’s official rate, proving that you have some control over how inflation impacts your life.

3. Tax rate. Taxes are one of the most feared and loathed factors in retirement. Yet in my experience as a middle-income retiree, taxes aren’t as big a deal as they are made out to be by those with an agenda for your money (or your vote). In the lower tax brackets, income taxes are just another expense, and not a particularly large one. When calculating taxes for retirement, be especially careful to distinguish between effective and marginal tax rates. Your effective tax rate is your total tax divided by your income. Your marginal rate is the amount of tax you pay on your last dollar of income. That’s a function of your tax bracket and is nearly always much higher than your effective rate.

Most retirement calculators use an effective rate, but that isn’t always clear. If you mistakenly enter a marginal rate into a retirement calculator, you will grossly overestimate your tax liability and underestimate your available retirement income. For example, my marginal tax rate in my peak earning years was 28%; now that I’m retired, my effective tax rate has been around 6%. Big difference!

So there is room for optimism on some key retirement variables. But retirement planning is an exercise in reality, and the reality of the stock and bond markets right now is more negative than positive. Investment returns are one retirement variable where you cannot afford to be overly optimistic, or you could run out of money in your later years. Many experts point to current low interest rates and high market valuations as indicators that we must plan for lower returns going forward. How much should you scale back your expectations? That’s anybody’s guess, but I’m seeing estimates of from 2%-4% below the long term averages for stock returns.

Retirement analysis can be difficult and perplexing. A good retirement calculator can condense all the variables into a single view of your financial trajectory. For the most accurate picture, choose realistic values. Don’t lengthen your journey to retirement with excessive assumptions for living expenses, inflation, or tax rates. But don’t get overly confident about investment returns, either. A realistic analysis will increase your odds of working and saving the right amount, before you make the leap to retirement.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com.

Read next: Retirement Calculators Are Wrong But You Need One Anyway

MONEY Economy

The Doom and Gloom of Deflation Hasn’t Reached Our Shores—Yet

Cars fill up at the pumps at a Shell station near downtown Detroit, where the sign shows the price at $1.899 a gallon on Thursday, Jan. 1, 2015
Cars fill up at the pumps at a Shell station near downtown Detroit, where the sign shows the price at $1.899 a gallon on Thursday, Jan. 1, 2015. AAA Michigan said that the average cost of self-serve unleaded gasoline in the state was $1.97 a gallon, the first time the price has fallen below $2 a gallon since March 2009 and down 9 cents since the beginning of the week. David N. Goodman—AP

A new government report shows that prices are clearly falling, mostly due to sinking energy prices. Even so, this could keep the Fed from hiking rates for months.

You might think that falling consumer prices would be met with cheers on Wall Street, especially in the all-important holiday shopping season.

But when a new government report released on Friday showed that consumer prices in December had declined by the largest amount in six years, there was a bit of a gasp on Wall Street.

The Labor Department reported that the Consumer Price Index, perhaps the most widely followed measure of U.S. inflation, sank 0.4% in December, after dropping 0.3% in November.

This data clearly shows there is no inflation in this economy.

Yet it’s still too soon to say if there’s deflation — a quagmire that Europe is currently stuck in, where prices keep falling to the point where consumers postpone purchases, further weakening the economy.

Why?

For starters, over the past 12 months, prices in general have inched up 0.8%. While that’s the lowest yearly rate since 2009, it’s still positive.

More importantly, plummeting gasoline prices were the real culprit that drove CPI down in December and November, notes Michael Montgomery, U.S. economist for I.H.S. In fact, last month’s 9.4% decline in gas prices accounted for the entirety of the 0.4% decline in CPI, he said.

And keep in mind that several key categories of spending did rise in December, including food, electricity, and housing costs.

Overall, so-called core CPI — which strips out volatile energy and food costs — was flat last month and rose 0.1% in November.

This helps explains why Americans regard falling prices as a blessing so far — not a curse.

