Inflation for March was less than half the rate of February. The most-widely reported measure, seasonally adjusted inflation, decreased very slightly in March; the last six months point to about 3.0% annual rate. Core inflation, the measure closest to the one the federal reserve favors, was less than a quarter of February’s rate; the last six months points to about 3.0% annual rate. In past months, the stock market reacted sharply to news on inflation. It ignored this news on Thursday: down about 3.5%. It’s obviously looking to the future and the effect of tariffs on inflation and our economy.

 

I display a table and six graphs that I use to follow the trends in inflation.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation is the most widely reported measure of inflation. March inflation was negative. The last prior month of decline was May of 2020, almost five years ago.

 

 

Core inflation excludes volatile energy and food components. This is similar to the measure favored by the Federal Reserve. Inflation was less than a quarter of the rate in February. We have to go back four years to find a month that was lower. The last six months average to 3.0% annual rate.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. The graph shows the data ending Feburary; data for March is issued at the end of this month. The last six aim at an annual rate of 3.1%.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U shows that inflation for the last 12 months is at 2.4%.

 

 

== Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI for March was  below 0%. The high rates in January and February appear to be outliers.

 

 

== Services ==

 

Inflation in March for services was half the rate of February. The last six months average to 3.6% annual rate.

 

 

 

Conclusion: The inflation measures released this week for March are half or less the inflation in February. This is good news on inflation. The stock market ignored this information and declined more than 3.5%. Recent months point to about 3.0% annual inflation.

I had coffee with my friend, Steve, on Wednesday. He said, “You’re going to have to talk to Jo Ann (his wife). She thinks the stock market is going to hell. You’ll have to reassure her.” I said, “Maybe we should wait six months.”

 

My “calculation year” – the 12-month period I use to recalculate our Safe Spending Amount (SSA, Chapter 2, Nest Egg Care) runs December 1 to November 30. December was a down month; the first three months have no been good. I’m traveling this week end: I write this post early on Thursday morning. This week looks to be very ugly.

 

I calm my fearful, emotional brain from the risk of stock market declines by adding up that that I can – basically – wait more than three years before I actually have to sell stocks. Bonds are our insurance when we don’t want to sell stocks. When stocks crater, we sidestep the hole in front of us by selling bonds disportionately or solely. We give stocks time to recover. Three years is a lot of time for stocks to recover. You should do the same addition.

 

 

== The rest of 2025 ==

 

My practice is to sell securities to get the amount we plan to spend for the upcoming year into money market by mid-December. I then pay that total out in monthly paychecks on the 20^th of each month. We’ve been spending less than our monthly “paychecks” so far this year. I’ve “banked” one paycheck. We have a big travel bill to pay for a trip at the end of July, though. I don’t think I’ll have any excess cash by the end of November that I can carry over for spending for 2026.

 

== Three more years? ==

 

I have very close to three years of spending in bonds. That means I can sell only bonds for our spending for 2026, 2027, and 2028. Those are security sales in December 2025, 2026, and 2027. I’d be forced to sell stocks for our spending in 2029 – December 2028: three years and eight months from now.

 

== My bonds aren’t in the right place ==

 

This does not work out perfectly for me, though. I’ll be forced to sell stocks in our taxable brokerage account because I have too little bonds there.

 

Each year I sell more securities for our spending that I derive from our RMD: I withhold all taxes we pay when I take our RMD. The net from our RMD is about 70% of the total I need for our spending. I get the rest by selling securities in our taxable brokerage account.

 

If I had a mix of bonds as 70% in IRA accounts and 30% in our taxable brokerage accounts, it would be smooth sailing, but I have just 10% of our bonds in our taxable brokerage account. That won’t be enough for “only bonds” this next December.

 

I have two options:

 

 1. I can postpone selling stocks then and sell toward the end of 2026 for our spending. (I postponed selling stocks for our spending in 2023, and, thankfully, stocks rebounded during the year.)

 

 2. I could sell more than our RMD – more bonds – such that I could sell less stocks in our taxable account, but I’d be paying a hefty tax bill to do that. I doubt if I pick this alternative.

 

 

Conclusion: This year has had a rough start. The effects of high tariffs are unsettling. Returns this week look to be scary bad.

