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Windfall Imaginings

Have you ever thought about what you would do if a windfall dropped in your lap? It’s not that unusual. After all:

  • The U.S. is experiencing the greatest wealth transfer in history. Nearly $68 trillion, mostly held by baby boomers, will be transferred to heirs in the next 25 years.1
  • Since 2018, individual lottery windfalls in the U.S. have ranged between $688 million and $1.59 billion.2
  • Lots of entrepreneurs build up businesses from scratch and then sell them for a substantial profit.3

No matter your situation, if you are blessed with a windfall, we encourage you to work with professional advisors. You may need several, such as a financial advisor, tax professional and estate planning attorney. We can help you get started with this process by tapping these types of professionals within our network. If there is a windfall in your future, it’s never too early to start preparing for it. Contact us for more information.

In the case of a cash windfall, request a direct transfer into your account at an institution that you trust. This will simplify any issues related to disruptions in mail, delivery services and the potential for excess paperwork. Also, make sure you understand the wire transfer instructions in order to correctly input the necessary information for the proceeds to be wired directly to your account.

In the case of the sale of a private business or business interest, it’s important to consult with an experienced tax advisor, as you may be able to take advantage of valuation discounts for gift tax purposes — should you want to share some of those proceeds with children or other beneficiaries. Valuation discounts will likely not be available if you make cash gifts after receiving the windfall. Another option is to invest the windfall and then use it as collateral for other investments. That way, the asset continues growing and you don’t have to cash out and pay taxes on gains in order to use the money for other endeavors.4

The same holds true if you’d like to defer some of your windfall to a charity or other trusts that you or your family members will manage. Before initiating the asset transfer, work with an estate-planning attorney to establish trusts, limited partnerships (LLCs) or other planning vehicles to retain, manage and transfer your new wealth. For a charity, bear in mind that you can create your own private foundation or direct a donor-advised fund to manage the assets and direct them to specific charities. This also can help manage tax liabilities and maximize those financial assets over time.

If you win big with the lottery, you’ll need to decide whether you want to receive the assets as a lump sum or as an annuity. There are plenty of tax and lifespan decisions to consider with this one, so it’s a good idea to consult with a financial professional before you take distribution of the money.5

Recognize that it can take time to set up certain accounts, trusts and various strategies for receiving and managing a windfall. Don’t be in too big of a rush to make decisions and take the chance on not setting up your newfound wealth properly to meet your goals. Also, don’t be in a big rush to reinvest it quickly, assuming you cannot simply transfer ownership and retain the current investment strategy. It’s important to understand if and how your life may change with this new influx of money. For example:6

  • Can you and do you want to quit working altogether? You’ll have to manage your assets to last the rest of your life.
  • Do you want to invest in a new endeavor, such as your own startup? You’ll need to make sure you have enough in reserves to live on until you receive income from the venture, as well as have backup reserves in case it fails.
  • Do you want to share your new wealth with family, friends or charitable organizations? Get tax advice first because you may be able to offset your own tax liability if your beneficiaries receive part of the windfall.
  • If you’re planning to invest your windfall, work with a financial professional to coordinate how your “new” money aligns with the asset allocation of your “old” money. For example, you may want to keep it separate with a higher or lower risk strategy. Or, you may want to incorporate it into your current asset allocation strategy.
  • If you are older, you may want to disseminate much of this windfall to keep it out of your estate, for tax purposes. Investigate gifting and giving options.

The key is to understand what you want your money to do for you, just the same as when you determine your retirement goals. If it’s enough money to substantially change your life, then you should take some time to figure out what you want your new life to look like. Either way, the bigger the windfall, the more time and professionals you’ll need to consult to determine how to manage your assets going forward.