Consumer confidence, as measured by the University of Michigan’s consumer sentiment index, jumped to a reading of 98.2 this month, the highest point since January 2004.

But economists expect the deflation concerns to linger, as gas prices have sunk even faster this month than in December.

Already, there’s talk that the Federal Reserve might hold off raising interest rates this year because the global slowdown in general and Europe’s deflation specifically are keeping inflation at bay here at home.

This chatter—and concern—will grow if January’s CPI figures show even more falling prices.

MONEY

The Fed Sees the Economy Getting Back to Normal. The Market’s Not So Sure.

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SAUL LOEB—AFP/Getty Images

Why bonds are rallying even as the Fed hints at tightening.

The Federal Reserve has been signalling that it is getting ready to raise short-term interest from near-0% later this year. It recently ended its purchases of bonds under the unconventional stimulus program known as quantitative easing. Read the front-page newspaper headlines, and it looks like the era of very low interest rates is coming to an end.

But the numbers on the market tickers are telling a different story. This week the yield on safe 10-year Treasury bonds, a benchmark for long-term interest rates, tumbled to below 2%. What gives? How is it that interest rates are going down when it looks like the Fed wants to raise them?

The answer, in part, is simple. The Fed doesn’t get to set interest rates on its own. Day-to-day market commentary make it sound like interest rates can be changed with the push of a button: Fed chair Janet Yellen and the rest of Federal Open Market Committee declare that rates shall rise, and then, boom, you get a better deal on CDs and have to pay more to refinance your house.

In fact, in normal times, the Fed only sets short-term rates. What happens to rates on loans maturing years down the road is determined by investors, and it all plays out in the moment-to-moment fluctuations of yields on the bond market. When demand for bonds is high, their prices go up and yields go down; yields rise when bond prices fall. Bond investors think a lot about Fed policy, but they also have their eyes on a host of other economic fundamentals that determine how much it should cost to borrow money.

“Fed policy matters a lot in the short term,” Ben Inker, co-head of asset allocation at the mutual fund manager GMO, recently told me. “It only matters in the long-term if they show themselves to be incompetent.”

Of course, these haven’t been normal times. With the quantitative easing program, the Fed had also been buying up longer-term Treasuries. Lots of people believed that this meant yields were artificially low, and would spike once it looked like QE was over. But the end of the Fed’s bond purchases hasn’t led to a spike in rates. It turns out investors still really want to hold long-term government bonds. “I think now what people are saying is maybe rates weren’t artificially low—maybe they were low for a reason,” said Inker.

Investors like to hold Treasury bonds when they don’t care for the alternatives, such as putting money into expanding their businesses or building new office buildings, houses, and factories. And they are happier to accept low rates when they don’t see much risk of the economy overheating and producing inflation. In short, the low long-term yield on bonds reflects the market’s fairly pessimistic outlook for growth in the long term.

The latest economic numbers from the U.S. are looking healthier lately. Unemployment has come down, and consumer confidence is up. Bond markets, however, are seeing a lot of bad news abroad, and perhaps are worrying that it will spill over to the U.S. In Europe, for example, very low inflation is threatening to turn into deflation—or falling prices—which may sound nice for consumers, but reflects weak demand and makes it harder for borrowers to settle their debts.

The weak global economy has also brought down yields on other government’s bonds—Germany is paying 0.5%—which make Treasuries look like a comparatively good deal. That’s another factor keeping demand for U.S. bonds high and yields low right now.

So here’s the picture: The Fed sees an economy that’s getting stronger, and is looking to raise short-term rates sometime this year to get ahead of the risk of inflation. But markets still see plenty to worry about. Those worries may include, as economist Brad Delong has pointed out, the risk that the Fed may slow down the recovery too soon.

MONEY Federal Reserve

What Will the Fed Do Today? These Five Numbers Can Tell Us

With the economy and job markets finally looking healthy, the Federal Reserve may signal its first interest rate hike in years.