 

I settle down when I add up how long I can go before I actually have to sell stocks for our spending. It’s over three years. (It was four, but I used our Reserve in for our spending in 2023 and did not replace it.) That gives me some consolation to “just let it play out.”

I received our tax reporting statement from Fidelity on Saturday, February 8. That’s the day Patti and I left for a week in Jamaica. I started and completed our returns on Sunday, February 16. The IRS deposited our refund on February 26. Ten days! This is my third year with TurboTax, and it was the smoothest yet. TurboTax estimated I’d complete our federal return in 1½ hours. I forgot to pay attention to the timer on the TurboTax screen as I worked on it, but I’d guess I spent closer to 2½ hours to complete our federal and state returns. I paid TurboTax $112 for the two returns. That’s A LOT less than I used to pay an accountant.

 

 

I was glad to have my estimate of my tax return – refund due – to tell me that I had entered everything correctly: I don’t see the final return until I have paid TurboTax. Here’s the spreadsheet I used. The one for a single filer is here.

 

(FYI. I withhold the total amount I estimate for taxes + ~$500 when I take our RMDs in December. I could withhold less – 90% of my estimate and then pay the balance when I file. At today’s money market rates, I would make about 1% on that balance by holding on to it for roughly four months. I don’t fiddle with that. I’m a lot happier if I file my taxes within a week or so of getting my consolidated tax reporting statement from Fidelity; I also like the fact that I don’t have to pay taxes when I file.)

 

== State taxes: I messed up ==

 

I have not received my refund from Pennsylvania. That’s taken about six weeks in past years, but that won’t hold this year. I looked over our 2023 return in January and found I made an error: I had some outside income that I failed to report. I filed an amended return and sent the department of revenue a check for the added taxes and interest that I owed. They cashed my check and wrote and said my interest calculation was all that I owed: no added penalty. Then they sent me a check two weeks later with no explanation. That makes no sense. They made an error. I wrote to them with a spreadsheet that explains their error, but I think they will have to spend time to get the correct net amount they owe me: the refund due for 2024 less the amount they incorrectly sent me. 

 

 

Conclusion: I completed our 2024 tax returns in less than three hours of work with TurboTax. That was about twice TurboTax’s time estimate, but I was happy with that. I paid TurboTax $112; that’s a LOT less than I paid an accountant in the past.

 

I got our federal tax refund in ten days. I messed on my state tax return; I think I’ll be waiting a bit longer for them to close out my 2024 tax return and send me the proper refund amount.

The best time to convert traditional IRA shares to Roth is when stocks stink. You get more shares for the dollars you convert. I would not judge that stocks stink right now, but my FSKAX hit a high of about $170 per share in early December and was darn close to that four weeks ago. Now it’s about $155 per share – down about 9%. It’s on sale. I’d convert ~10% more shares now – converting a greater percentage of my traditional IRA – than if I had converted then. That’s a good deal.

 

 

== Simple if you are not taking RMD ==

 

You can do this easily if you are over age 59½ and not taking RMD. You follow the steps I outline in this post; you start with the pre-tax amount in your traditional IRA and wind up with the net amount after paying taxes in your Roth. If you convert now, you could wait months to withdraw to withhold for 2025 taxes if you think the  price per share will be greater; you’d spend fewer shares to pay the taxes. (You can also convert if you are younger than age 59½, but you need to take an extra step to painlessly pay the taxes)

 

== Not timely if you take RMD ==

 

Conversion isn’t so timely if you are already taking RMD. The rules on converting to Roth for folks required to take RMD were finalized this past fall. You must take your full RMD for the year before you can convert any traditional to Roth.

 

My pattern is to take RMD in the first week of December. Averaging over many years, I’m gaining in return by waiting to the end of the year before I sell – my stocks have  gained in seven of the last ten years. I really don’t want to take my full RMD now: I want my shares to be at a high price when I sell for spending (or transfer shares to my taxable account). I want to keep the benefit of tax-free growth: I want to remove the fewest number of shares from retirement accounts for our spending. Nothing tells me to second-guess the general odds that the market will be better nine or so months from now.

 

 

 

Conclusion. This is actually a good time to consider converting traditional IRA to Roth. Shares of your US stocks are on sale – about 10% lower than they were a few months ago. You get more shares by converting now – converting a greater percentage of your traditional IRA – than if you had converted then. That’s good deal.

