The used-car buying frenzy
And more of the week's best financial insight
Here are three of the week's top pieces of financial insight, gathered from around the web:
The used-car buying frenzy
"The used-car lot, ordinarily a haven of haggling and wheeling and dealing, is now a hotbed for wallet-busting transactions," said Keith Naughton at Bloomberg. The average cost of a used car hit a record $26,457 last month, "up almost 30 percent from the beginning of last year." But the pace of buying has showed no signs of slowing "as consumers adapt to lifestyle changes brought on by the pandemic," which include more working from home and less use of public transportation. Some dealers are so short on supply, they have "resorted to bombarding customers with pleas to part with their existing vehicles, offering generous trade-in prices." Even clunkers are commanding a market: "Used vehicles with 100,000 to 109,999 miles on the odometer fetched an average of $16,489 in June."
Social Security benefits to rise
Seniors could see the biggest bump to Social Security benefits since 1983, said Lorie Konish at CNBC. The Consumer Price Index reported a 5.4 percent rise in inflation last month compared with a year earlier, with "higher food and energy prices among the culprits" pushing costs up. Those inflation figures have pushed the expected cost-of-living adjustment (COLA) for Social Security recipients in 2022 to 6.1 percent, according to the advocacy group Senior Citizens League. "The COLA could be subject to change," with three more months of data to come before the Social Security Administration determines the official number for next year. Either way, the COLA appears to be significantly larger than 2021's, which was a meager 1.3 percent.
'Backdoor' Roth tax strategies
There's a little-known way to dramatically boost your Roth IRA contributions, said Anne Tergesen at The Wall Street Journal. While most people are restricted to contributing a maximum of $6,000 per year to grow tax-free in a Roth IRA, a "mega-backdoor Roth conversion" allows some workers to put as much as $58,000 per year into a Roth, "with a minimal tax hit." The key is that you must "work for a company that lets employees make after-tax contributions" to a regular 401(k) account; that includes about half of employer-sponsored plans. An employee can contribute as much as $58,000, "withdraw the after-tax contributions soon after making them, pay income tax on the earnings, and convert the money to a Roth IRA or Roth 401(k), where it can grow tax-free."
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