While you’ve been doing your Christmas shopping, the Federal Reserve’s Open Markets Committee — the club of officials who set short-term interest rates — has been meeting in Washington.

With the economy finally humming along, and interest rates still close to zero, market watchers are wondering how much longer the Fed will hold out before signaling its first rate hike since before the financial crisis.

That step isn’t likely to be taken Wednesday, when the two-day meeting concludes and the Fed issues an official statement. But economists do expect a significant change in the language that the Fed uses to telegraphs its policies.

In particular, the central bank has consistently stated that it will keep rates low for a “considerable time.” But a recent survey conducted by Bloomberg found that four-fifths of economists believe the Fed will drop the phrase today in order to signal a more aggressive time table — and that rates are actually likely to rise in the middle of next year.

In the meantime, here are five data points the Committee is likely discussing. The statement comes out at 2 p.m.

 

GDP

GDP

The economy is growing at a healthy pace. After a blip earlier this year — widely attributed to 2013’s severe winter — the economy grew 3.9% in the third quarter. Hiking interest rates would presumably help fight off unwanted inflation. But it would also slow economic growth and could even throw the country back into a recession. That was a much bigger risk when growth was crawling along at 1% to 2% rate. With growth close to 4%, the Fed may finally be getting ready to move.

 

Payroll

Jobs

Of course, GDP growth doesn’t mean much if you can’t actually get a job. And the employment picture has been downright sluggish in recent years, even at times when the broader economy was showing signs of life. But that’s finally started to change. The most recent jobs report, which showed the economy adding 321,000 jobs in November, was widely regarded as one of the best in years.

 

Inflation

Inflation

While GDP and jobs growth may be robust enough to justify an interest rate hike, the Fed may remain cautious for several reasons. The first one is that there is not much forcing its hand. Interest rates hikes are the central bank’s main weapon for fighting inflation. But with prices rising at less than 2%, there’s not much inflation to fight. That’s good news, meaning the Fed has flexibility to keep rates low if it seems helpful.

 

stocks

Stocks

Like the economy more broadly, the stock market is doing well — up about 12% so far this year. Nonetheless the Fed will want to avoid roiling markets with unexpected news. That’s what happened during 2013’s “taper tantrum” when markets slumped after the Fed let slip plans to taper off its stimulative bond purchases. Since economists are widely expecting the Fed to hint at higher interest rates, that seems unlikely this time…but markets are always fickle.

 

oil

Oil

While the U.S. may be looking rosier, there’s still plenty to worry about in the rest of the world. One dramatic manifestation of these fears: the sudden, sharp drop in oil prices. Booming economies tend to use a lot of energy. Weakening ones less so. In many ways cheap oil helps the U.S. It’s certainly been a boon to Detroit. But it can also have destabilizing effects. It’s the key reason the ruble has crashed in the past few days. It’s also the prime suspect in the U.S. stock market swoon in past two weeks. Shares have fallen nearly 5% since Dec. 5, including 112 points on Tuesday. Those jitters are one more reason the Fed may choose to tread carefully.

MONEY Bill Gross

Here’s the Weirdest Economic Commentary You’ll Read Today

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Jim Young—Reuters

Bond guru Bill Gross is famous for his wacky but insightful market analyses, and this one is exemplary -- in both regards.

Janus Capital fund manager Bill Gross—most recently in the news for leaving PIMCO, the bond fund giant he co-founded—today published commentary on the global economy and financial markets in his typically quirky style.

Before turning to some important points on inflation, Gross spends a couple paragraphs waxing Yoda-like about humanity… and how he’s made of sand:

I am a philosophical nomad disguised in Western clothing, a wondering drifter, masquerading in a suit near a California beach. Sand forms the foundation of my being and its porosity is at once my greatest strength and deepest wound. I have become after 70 years, a man who believes that no belief is sacred. I have ideals and moral standards, but I believe them specific to me. Had I inherited your body and ego, “I” could just as clearly have assumed “yours.” If so, I wonder, if values are relative, then what are mortals to make of them, and what would a judging God make of us? If a collective humanity is to be rooted in sandy loam, spreading its ideological seeds through howling winds only to root in mutant form at different places and different times, can we judge an individual life?