 

Converting is simple if you are over age 59 ½ and not taking RMD. I’ve outlined steps in a this post. Rules issued this last fall constrain the folks who already take RMD. You must take your full RMD before you convert shares to Roth. You most likely don’t want to do that now, since the general odds are the stocks will be higher in price/share later in the year.

We got a breather on inflation. Inflation for February was half the rate for January. The most-widely reported measure, seasonally adjusted inflation, increased about 0.2% in January; the last six months point to about 3.6% annual rate. Core inflation, the measure closest to the one the federal reserve favors, was also half January’s rate; the last six months points to about 3.5% annual rate.

 

I display a table and six graphs that I use to follow the trends in inflation.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation in February was less than half the rate in January. February broke a trend of increased steadily increasing inflation. This is the most widely reported measure of inflation.

 

 

Core inflation excludes volatile energy and food components. February’s rate was half that of January. The last six months run average to 3.5% annual rate.

 

 

I displayed this graph two weeks ago: Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. The graph shows the data ending January; The last six aim at an annual rate of 2.6%.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U shows that inflation for the last 12 months is at 2.8%. This lower than the past two months.

 

 

 == Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI for February was one-third lower than January. The prior ten months have averaged below 0% annual rate

 

 

== Services ==

 

Inflation for services was half the rate of January. The last six months average to 4.3% annual rate.

 

 

 

Conclusion: The inflation measures released this week for February are half that of January. Recent months point to about 3.5% annual inflation.

Every January I track what happened to the $2,000 I contributed to my IRA many years ago. I contributed to my own IRA the first week of January for at least 20 years starting in 1980. I look back at my contributions to my IRA 35 years ago: I imagine that I put in $2,000 in a gift envelope and bought shares of a stock index fund. It sat there untouched for 35 years, accumulating shares from dividends reinvested; price per share also changed. I open the envelope each January now and see how much is there. This January 1, it had securities worth $64,400. I made ~32 times my money in dollars. That’s about 13 times my money when measured in real spending power. That’s terrific but below the average of past years. This post shows the details.

 

I did the key things right:

 

    • I saved every year starting in my 20s.

    • I saved more than 10% of my income (our income for Patti and me).

    • I mostly saved retirement accounts with no taxes on the growth.

    • I invested solely in stocks.

    • I invested in a broad-based  mutual fund that performed at least
as well as a  low-cost S&P 500 index fund.

 

Details:

 

I can use Morningstar to see the growth in value for any mutual fund over all the years it’s existed. Here is the history for the past 11 envelopes from my $2,000 investments invested in an S&P 500 index fund. My $64,400 this year is about 32 times my original $2,000.

 

 

== I should inflation-adjust: 13X ==

 

I want to  find the growth multiple in real spending power. That’s what counts. This table restates all the numbers to dollars as of December 2024. The real amounts that I invested each year declined because I was limited to the same $2,000 . The $2,000 allowable contribution wasn’t adjusted for inflation until 2000. (The $7,000 allowable contribution for 2025 roughly matches the contribution level in 1981.) My  multiple this year was ~13X and the average has been  ~15X.

 

 

== Better than expected 12X ==

 

My 15X is better than the expected 12X real return for stocks. The long-term real ~7.1% growth rate for stocks translates to 12X following the Rule of 72: stocks double every ~10 years. 35 years would be 3½ doublings. Three doublings for 30 years would be 8X (1 to 2; 2 to 4; 4 to 8) and the five years is half way to 16X = 12X. All the multiples have been better than that: each 35 year sequence of returns starts at a point on the graph and ends at a point the is ever so slightly steeper than that 7.1% line.

 

 

 

Conclusion. Every January I look back to see what happened to the $2,000 that I contributed to my IRA many years ago. I started that in January 1980 and contributed $2,000 each year for two decades: the contribution limit did not adjust for inflation until 2000. Each year I look back at the $2,000  that I invested 35 years ago. I can see the growth of my investment – which never changed for 35 years – from the Morningstar site. My investment in 1990 grew 32 times in dollars. My multiple in real spending power was ~13X. The multiples of my last 11 contributions have been slightly better than one would expect from the long-run real return rate for stocks of ~7.1%.

