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The War on Oil Prices

As with any major global conflict, we learn things. The pandemic taught the U.S. the importance of reshoring manufacturing jobs, so we aren’t beholden to other nations, like China, for many of our consumer goods, from medicines to electronics.1

One of the key lessons emerging from the Russia-Ukraine conflict is self-reliance for energy sources, such as oil and gas. Fortunately, the U.S. is the top oil-producing country, accounting for 20% of the world’s supply.And yet, although we are not reliant on Russia for our oil supply, crude oil prices — even here in the U.S. — are determined by global fundamentals.3

In fact, OPEC (the Organization of the Petroleum Exporting Countries), an intergovernmental organization of 13 countries that represents the largest combined suppliers of oil globally, uses supply quotas (the decision to increase or decrease oil reserves) in order to control long-term prices. Since the process from increasing production to refinement to delivery can take up to six months, today’s prices are generally determined from decisions made last fall.4

Market forces such as supply and demand, inventory, seasonality, natural and man-made disasters, financial market considerations and expectations all play a hand in the rise and fall of oil prices. It is worth noting, too, that only about 60% of the price of a gallon of gas is determined by crude oil prices; refining costs represent 14%, distribution and marketing costs account for 11%, and federal and state taxes represent about 14%.5

With that said, Russia’s invasion of Ukraine has sparked legitimate fears over the loss of oil supply worldwide. Emotions and expectations, much like they affect the stock market, can lead to higher prices. There is good news for investors, however. Although oil prices were trading near a seven-year high in January, the war in Europe, embargoes and the ongoing pandemic could lead energy stock prices to increase further.6 We advise investors to speak with their financial professional before making any significant moves, because it is important to maintain an asset allocation strategy designed to achieve long-term goals, not just short-term gains.

On the flip side of the energy coin, the Ukraine conflict has increased interest, both in the U.S. and throughout the world, in renewable energy sources to cut gas dependence. Even though the U.S. is relatively oil-independent, based on shale production, the Energy Information Administration (EIA) predicts that our crude oil production will peak sometime between 2030 and 2035.7

The European Union (EU), which currently relies on Russia for 40% of its gas, recently established a plan to cut reliance on Russian oil by two-thirds within one year. Initially, more gas will be sourced from the U.S. and Africa. But longer term, the EU is stepping up its investments in renewable energy sources, biogas (a mixture of gases produced from agricultural waste, manure, municipal waste, plant material, sewage, green waste and food waste), and hydrogen. The goal is for Europe to no longer have to rely on Russian fossil fuels by 2030.8

David Payne. Kiplinger. March 26, 2020. “10 Products in Short Supply Due to the Coronavirus.” https://www.kiplinger.com/slideshow/business/t062-s010-products-in-short-supply-due-to-the-coronavirus/index.html. Accessed March 8, 2022. U.S. Energy Information Administration. Dec. 8, 2021. “What countries are the top producers and consumers of oil?” https://www.eia.gov/tools/faqs/faq.php?id=709&t=6. Accessed March 8, 2022. American Petroleum Institute. March 2022. “Gas Prices Explained.” https://www.api.org/oil-and-natural-gas/energy-primers/gas-prices-explained. Accessed April 6, 2022.Natasha Turak. CNBC. Nov 4, 2021. “OPEC+ agrees to stick to oil production plan, defying U.S. pressure.” https://www.cnbc.com/2021/11/04/opec-agrees-to-stick-to-oil-production-plan-defying-us-pressure.html. Accessed March 8, 2022. American Petroleum Institute. March 2022. “Gas Prices Explained.” https://www.api.org/oil-and-natural-gas/energy-primers/gas-prices-explained. Accessed April 6, 2022. JJ Kinahan. TD Ameritrade. Jan. 27, 2022. “February Outlook: Stocks Are Seeing the Most Energy in Energy.” https://tickertape.tdameritrade.com/market-news/february-outlook-energy-18939. Accessed March 8, 2022. Rakesh Sharma. Investopedia. March 2, 2022. “OPEC vs. the US: Who Controls Oil Prices?” https://www.investopedia.com/articles/investing/081315/opec-vs-us-who-controls-oil-prices.asp. Accessed March 8, 2022. Matt McGrath. BBC. March 8, 2022. “Climate change: EU unveils plan to end reliance on Russian gas.” https://www.bbc.com/news/science-environment-60664799. Accessed March 8, 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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The Value of Multiple Retirement Income Streams