Then, against all odds, he steers these elaborate metaphors into a commentary on U.S. fiscal and monetary policy—and it turns out he has some important points to make.

Here are the four of them, roughly translated:

  1. Young people should (and do) fear inflation because it means their retirement portfolios will be cut in half or more.
  2. But these days, deflation is just as dangerous a threat as inflation, because the economy has become dependent on inflation to shrink our debt.
  3. The problem is that the monetary policy approach that would ordinarily prevent deflation—printing more money—is not helping to create true growth. “Prices go up, but not the right prices. Alibaba’s stock goes from $68 on opening day to $92 in the first minute, but wages simply sit there for years on end,” Gross writes.
  4. The solution Gross suggests for making the “right prices” go up is government fiscal stimulus — a surprising policy suggestion from a bond fund manager. But he also points out that government spending is a tough sell, thanks to fears about the very debt that makes us dependent on inflation.

These are some wise insights, despite the strange introduction. Actually, there’s evidence that Gross may be in on the joke when it comes to purple prose, or at least that he’s actively cultivating his reputation as an eccentric genius. In any case, today’s commentary wasn’t necessarily Gross’s strangest. He has in the past mused about his dead cat, Cracker Jacks, crows, and, as in the following passage, sneezing:

There’s nothing like a good sneeze; maybe a hot shower or an ice cream sandwich, but no – nothing else even comes close. A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose. They’d use snuff and stick it up their nose; the tobacco high and the resultant nasal explosion being the fashion of the times. Healthier than some of the stuff people stick up their nose these days I suppose, but then that’s a generational thing. My generation is closer to the snuff than that other stuff.

The latter commentary, titled “Achoo!”, goes on for another two paragraphs about sneezing before turning to neutral policy rates.

MONEY Gold

What I Tell Clients Who Want to Buy Gold

Stacks of gold bars
Mike Groll—AP

Sometimes people want gold because of greed, sometimes because of fear. Here's what you should know before you buy it.

“Okay,” the client said at the end of our meeting, after I had recommended my investment strategy, “I’ve just got one more question.”

“Go ahead,” I said.

“What about gold?”

“Why gold?” I asked. I’ve found that the reasons people give me really vary. When they say they want to buy gold, there’s some deeper issue we need to get at. “What is it about gold that appeals to you?”

“It’s low right now. You believe in buy low, sell high, right? I want to earn more than I can from bonds. There’s always a market for gold, no matter what happens.”

Hmmm. The client is expressing both greed and fear. It’s usually one or the other.

So I tried to explain:

You don’t invest in gold; you speculate on gold. Gold grows in value when someone else will speculate more than you did when you bought it. Perhaps it rises and falls with inflation. An exhaustive 2013 article in Financial Analysts Journal concluded that’s not really true. The authors found that the price of gold rises…when it rises. The price of gold fall…when it falls.

There’s some evidence that gold has kept its value in relation to a loaf of bread. The problem is that this comparison goes back the reign of the Babylonian king Nebuchadnezzar in 562 BC. For most investors, that time frame is way too long.

Some people want gold in case all hell breaks loose. It makes them feel safer than boring bonds. I can understand where they’re coming from. Bonds are almost purely conceptual because most people don’t ever even get a piece of paper saying they own them. These people want gold so they can make a run for it if necessary. Like I said, I understand: I like feeling safe, too.

If you’re in this camp, you could use 1-2% of your portfolio to buy some gold. Take physical custody of it. Put it in your safe at home.

Remember the practicalities. Small coins will probably work best; you don’t want to be stuck trying to get change for $1,000 gold bars when the banks have closed. Gold weighs a lot so just buy enough to get you over the border. You don’t want your stash to slow you down when you’re sneaking away in the night.