 

The lesson is to save and invest when you are younger. Save in retirement accounts and benefit from no taxes on growth; invest solely in stocks; never vary from investing and holding a very low cost, broad-based stock index fund.

January inflation for the measure the Federal Reserve favors was issued this morning. Since inflation is a hot topic in the news, I show the January data for three inflation measures: seasonally adjusted inflation, core inflation (excludes food and energy), and personal consumption expenditures (PCE) less food and energy, the measure issued today. January inflation for PCE was greater than December but lower than January a year ago. 12-month inflation declined from 2.9% to 2.7%. The six-month rate for PCE inflation aims at 2.6% annual rate. This is about one percentage point lower than the other two measures.

 

 

Details:

 

The first two graphs are from data for January issued earlier in February and displayed in this blog.

 

Seasonally-adjusted inflation has increased steadily in the last seven  months. This is the most widely reported measure of inflation.

 

 

Core inflation excludes volatile energy and food components. This is similar to the measure favored by the Federal Reserve. The last six months run average to 3.6% annual rate. January inflation was higher than the high inflation in January 2024.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. This measure is a chain-type index: the weights of the components of the index change with estimates of changes in buying patterns. The increase for January was less than the increase for the other two and much less than in January 2024. The 12-month rate is 2.7%. The last six months aim at an annual rate of 2.6%, roughly one percentage point lower than the other two measures.

 

 

 

Conclusion: The federal reserve’s favorite measure of inflation was issued this morning. Inflation increased from December. The six-month rate aims at 2.6% annual rate, and that is nearly one percentage point less than two other, more popular measures of inflation.

I previously stated that you save A LOT in taxes if you delay taking Social Security (SS) and replace your SS benefit with a distribution from your traditional IRA. (See here.) You’re saving because the distribution that replaces SS is taxed at roughly 5% and not 22% or greater if you held on to it and distributed it later. This post answers the question, “What rate of return am I earning if I delay taking SS?” I find the rate of return is about 6% after-tax return guaranteed. Unbeatable.

 

== When you take SS early . . . ==

 

The maximum SS benefit starts at age 70. Let’s assume I’m turning 69; I’ll assume my life expectancy is 17 years. I can take SS of $30,000 this year. I forgo the ~8% real increase in benefit that I get for waiting a year. Since the $30,000 adjusts for inflation, that’s my SS benefit in constant spending power for as long as I live. I keep $30,000 of securities invested that I would otherwise sell for my spending this year.

 

Most folks have no idea of how much they can safely pay themselves – withdraw from their portfolio for their spending. It doesn’t sit well to spend their own hard earned savings for spending now to pass up SS. 90% of retirees are in this boat and take SS early – before they would get maximum benefit at age 70. I was with them when I faced my decision to start or delay SS. I started SS early.

 

== When you delay . . . ==

 

When you delay SS for a year, you get a real ~8% increase in benefits for the rest of your life. You must sell securities from your nest egg to replace the cash you’d get from SS. You’ll only do this when you know you have enough to never outlive your nest egg. Most folks have no way to figure this out.

 

Nest Eggers can more logically decide, since we can calculate their Safe Spending Amount from their portfolio (SSA. Chapter 2, Nest Egg Care (NEC)). Some will calculate that they have “more than enough:” their SS benefit + SSA gives them more than their desired spending for the year (Chapter 5, NEC).

 

Patti faced her decision on SS after we were able calculate and convince ourselves that we had “more than enough.” She waited to get her maximum benefit at age 70: her real benefit increased 8% each year from the amount she would have received at age 66, her Full Retirement Age. She’ll keep those increases for the rest of her life. Her benefit is greater than mine; if I outlive her, I’ll keep those increases the rest of my life.

 

== Unbeatable financial return ==

 

It’s a terrific investment if you delay. I think I have the correct math here, and I conclude that the return rate is about guaranteed 6% real return rate per year – assuming you live a reasonable number of years. Nothing beats that.

 

Details:

 

In my example, I sell and distribute $30,000 securities from my traditional IRA to replace $30,000 of SS benefit for the year. I will gain $200 per month or $2,400 each year into the future.

 

I want to calculate the after-tax return for using $30,000 of my traditional IRA for our spending in return for the increased $2,400 per year.

