Consumer Price Index and Inflation

Consumer Price Index and Inflation

The Consumer Price Index (CPI) and inflation are directly related. Although, the formula for calculating the inflation rate is relatively simple the truth is nobody gives a good gosh darn.

And maybe we shouldn’t given it is a government calculated number and the government actually tells us what it is for the year every year. In fact, watch any business show on television and you will hear the talking heads spew forth about inflation and the CPI.

Consumer Price Index and Inflation

It is helpful to know the agency responsible for computing the CPI and informing the general population of that number is the Bureau of Labor Statistics or BLS for short. They actually survey thousands of prices all over the country and formulaically compute the Consumer Price Index and the inflation rate.

For any index to be worth its salt it has to have a base rate to be used for comparison purposes. This means somebody or some agency sets that base. With the CPI it is the BLS and currently the base year for comparison purposes is 1984.

The truth is it wasn’t exactly 1984. What the government math wizards did was use the numbers from 1982 -1984 took an average and called 1984 the year the CPI was 100. Just like magic they had a year and a number.

What Does This Mean to Me?

What does all this have to do with me you might be asking. Well, maybe a lot and maybe nothing. I will say if you are a senior about to retire or are already retired this number is important.

You see, inflation eats away at your buying power. If something cost one dollar in the base year, 1984, but costs 1.98 today, inflation has eaten ninety eight cents more out of your nest egg.

It could get more complicated but why complicate a simple formula I’ll show you in a minute so you can break even with inflation. As seniors we face medical bills, taxeshospital bills. All the same bills pre-senes and younger people face too.

But what we don’t face is longevity to combat this bully called inflation. It simply eats away our money and we seemingly can’t shoo away the monster.
Year after year it nips at our heels.

Breaking Even With Inflation

Fortunately there is an easy to use formula to help us calculate the investment rate of return we need to “break even” with inflation. Expressed as a fraction it looks like:

Inflation Rate / 1 – Tax Rate

Obviously we need to know the inflation rate and our tax rate. I will assume the inflation rate is 5% and the tax rate (bracket) is 30%. Our equation looks like:

.05 / 1 – .3

Or

.05 / .70

Dividing we get this number: 7.14

7.14 expressed as a percent is 7.14 percent or .0714. This is the return we would need to receive to stay even with a 5% inflation rate in a 30% tax bracket.

We could have more fun with the Consumer Price Index and inflation but this appears to be enough fun for this article. Keep this formula in mind as you plan your retirement.



Senior Outreach Ministries achieves it’s objectives with the capital we’ve either earned or received from donors. The Proud 2 B A Senior Ribbon for example. Donate $5, get a ribbon and help us help a hungry Senior Citizen in need. All proceeds remain in the Ministries to be used per our mission statement. We are a volunteer church. No one receives a salary or wage. Please help us help less fortunate hungry Seniors. We never have and never will ask the government for grants, funds or hand outs. Thank You in advance.

The Granny Gift Tax

The Granny Gift Tax

The Granny Gift Tax, Capital Gains Tax, The Gift Tax, The IRS

The granny gift tax is a cute way of saying the IRS subjects gifts you give to qualified receivers to income tax. Imagine that….. The IRS taxes you for being kind.

Well, isn’t that special?

In truth this tax is simply called Gift Tax. The IRS devotes a lot of words about this tax here:

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

They cover every question known to mankind on gift taxes on that page.

I call it the granny gift tax because grandparents and parents have been giving money to their siblings for a little longer than giving itself has been around.

The IRS came along in 1913. And, it’s been business as usual since. So when they recognized a good thing, they did what they always do, they taxed it.

The IRS isn’t a total Scrooge however since their rules allow, in 2019, gifts up to $15,000 annually per donor without either the giver or receiver having to report it on their personal tax form. If you are married you can give $30,000 to each eligible receiver without either party in the transaction suffering through reporting worries.

The rules are the same for same sex married couples. The granny gift tax cares not about your sexual orientation. The granny gift tax is an equal opportunity tax mechanism.

Taxes Can Have a Silver Lining?

This could be quite an estate planning tool for people with a high net worth. For example, assume a married couple has three children and each one of them is married. So, that makes a family of six eligible receivers.

Six times $30,000 equals $180,000. A substantial reduction in the size of the estate meaning the gifts reduced the estate’s value for taxing purposes. But, of course there may be more eligible receivers in this family tree thereby reducing the estate’s value for tax purposes.

The IRS does permit a donor to give more than $15,000. The worm in the apple is the reporting requirement. The receiver must report any amount over $15,000 and pay tax on this amount.

Above All Else, Always Take Care of Your Gift Taxes

Gifts larger than $15,000 should be coordinated with your estate planning accountant and/or attorney. In fact you should always consult a licensed, knowledgeable, competent professional. Running afoul of the rules could turn the gift from wonderful intention into sour apples. The taxman is the no excuses, non-forgiving type.

And, this doesn’t only apply to cash. But, securities, real estate, coins and all other assets. Any value over the magic base amount of $15,000 is subject to tax.

The granny gift tax has exceptions and exemptions. They will be covered in a separate article. The purpose of this informational resource was to point out the gift amount. And alert you to the possible tax consequence, should you go above the maximum.



Senior Outreach Ministries achieves it’s objectives with the capital we’ve either earned or received from donors. The Proud 2 B A Senior Ribbon for example. Donate $5, get a ribbon and help us help a hungry Senior Citizen in need. All proceeds remain in the Ministries to be used per our mission statement. We are a volunteer church. No one receives a salary or wage. Please help us help less fortunate hungry Seniors. We never have and never will ask the government for grants, funds or hand outs. Thank You in advance.