Still not feeling secure? To take the next step down this road, add the following to your safe: guns, ammo, water, and copy of Mad Max or other favorite movie of this genre. The Book of Eli was okay and 2012 was even better.

However, none of these movies features a post-apocalyptic gold standard. According to them, if and when all hell breaks loose, you’ll want guns, ammo, gasoline, and perhaps a jet.

———-

Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

Read next: Dubai’s Kids Now Worth Their Weight (Loss) in Gold

MONEY The Economy

The Stock Market Loses a Big Crutch as the Fed Ends ‘Quantitative Easing’

The Fed has concluded its asset-purchasing program thanks to an improving labor market. Here's what QE3 has meant to investors and the economy.

After spending trillions of dollars on bond purchases since the end of the Great Recession — to keep interest rates low to boost spending, lending, and investments — the Federal Reserve ended its stimulus program known as quantitative easing.

The central bank’s decision to stop buying billions of dollars of Treasury and mortgage-related bonds each month comes as the U.S. economy has shown signs of recent improvement.

U.S. gross domestic product grew an impressive 4.6% last quarter. And while growth dropped at the start of this year, thanks to an unusually bad winter, the economy expanded at annual pace of 4.5% and 3.5% in the second half of 2013.

Meanwhile, employers have added an average of 227,000 jobs this year and the unemployment rate rests at a post-recession low of 5.9%. It was at 7.8% in September 2012, when this round of quantitative easing, known as QE3, began.

What this means for interest rates
Even with QE over, the Fed is unlikely to start raising short-term interest rates until next year, at the earliest.

In part due to the strengthening dollar and weakening foreign economies, inflation has failed to pick up despite the Fed’s unprecedented easy monetary policy.

And there remains a decent bit of slack in the labor market. For instance, there are still a large number of Americans who’ve been unemployed for 27 weeks or longer (almost 3 million), and the labor-force participation rate has continued its decade long decline. Even the participation rate of those between 25 to 54 is lower than it was pre-recession.

What this means for investors
For investors, this marks the end of a wild ride that saw equity prices rise, bond yields remain muted, and hand wringing over inflation expectations that never materialized.

S&P 500:
Equities enjoyed an impressive run up after then-Fed Chair Ben Bernanke announced the start of a third round of bond buying in September 2012. Of course the last two times the Fed ended quantitative easing, equities faced sell-offs. From the Wall Street Journal:

The S&P 500 rose 35% during QE1 (Dec. 2008 through March 2010), gained 10% during QE2 (Nov. 2010 through June 2011) and has gained about 30% during QE3 (from Sept. 2012 through this month), according to S&P Dow Jones Indices.

Three months after QE1 ended, the S&P 500 fell 12%. And three months after QE2 concluded, the S&P 500 was down 14%.

 

Stocks

10-year Treasury yields:

As has been the case for much of the post-recession recovery, U.S. borrowing costs have remained low thanks to a lack of strong consumer demand — and the Fed’s bond buying. Many investors paid dearly for betting incorrectly on Treasuries, including the Bill Gross who recently left his perch at Pimco for Janus.

Bonds

10-year breakeven inflation rate:

A sign that inflation failed to take hold despite unconventionally accommodative monetary policy is the so-called 10-year breakeven rate, which measures the difference between the yield on 10-year Treasuries and Treasury Inflation Protected Securities, or TIPS. The higher the gap, the higher the market’s expectation for inflation. As you can see, no such expectation really materialized.

BreakEven

Inflation:

Despite concern that the Fed’s policy would lead to run-away inflation, we remain mired in a low-inflation environment.

fredgraph

Unemployment Rate:

The falling unemployment rate has been a real a bright spot for the economy. If you look at a broader measure of employment, one which takes into account those who’ve just given up looking for a job and part-time workers who want to work full-time, unemployment is elevated, but declining.

unemployment rate

Compared to the economic plight of other developed economies, the U.S. looks to be in reasonable shape. That in part is thanks to bold monetary policy at a time of stagnant growth.