 

== What am I investing after taxes? ==

 

If I keep the $30,000 invested, I would ultimately pay at least 22% marginal tax when I distribute it in the future. RMD will require me to distribute this: I assume this amount is my last increment of RMD each year and is taxed at my highest marginal rate or the highest marginal rate for my heirs. I therefore assume $6,600 in tax and my after-tax investment is 78% of $30,000 or $23,400.

 

[My tax rate would be higher if my last increments of RMD cause me to cross an IMRAA tripwire or if I ever cross into the 24% marginal tax bracket. (This is a real possiblity in the, hopefully, distant future when it is just one of us alive.)]

 

But I LOWER that by $5,230 to $18,170, because the IRS, in effect, is handing me an added check for that amount. The added check is from the lower tax that I actually pay. My $30,000 isn’t taxed at 22% or $6,600. I pay tax at a ~5% effective rate, $1,370 – $5,370 less tax. I pay this low tax because the first $16,600 is not taxed and the balance is taxed mostly at the 10% rate. 

 

 

== What am I getting? ==

 

I’m investing $18,170 to gain, after a year, $2,100 guaranteed after-tax benefit per year for the rest of my life: I assume the $2,400 benefit is taxed as the last increment of base SS at 12%.

 

== ~6% guaranteed return rate ==

 

I can find the rate of return on the guaranteed stream of $2,100 per year for my $18,170 investment. My return rate varies by the number of years that I’ll receive the $2,100. My years to cash break even is ~nine years: $18,170/$2,100. My return for fewer than ~nine years is negative.

 

 

But in a few more years, the real, after tax-return rate is 3% guaranteed. That’s very attractive. For 17 years, the assumed life expectancy in this example, the guaranteed real return rate is about 6%. That’s unbeatable.

 

Your expected return for delaying at age 68 is better than delaying at at 69; your expected return for delaying at age 67 is better than delaying at age 68; and so on. Your expected returns improves because your have a  greater chance – probability – of living 17 years to earn 6% real return.

 

 

Conclusion: When you distribute from your traditional IRA for your spending to delay Social Security (SS), you gain a significant tax benefit. Your distribution is taxed at about 5% rather than 22% or more over time. The IRS, in effect, is handing you an additional check of many $1000s to delay taking SS. You are investing a relatively small amount of your nest egg for the benefit of 6% real increase in SS benefits for your life expectancy. This is unbeatable.

 

It can be tough to trust that you have “more than enough” in your financial portfolio and can “afford” to distribute an added amount to substitute for your SS benefit. We nest eggers have a way to calculate if we have “more than enough.” That makes is easier to decide. If you trust that you have “more than enough” and distribute from your traditional IRA to replace the cash you’d get from SS, you are making a sound financial decision.

I was hoping that January 2025 inflation would be low and replace a high inflation month of January 2024: this obviously was not the case. The most-widely reported measure, seasonally-adjusted inflation, increased nearly 0.5% in January; that’s about a 6% annual rate; it was the highest monthly reading in 17 months. The inflation measure that the federal reserve relies on most is published at the end of this month; that may track to much lower than 3% rate.

 

I display a table and six graphs that I use to follow the trends in inflation.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation has increased steadily in the last seven months. This is the most widely reported measure of inflation.

 

 

Core inflation excludes volatile energy and food components. This is similar to the measure favored by the Federal Reserve. January inflation was the highest in 21 momths. The last six months run average to 3.6% annual rate.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. The graph shows the data ending December. The last six aim at an annual rate of 2.3%. If January inflation is lower than inflation last January, this measure of inflation could be much closer to the Fed’s desired 2.0% rate.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U shows that inflation for the last 12 months is at 3.0%. This measure of inflation has increased in each of the last five months.

 

  

== Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI for January was the highest in 17 months. The prior ten months averaged below 0% annual rate

 

 

== Services ==

 

Inflation for services doubled the reading in December. The last six months average to 4.3% annual rate.

 

 

 

Conclusion: Core inflation for January soared and was the highest month since summer of 2023. Recent months point to about 3.5% annual inflation.

 

The Fed’s favored measure of inflation has been running cooler than other measures of inflation. If the January reading, due in about two weeks, runs less than the high reading of January 2024, that measure will be well below a 12-month rate of 3.0% and much closer to the 2.0% target.