Federal Insurance Contributions Act Primer

Federal Insurance Contributions Act

The Federal Insurance Contributions Act is also known as FICA. It is the federal law requiring employers to withhold three separate taxes from their employees wages:

https://www.bizfilings.com/toolkit/research-topics/managing-your-taxes/payroll-taxes/what-compensation-is-taxable

https://www.bizfilings.com/toolkit/research-topics/office-hr/employee-or-independent-contractor-feds-and-states-join-forces-to-fight-worker-misclassification

A large number of employees are not aware of this triple whammy tax:

  1. The 1st tax is the Social Security tax. In short, it is at a rate of 6.2%. And this portion is matched by your employer. Subsequently at the exact same 6.2 percent rate.
  2. The 2nd tax is a 1.45% Medicare tax sometimes called the “regular” Medicare tax.
  3. The 3rd tax is a Medicare surtax. The 0.9% rate applies when the employee earns over $200,000

The third tax went into effect in 2013. The employer is also taxed at a 1.45% Medicare tax rate. In conclusion, neither can escape the Medicare surtax.

And don’t worry, the government did not forget the self-employed. Firstly, they pay 12.4% for Social Security. And then secondly 2.9% for Medicare. The total equals 15.3%.

The law always provided a maximum amount of earnings on which the Social Security tax will be collected. In 2019 https://www.moneytalksnews.com/3-ways-social-security-will-change-in-2019/

Certainly Not A Silver Lining

The Social Security tax will be collected on earnings up to $132,900. Any earnings above and beyond that amount are not taxed. As far as Social Security taxes go.

Any and all questions about these taxes are answered on https://ssa.gov. As a result The Social Security Administration was kind enough to provide a philosophical way to look at FICA taxes:

“The money you pay in taxes is not held in a personal account for you. It is not used when you get benefits. Today’s workers help pay for current retirees’. As well as the benefits of other beneficiaries’. Any unused money goes to the Social Security trust funds to help secure today. As well as tomorrow for you and your family.”

It is always a wonderful feeling to know you are doing your part to help current retirees. And other beneficiaries receiving benefits from social security as well. That is to say The Federal Insurance Contributions Act offers both a sunshine glow and a warm fuzzy feeling.

Your Lifetime Earnings Record

Paying into Social Security creates a lifetime earnings record. According to SSA your lifetime earnings record is:

“a chronological history of the amount of money you earned each year during your working lifetime.”

Keeping track of what is in your record is your responsibility. Because The SSA said so. It’s critical to check the accuracy of your earnings record. So make you check it. And make sure you do this at least annually. Because certain errors will result in a smaller monthly benefit.

The Federal Insurance Contributions Act has other moving parts. We will address the other moving parts in future articles.



Senior Outreach Ministries achieves it’s objectives with the capital we’ve either earned or received from donors. The Proud 2 B A Senior Ribbon for example. Donate $5, get a ribbon and help us help a hungry Senior Citizen in need. All proceeds remain in the Ministries to be used per our mission statement. We are a volunteer church. No one receives a salary or wage. Please help us help less fortunate hungry Seniors. We never have and never will ask the government for grants, funds or hand outs. Thank You in advance.

A Social Security Tax Surprise

A Social Security Tax Surprise

A social security tax surprise are not the words a retiree or soon to be retiree wants to hear. Unfortunately, for all of us, this surprise is unavoidable.

People who have researched their social security benefits know their check could be taxed up to 85% of the benefit. Hidden in that tax scheme is the surprise.

Making matters unpalatable is the fact more than half of the people receiving benefits today pay the social security tax surprise. And, this is up from the 1 in 10 who paid the tax when benefits became taxable.

This statistic begs the question, how did we jump from 1 in 10 to 5 in 10? This because the government failed benefit recipients in a very crucial way.

The lawmakers failed to index social security benefits for inflation when they enacted the two tiered tax. This means the threshold numbers have remained the same since 1983 the year benefits became taxable.

You have just read a social security tax surprise. Are you surprised? Most people are very surprised.

Now, For Some Numbers

Those 1983 numbers will shock you given today’s cost of living. They are classified by how you file. And, there are only two filing categories, single or married.

Singles who make more than $25,000 and couples who report more than $32,000 can have up to 50% of their benefits taxed. The higher rates, up to 85%, kick in at $34,000 per year for singles and $44,000 for couples.

The two tax rates are not the surprise. The IRS makes those numbers known far and wide. It doesn’t do the same for the non-indexing for inflation faux pas.

If these threshold numbers had been indexed for inflation a social security tax surprise would not exist. The threshold for a single person would be $64,000 and a married couple would be at $82,000.

Pre-senes need to plan for this surprise. Already retired people can, of course, plan but they are already in the tax trap. The hole gets deeper when you turn 701/2.

Minimum mandatory withdrawal requirements kick in at 701/2. This means without careful planning you could be pushed into the 85% bracket when you start drawing from your 401k, IRA or other retirement account.

People not taking their required withdrawals not only face the surprise tax but steep penalties for not taking the withdrawals. This is a true triple whammy.

Quick, Taxing Thoughts

A social security tax surprise is definitely a retirement kick in the pants. All “WE” seniors are trying to do is file for the social security benefits we paid for.

However once you know about it you can prepare for it.

Rather than try to list all of the considerations the advice is to schedule an appointment with a SS rep at your local SS office. Or, in the alternative, visit https://ssa.gov and do an online search.



Senior Outreach Ministries achieves it’s objectives with the capital we’ve either earned or received from donors. The Proud 2 B A Senior Ribbon for example. Donate $5, get a ribbon and help us help a hungry Senior Citizen in need. All proceeds remain in the Ministries to be used per our mission statement. We are a volunteer church. No one receives a salary or wage. Please help us help less fortunate hungry Seniors. We never have and never will ask the government for grants, funds or hand outs. Thank You in advance.