Indeed, many economists now argue that the European Central Bank, faced with an economy that’s teetering on another recession, ought to take a page from the Fed’s playbook and try its own brand of quantitative easing.

MONEY Social Security

Why Your Social Security Check Isn’t Keeping Up With Your Costs

Next year retirees will see their benefits rise by the inflation rate. But that may not be the best measure of seniors' true spending.

Social Security’s annual inflation adjustment is one of the program’s most valuable features. But it’s time to adjust the adjustment.

Retirees will get a 1.7% bump in their Social Security benefit next year, according to the Social Security Administration, which announced the annual cost-of-living adjustment (COLA) on Wednesday. Recipients of disability benefits and Supplemental Security Income also will receive the COLA.

That reflects continuing slow inflation in the economy—the COLA has averaged 1.6% over the past four years—but it’s not enough to keep up with the higher inflation retirees face.

My in-box fills up with angry e-mail messages about the COLA every year. So if you’re gearing up to accuse Washington politicians of conspiring against seniors, please note: By law, the COLA is determined by a formula that ties it to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is compiled by the U.S. Bureau of Labor Statistics (BLS).

There is good news about this year’s COLA: Beneficiaries will keep every penny. There won’t be any offset for a higher Medicare Part B premium, which typically is deducted from Social Security payments. The premium will stay at $104.90 for the third consecutive year.

Still, the COLA formula should be revised as part of the broader Social Security reform that Congress must tackle. Many economists and policymakers say the CPI-W doesn’t measure retiree inflation accurately.

“From an ideal math perspective, what you want is a calculation based on an index that matches retirees’ cost of living,” says Polina Vlasenko, a senior research fellow at the American Institute for Economic Research. “The CPI-W is constructed to measure spending patterns of urban wage earners, and it’s pretty clear that retired people spend differently than wage earners.”

A recent national survey by the Senior Citizens League illustrates the cost pressures seniors, especially those living on fixed, lower amounts of income, face. Half of retirees said their monthly expenses rose more than $119 this year, while an even higher percentage (65%) said their benefits rose by less than $19 per month.

Other research by the group, based on BLS data, shows that Social Security beneficiaries have lost 31% of their buying power since 2000. Among big-ticket items, the largest price hikes were for property taxes (104%), gasoline (160%), some types of food and healthcare expenses.

Low COLAs also cut into future benefits for Americans who are eligible for benefits (ages 62 to 70) but haven’t yet filed. When you delay taking benefits until a later age—say, full retirement age (66)—you get full benefits increased by the COLAs awarded for the intervening years.

COLAs are prominent in the debate over Social Security reform that is likely to be rekindled in the next Congress. COLA reform could involve more generous adjustments – or a benefit cut. A cut would be achieved by adopting the “chained CPI,” which some say more accurately measures changes in consumer spending by reflecting substitution of purchases that they make when prices rise. The Social Security Administration has estimated the chained CPI would reduce COLAs by three-tenths of a percent annually.

A more generous COLA would come via the CPI-E (for “elderly”), an alternative, experimental index maintained by the BLS that is more sensitive to retirees’ spending. That index generally rises two-tenths of a percent faster than the CPI-W.

Congress has been gridlocked on Social Security, but public opinion is clear. The National Academy of Social Insurance (NASI) released a national poll Thursday that shows 72% support raising benefits. The survey also asks Americans to say how reform should be paid for. The most popular options (71%) included a gradual elimination of the cap on income taxed for Social Security ($117,000 this year, and $118,500 in 2015) and a gradual increase over 20 years on the payroll tax rates workers and employers both pay, from 6.2% to 7.2%.

Poll respondents also backed adoption of a more generous COLA, such as the CPI-E.

“Seniors are noticing the very small COLAs, and they just have a feeling that prices are going up more than that,” says Virginia Reno, NASI’s vice president for income security policy. “If you measure the market basket separately for seniors, average inflation has been a bit higher because they spend a larger share of their money on healthcare, and for things like housing and heating.”