Kate Dore. CNBC. July 12, 2021. “Are you prepared for tax impact of the $68 trillion great wealth transfer? Here are some options to reduce the bite.” https://www.cnbc.com/2021/07/12/the-great-wealth-transfer-has-a-big-tax-impact-how-to-reduce-the-bite.html. Accessed March 18, 2022. Jennifer Sangalang. Florida Today. Oct. 5, 2021. “Who won the Top 10 largest lottery jackpot prizes ever? List of Powerball, Mega Millions winners.” https://www.floridatoday.com/story/news/2021/10/05/lottery-jackpots-all-time-list-powerball-mega-millions-winners/6001715001/. Accessed March 2, 2022. 3 Issie Lapowsky. Inc. Feb. 6, 2020. “$243 Million: Crunchbase’s Very Rosy Picture of the Average Startup Exit.” https://www.inc.com/issie-lapowsky/average-successful-startup-exit.html. Accessed March 2, 2022. Chuck Marr, Samantha Jacoby and Kathleen Bryant. Center on Budget and Policy Priorities. Nov. 13, 2019. “Substantial Income of Wealthy Households Escapes Annual Taxation Or Enjoys Special Tax Breaks.” https://www.cbpp.org/research/federal-tax/substantial-income-of-wealthy-households-escapes-annual-taxation-or-enjoys. Accessed March 2, 2022. Investopedia. Jan. 13, 2022. “The Lottery: Is It Ever Worth Playing?” https://www.investopedia.com/managing-wealth/worth-playing-lottery/. Accessed March 2, 2022. JP Morgan. 2021. “What will you do if you suddenly become rich?” https://www.jpmorgan.com/wealth-management/wealth-partners/insights/What-will-you-do-if-you-suddenly-become-rich. Accessed March 2, 2022.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. We cannot provide tax or legal advice and you should consult with a qualified professional for guidance before making any purchasing decisions.
 The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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How the Russia-Ukraine Conflict Could Affect Americans

When Putin invaded Ukraine in late February 2022, President Biden announced sanctions targeting Russian banks, the country’s sovereign debt and Russian oligarchs, warning that Russia would pay an even steeper price if it did not cease its aggression. In the early days of the conflict, European banks braced for the fallout. However, U.S. bank executives believe the industry will remain somewhat insulated from major disruption, having disengaged with the Russian financial sector in recent years.1

In fact, real estate represents one of the weakest links within Russia’s kleptocratic system. Even members of Putin’s wealthy inner circle are not allowed to own property in the country, so they are heavily invested in real estate abroad — largely in the West, and largely laundered through offshore havens in the United States and United Kingdom. This is because they are the two major economies that permit anonymous company ownership.2

When you see the hoops that oligarchs must jump through to retain millions in assets, it is a lesson for us in two ways. First, because the investment markets, real estate markets and global geopolitical conflicts are ever-present and unpredictable, it is important to maintain allocations of both liquid and guaranteed assets. The second reminder is that as Americans, we are fortunate to have such a strong and reliable banking system, long-standing financial institutions and a stringent supervisory system — by both government and business self-regulatory agencies.

As we watch the wealthiest among one of the world’s most powerful countries scramble to access their assets, remember that ours is a privilege we must never take for granted. If you would like to review the disposition of your assets and consider ways to make them more secure and accessible, please feel free to contact us.

With all of this said, the Russia-Ukraine conflict may affect Americans in varying degrees. For example, higher oil prices will slow economic growth and lead to even higher inflation. This, in turn, may motivate the Federal Reserve to accelerate its schedule for hiking interest rates. Should a full-scale invasion of Ukraine continue, there will likely be further disruptions throughout the global economy that will affect the United States.3

One bit of good news is that the United States doesn’t trade much with Russia. However, there are still certain specific Russian exports, namely raw commodities, on which we do rely. For example:4

  • Russia is a major exporter of oil and natural gas to Europe, so if supply is thwarted, energy prices could rise even further. While the United States does not depend on oil from Russia, prices are set by the global market — meaning our prices could increase as well.
  • Russia is a major exporter of rare-earth minerals and heavy metals, such as titanium and palladium — used in production of airplanes and catalytic converters.
  • Ukraine is a major source of neon used to manufacture semiconductors. As if this sector hasn’t been brutalized enough by the pandemic, shortages could hurt the U.S. semiconductor and aerospace industries.
  • Ukraine and Russia are major producers of fertilizer. Export disruptions would mostly affect agriculture in Europe, but that will cause food prices to jump throughout the world.

