How Government Economic Data Impacts Your Plan
The Bureau of Labor Statistics (BLS) has been in the headlines recently following the dismissal of its director over allegations of inaccurate employment reporting. The agency’s work is central to the economy, most notably through its monthly reports on employment growth and inflation.
The accuracy of BLS data is not a technical side note – it underpins critical elements of tax policy, retirement benefits, investment returns, and healthcare costs. The Consumer Price Index (CPI) is released on a monthly basis and influences adjustments to tax brackets, Social Security payments, Medicare income thresholds, and retirement plan contribution limits.
If inflation is understated, the consequences extend far beyond the data. Tax bills, incomes, and even investment performance may fail to reflect actual economic conditions. CPI drives the annual increases to the standard deduction, tax brackets, retirement plan limits, and estate and gift tax exemptions. Underreported inflation slows these adjustments, reducing opportunities for tax-advantaged savings and accelerating exposure to higher tax rates. For families with significant assets, it can mean less capacity for lifetime gifting before reaching estate tax limits.
On the retirement side, Social Security’s cost-of-living adjustments are based on the CPI-W. If that measure is understated, benefit increases lag real costs, eroding purchasing power. State and local pensions with CPI-based adjustments face the same risk. Your wealth plan uses CPI as a key input in retirement income modeling, meaning that inaccurate inflation data could cause withdrawal strategies to fall short.
Healthcare costs are also at stake. Medicare premium brackets rely on CPI, and underestimation can push households into higher-cost tiers sooner, constraining retirement spending. This makes strategies such as Roth conversions more difficult to plan, as income thresholds no longer align with real-world inflation.
Investment strategies are not immune. Treasury Inflation-Protected Securities (TIPS), I Bonds, and certain annuities with inflation riders adjust based on CPI. Real estate leases with CPI-based rent escalators and long-term care insurance riders tied to inflation are similarly affected. If inflation is understated, these hedges deliver less protection than intended.
In short, CPI accuracy is fundamental. It shapes tax planning, retirement income strategies, investment protection, and healthcare cost management. Even minor reporting errors can ripple across multiple areas of a wealth plan, altering outcomes in ways that compound over time.
Please reach out to your Wealth Manager with questions.
Weekly Commentary
Wealth Planning Commentary – August 11, 2025
Mallon FitzPatrick
How Government Economic Data Impacts Your Plan
The Bureau of Labor Statistics (BLS) has been in the headlines recently following the dismissal of its director over allegations of inaccurate employment reporting. The agency’s work is central to the economy, most notably through its monthly reports on employment growth and inflation.
The accuracy of BLS data is not a technical side note – it underpins critical elements of tax policy, retirement benefits, investment returns, and healthcare costs. The Consumer Price Index (CPI) is released on a monthly basis and influences adjustments to tax brackets, Social Security payments, Medicare income thresholds, and retirement plan contribution limits.
If inflation is understated, the consequences extend far beyond the data. Tax bills, incomes, and even investment performance may fail to reflect actual economic conditions. CPI drives the annual increases to the standard deduction, tax brackets, retirement plan limits, and estate and gift tax exemptions. Underreported inflation slows these adjustments, reducing opportunities for tax-advantaged savings and accelerating exposure to higher tax rates. For families with significant assets, it can mean less capacity for lifetime gifting before reaching estate tax limits.
On the retirement side, Social Security’s cost-of-living adjustments are based on the CPI-W. If that measure is understated, benefit increases lag real costs, eroding purchasing power. State and local pensions with CPI-based adjustments face the same risk. Your wealth plan uses CPI as a key input in retirement income modeling, meaning that inaccurate inflation data could cause withdrawal strategies to fall short.
Healthcare costs are also at stake. Medicare premium brackets rely on CPI, and underestimation can push households into higher-cost tiers sooner, constraining retirement spending. This makes strategies such as Roth conversions more difficult to plan, as income thresholds no longer align with real-world inflation.
Investment strategies are not immune. Treasury Inflation-Protected Securities (TIPS), I Bonds, and certain annuities with inflation riders adjust based on CPI. Real estate leases with CPI-based rent escalators and long-term care insurance riders tied to inflation are similarly affected. If inflation is understated, these hedges deliver less protection than intended.
In short, CPI accuracy is fundamental. It shapes tax planning, retirement income strategies, investment protection, and healthcare cost management. Even minor reporting errors can ripple across multiple areas of a wealth plan, altering outcomes in ways that compound over time.
Please reach out to your Wealth Manager with questions.
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