Read more from the Ultimate Retirement Guide:

MONEY the photo bank

FREE MONEY! (If You _ _ _ _ It)

What if you found a dollar bill on the street? Would you pick it up? What if it was taped to a window in a grid with 99 more of its friends? Would you pull it off? What if I told you it was Art?

At the recent 2014 DUMBO Arts Festival, that “free money” was the artwork of North Carolina–based artist and educator Jody Servon. In her “I _ _ _ _ a dollar” installation piece, on the storefront window of a building on Plymouth Street between Washington and Main streets, she offered up 100 one-dollar bills for all to see or take.

Next to the display, Servon posted a short statement:

There was a time when a single dollar made a difference in the quality of my day. It either bought me food or kept me from walking a few miles to school in the rain. Viewers are invited to contemplate their situation and decide if they want or need a dollar. If you want the dollar, consider if it is better left for someone who may need it. If in need, you are invited to take one of the 100 one-dollar bills hanging on the wall to make a difference in your day.

“I _ _ _ _ a dollar” was originally created in 2012, for the exhibition “Poor Quality: Inequality” at the Center for Advanced Hindsight at Duke University. Noted behavioral economist Dan Ariely offered artists an honorarium of $100 to create work based on the topic of social and economic inequality. Servon, the sole recipient of the money, went ahead to do the most daring thing an emerging artist can do: She gave it all away. As Servon recounts:

The honorarium to create the work was $100, and I used the entire amount to fund the dollar bills for the project. I came upon this idea when I thought about my socio-economic background and different times in my life when I had less money and how this lack of funds impacted by daily existence. I wanted to open up a situation for others to consider the economics of their situation at the moment they experienced my project.

Festival-goers who saw it in the six-plus hours that the piece remained on the window in DUMBO had many reactions. Some took pictures of the dollars tacked to the glass or posing with money they had taken, others were touching the bills and lifting them to check if they was real. Servon recounted a red-haired woman who shook her finger at two young adults who pulled money from the wall, lecturing to all who would listen, “Do you really need the money? If you don’t need it, don’t take it.” The same lady returned to the installation many times to check on the status of the dollars. Servon told me:

There were all sorts of interventions that took place—people added money (dollar bills and a five-dollar bill). There is a photo I took of a woman getting a high five after adding a dollar and telling her friend that ‘Someone needs it more than I do, and now I feel part of the project.’ For the first few hours, whenever someone took a dollar, someone soon replaced it so the total didn’t go below the original 100 dollars. At times, the amount was greater than 100 with people continuing to add money. I particularly enjoyed hearing people talk about the value of a dollar and whether or not it made a difference to them at that moment or if it could make a difference to someone else.

With inflation, a single dollar clearly does not have the same value and the impact it once did. For example, in the mid-1990s the vending machines in my high school sold a package of M&M’s for 50 cents; the same colorful chocolate candies cost $1.00 in the machines in the Time Inc. kitchen today. And though photographer Jonathan Blaustein included a double cheeseburger from McDonald’s in his project “The Value of a Dollar” (which documented what could be purchased for that amount in 2010), they are now listed on the 2014 “Dollar Menu & More” for $1.49.

Still, sometimes a dollar can make a difference in the life of someone who is carrying no cash and just wants a drink or a snack or to pay for parking. Or the emotional lift that comes from finding “lucky money.” As Servon explained, the value of the dollar is not really the point:

I am not really asking if a dollar will change peoples’ lives, but rather could it make a difference in that moment for that person encountering the work or for someone else in the future. The work is about asking people to consider their want versus need in relation to others in their community.

In a past installation of the project in downtown Greensboro, N.C., she installed a hidden surveillance camera aimed at the grid from across the street to document the results with shots taken every five seconds for the six hours during which money still remained. The resulting video of time-lapse stills shows various reactions to the installation.