Another threat is Russia potentially increasing its massively coordinated cyberattacks and influence campaigns in the United States. Penetration of our cybersecurity system could affect our power grids, hospitals and local governments. In turn, the stock market would likely become even more volatile than in February, when the conflict began. While investment markets have priced in the effects of the pandemic, it is not prepared for a European war or attacks on our power grid, so the effect could be substantial.5

It is important to note that Ukraine is basically a gateway to other European countries and, in effect, a buffer against Russian aggression. Should Putin succeed in taking over the country, his appetite could extend to smaller NATO countries, and the United States could bear the brunt of another world war. Let’s hope this never happens.6

Lawrence White et al. Reuters. Feb. 24, 2022. “Europe’s banks brace for Russia fallout while U.S. banks see limited pain.” https://www.reuters.com/business/finance/contagion-sanctions-europes-banks-brace-russia-fallout-2022-02-22/. Accessed March 17, 2022. Anders Åslund and Maria Snegovaya. Atlantic Council. May 3, 2021. “The impact of Western sanctions on Russia and how they can be made even more effective.” https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/. Accessed Feb. 22, 2022. Patti Domm. CNBC. Feb. 28, 2022. “Oil prices could determine how markets react to Russia’s Ukraine invasion.” https://www.cnbc.com/2022/02/28/oil-prices-could-determine-how-markets-react-to-russias-ukraine-invasion.html. Accessed March 17, 2022. 4,5 Becky Sullivan. NPR. Feb. 19, 2022. “How a Russian invasion of Ukraine could affect you.” https://www.npr.org/2022/02/16/1081185004/russia-ukraine-invasion-us-impact. Accessed Feb. 22, 2022. Meredith Deliso. ABC News. Feb. 20, 2022. “Why Americans should care about the Ukraine-Russia conflict.” https://abcnews.go.com/International/americans-care-ukraine-russia-conflict/story?id=82907932. Accessed Feb. 22, 2022.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
 The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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Consumers: Buying Power in 2022

One of the biggest economic stories of the first quarter was the rising rate of inflation, as consumer prices reached a 39-year high by the end of 2021. In the first quarter, the inflation rate floated around 7%.

Higher prices tend to hurt low-income families the most since the majority of their spending is on necessary consumables. This is especially true now that child tax credits – representing $300 to $360 payments per child per month – have come to an end. That money was largely used for food, clothes, school supplies and other essentials, so it contributed to overall consumer spending that drives the economy.1

In contrast, households that don’t need government stimulus, such as the $600 and $1,400 checks that were issued during the first year of the pandemic, are more prone to save surplus assets. Instead of spending that money to help jump-start the economy, a lot of wealthier households used it to augment savings during the pandemic. In aggregate, U.S. households saved up an excess of $2 trillion during the pandemic.2 That can be helpful for individuals to bolster their emergency savings, but it doesn’t help stimulate the economy.

It is important for all households to have robust liquid savings they can tap into during times of hardship. However, retaining too much in low-interest-rate accounts means that money may not keep up with the rising cost of living. That is especially true now, in a higher interest rate environment. If you are looking for ways to secure your money but also give it the opportunity to grow, we have an array of insurance products that may fit the bill. Contact us for more information about what vehicles may best suit your needs.

Rising prices are a sign of a growing economy, but unless wages keep up with inflation, that’s going to hurt consumers. We have seen significant income growth over the past year, but nowhere near the current 7% inflation rate. However, some economists predict that inflation will retreat as far back as 2.9% by the fourth quarter of this year.3

The Federal Reserve has made it clear that it intends to raise interest rates. Again, rate increases are more likely to impact lower-income consumers than households with considerable assets. Higher interest rates can increase payments on mortgages with a variable interest rate. However, 90% of American mortgages are at fixed rates. In fact, mortgage loans represent 70% of household debt and another 10% is in auto debt (also generally locked in to a fixed rate). Therefore, higher interest rates will be most painful for people who retain a balance on credit cards and other variable-rate loans. Unfortunately, once again, lower-income households are more likely to maintain credit balances, so this consumer group will be the most affected by a rising interest environment.4

As for the consumer market for the rest of this year, inflation should tame as supply chain woes improve and inventories are restocked. No group is looking more forward to this scenario than potential car buyers. If they have to spend more money on higher prices, they are looking for better value. One survey found that 66% of Americans are considering purchasing an electric vehicle (EV) now that the new infrastructure bill will support nationwide charging stations and financial incentives.5

Millennials are expected to be one of the predominant consumer groups for the foreseeable future. They’ve come into their own with hard-fought experience they can exploit for higher wages and more flexibility in today’s job market. And with higher discretionary income, economists predict millennials will spend more money on travel, apparel and the housing market in 2022.6