I asked Servon what she thought would happen if her concept existed on a larger scale. What if, instead of asking people to consider the one-dollar bills, they were hundreds or thousands? What if an ATM machine or a bank vault were just left open? Her guess was that the higher the denomination, the more quickly the money would disappear and the piece would end. The smaller denomination, she says, makes people consider “want” and “need” more actively.

Just months ago, Jason Buzi and Yan Budman, founders of the @HiddenCash phenomenon, created a Twitter-based scavenger hunt for envelopes containing up to $140 in cash. They invited the world to show up to various locations, follow their clues, and locate the money they left for would-be treasure hunters. A frenzy ensued, with @HiddenCash giving away more than $15,000. In this case, the reward was enough to cover people’s groceries or provide free plane tickets “to connect loved ones.” Buzi and Budman’s social media experiment was philanthropic, with the goal of inspiring people to “pay it forward.”

Jody Servon’s work is different. While she acknowledges that giving someone a dollar could be an act of kindness, she is more interested in starting a discussion. That’s why an invitation to fill in the blank in the phrase “I —-a dollar” is posted beside the installation of the work. She has been intrigued by the many ways in which people have responded to the challenge.

She’s also interested in catching viewers off guard. While she posts about the work on social media—and a second installation, “Dreams For Free,” in which she gives away lottery tickets in exchange for the recipients’ telling her their dreams of what they would do with the money—she never gives away the exact location. “I enjoy the element of surprise from people that happen upon the hanging dollars.”

So the next time you come across a grid of dollar bills on the street, know that there’s free money to be had—if you _ _ _ _ it.

This is part of The Photo Bank, a new section of Money.com dedicated to conceptually-driven photography. From images that document the broader economy to ones that explore more personal concerns like paying for college, travel, retirement, advancing your career, or even buying groceries, The Photo Bank will showcase a spectrum of the best work being produced by emerging and established artists. Submissions are encouraged and should be sent to Sarina Finkelstein, Online Photo Editor for Money.com: sarina.finkelstein@timeinc.com.

More from The Photo Bank:
Looking at ‘Rich and Poor,’ 37 Years Later
When the DynaTAC Brick Phone Was Must-Have Technology
Inside the ‘Pay What You Want’ Marketplace
The Costs of Bringing Up Baby

MONEY The Economy

If You’re Looking for Work, the Outlook is Brightening

open plan office
Mark Bowden—iStock

While the number of Americans in the labor pool is still at worrisome lows, the outlook for those who are employed or are still looking is improving

While there’s great debate about why so many Americans have dropped out of the workforce, there is new hope for those who have stuck it out in the labor pool.

The government reported on Thursday that the number of workers filing first-time claims for unemployment benefits dropped to 298,000 in the week ended Aug. 23, another sign that the job market is stabilizing.

This marked the second straight week of declines in initial claims. More importantly, the four-week average claims figure itself is now just below the 300,000 mark — at 299,750 — putting the job market back where it was before the global financial crisis began in 2007.

US Initial Claims for Unemployment Insurance Chart

US Initial Claims for Unemployment Insurance data by YCharts

To be sure, pessimists (and market bears) will point out that the overall unemployment rate, which stands at 6.2%, still has a ways to go before improving to pre-crisis levels:

US Unemployment Rate Chart

US Unemployment Rate data by YCharts

And as economist Ed Yardeni, head of Yardeni Research, points out, Federal Reserve chair Janet Yellen and other policy makers don’t look at just this one measure of the job market. In fact, she looks at 19.

“Among her favorite labor market indicators is wage inflation,” he said, “which remains too low, in her opinion.” Money‘s Pat Regnier has more about that here.

US Real Average Hourly Earnings Chart

US Real Average Hourly Earnings data by YCharts

But Yardeni points out that wages and salaries on a per-payroll employee basis — in other words, measuring folks who have a job —are nonetheless up 8% over the past 10 years.

So it just goes to reinforce the divide: If you’re employed or in the work force, things are probably looking up. If you’ve dropped out, on the other hand, the picture may not be so bright.

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