Ellen Zentner and Sarah Wolfe. Morgan Stanley. Jan. 28, 2022. “New Challenges for The US Consumer.” https://www.morganstanley.com/ideas/thoughts-on-the-market-zentner?subscribed=true&dis=em_202222_wm_5ideasarticle&et_mid=318442&et_mkid=. Accessed March 2, 2022. 2 Lucia Mutikani. Reuters. Feb. 25, 2022. “Robust consumer spending, core capital goods orders highlight U.S. economic strength.” https://www.reuters.com/business/us-consumer-spending-beats-expectations-january-inflation-rises-further-2022-02-25/. Accessed March 2, 2022. Ellen Zentner and Sarah Wolfe. Morgan Stanley. Jan. 28, 2022. “New Challenges for The US Consumer.” https://www.morganstanley.com/ideas/thoughts-on-the-market-zentner?subscribed=true&dis=em_202222_wm_5ideasarticle&et_mid=318442&et_mkid=. Accessed March 2, 2022. 4 Ibid. CarPro. Feb. 2, 2022. “Cars.com: 2022 Auto Buying Trends.” https://www.carprousa.com/blog/cars.com-2022-auto-buying-trends. Accessed March 2, 2022. Vijay Chandar. Morgan Stanley. Feb. 15, 2022. “Megatrends: Counting on the Long-Term Strength of U.S. Consumers.” https://www.morganstanley.com/articles/consumer-megatrends-spending-boom. Accessed March 2, 2022.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom-suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.
 The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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Household Budgeting for Retirement

Part of the retirement planning process is realistically imagining what you want your life to look like. Bear in mind that you’re really only planning for the first chapter of retirement — the one where you travel, pursue hobbies and spend more time with family and friends.

If you have a partner, it’s important to recognize that you may have different goals. For example, a wife may want to travel more frequently to see family, whereas a husband is thankful he no longer has to commute to work every day and would rather enjoy reading and watching television. Some folks find they slip into bad habits after a few months into retirement — sleeping late, watching too much TV, not exercising or getting out of the house to see people. It may be worth considering some type of volunteer opportunity or part-time job to give your days more structure.1 Earning extra cash is not a bad idea, either.

The second stage of retirement is when people start to slow down and don’t get out as much, so they don’t spend as much money as they did before. Then there’s the final stage — when you need more money than ever to pay for things like large health care expenditures and help with assisted living.2

As you can see, developing a retirement plan is more complex than just accumulating money and then spending it throughout time. Consider positioning your assets so that you have multiple sources of reliable income. You may want to consider ways to maximize your assets in case you or your spouse lives to a very old age. If you’d like to discuss various insurance options for your retirement plan, please contact us.

One source of retirement income that most Americans enjoy is Social Security, which is guaranteed to continue until you pass away. However, even this government-sponsored benefit is under duress. There’s been a focus in recent months on legislation for infrastructure bills and ways to economically rebuild the U.S. back to pre-pandemic levels. In addition, retirees just received their biggest cost-of-living increase in Social Security benefits in years. The problem is that neither Congress nor retirees (and approaching retirees) are actively lobbying to fix the current Social Security program. If Congress doesn’t come up with a supplement plan, retirees will see a reduction of about 22% of their current benefits beginning in 2034.3

Another facet of retirement planning is having a contingency plan for when things don’t pan out quite the way you thought. For example, make sure your beneficiaries are up to date on all of your accounts, that they have the information necessary to access those accounts and contact information for your financial advisor or estate attorney, and consider buying long-term care insurance.4

Paul Schoenfeld. Herald Net. Feb. 20, 2022. “What are your plans for reaching retirement?” https://www.heraldnet.com/life/what-are-your-plans-for-reaching-retirement/. Accessed Feb. 21, 2022. Dan Hunt. Morgan Stanley. Jan. 11, 2022. “What kind of retiree do you want to be?” https://www.morganstanley.com/articles/retirement-life-spending. Accessed Feb. 21, 2022. Trina Paul. CNBC. Feb. 10, 2022. “Will Social Security run out of money? Here’s what could happen to your benefits if Congress doesn’t act.” https://www.cnbc.com/select/will-social-security-run-out-heres-what-you-need-to-know/. Accessed Feb. 21, 2022. Ameriprise. 2022. “Unexpected events.” https://www.ameriprise.com/financial-goals-priorities/retirement/preparing-for-unexpected-life-events. Accessed Feb. 21, 2022.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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