Retirement planning was historically a little easier. For instance, the average life expectancy in 1950 was 68 years old.1 If you retired at age 62, your retirement plan might need only six years of retirement income. Additionally, with the decline of defined benefit pension plans, only 14% of private industry employees receive a pension today.2

Since more people are responsible for deciding how much income to set aside for retirement and how to invest that money, they are falling short compared to the days of employer-sponsored retirement income and shorter life expectancies. In fact, recent studies show that today’s retired baby boomer households without a pension are more likely to deplete their 401(k) savings quickly, which means they are more likely to outlive their savings.3

This is why it is important to look beyond your company-sponsored retirement plan. You can create a mix of tax-advantaged IRAs, a taxable investment portfolio, guaranteed annuity income, life insurance products that build cash value, and even passive income from a work endeavor (royalties, residual income) or rental property. Early in your retirement planning, we can help you consider different options. Even if you can’t afford to fund certain income streams now, it’s a good idea to consider what type of retirement income sources interest you most and work toward those goals. Feel to contact us to discuss multiple retirement income stream strategies.

In fact, the Center for Retirement Research at Boston College found that retirees who receive a higher portion of their income from annuities spend down their savings at a slower rate. Note that for the purposes of this study, annuity income refers to a pension, Social Security or an insurance company annuity.4

In addition to annuity options, investors may want to consider building a laddered bond portfolio and/or laddered certificates of deposit.5 While this plan locks up money for periods of time, it provides the opportunity to augment funds at different stages of retirement and can help you from running out of money. An income stream can be generated by interest and dividends from an investment portfolio comprised of bonds, bond funds, CDs and dividend-paying stocks. This strategy can minimize your risk to principal but does increase your risk exposure to inflation and changing interest rates.6

While Social Security is basically a lifetime annuity, many people have no idea how much payout to expect, especially if they are early in their retirement planning effort. One tool that anyone can use at any age is to register online at my SocialSecurity. You can monitor your personalized retirement benefit estimates and spousal benefit estimates, which change as you move through your career.7

A recent study found that people who use the Social Security website tend to be more educated and financially literate. That’s unfortunate since less-educated, lower-paid workers would probably benefit more from understanding their future benefits.8 However, it’s worth knowing that the website is free and can be very helpful in creating a long-term retirement income strategy.

Macrotrends. 2022. “U.S. Life Expectancy 1950-2022.” https://www.macrotrends.net/countries/USA/united-states/life-expectancy. Accessed March 3, 2022. CNN. 2021. “Just how common are defined benefit plans?” https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index7.htm. Accessed March 3, 2022. 3,4 Center for Retirement Research at Boston College. Feb. 24, 2022. “Retirees with Pensions Slower to Spend 401k.” https://squaredawayblog.bc.edu/squared-away/retirees-with-pensions-slower-to-spend-401k/. Accessed March 3, 2022. Lisa Smith. Investopedia. Sept. 28, 2021. “4 Sources of Income for Your Retirement.” https://www.investopedia.com/articles/retirement/08/retirement-income-stream.asp. Accessed March 3, 2022. Fidelity. 2022. “Retirement income strategies.” https://www.fidelity.com/learning-center/personal-finance/retirement/retirement-income-strategies. Accessed March 3, 2022. Social Security Administration. 2022. “Create your personal my Social Security account today.” https://www.ssa.gov/myaccount/. Accessed March 3, 2022. Center for Retirement Research at Boston College. Feb. 10, 2022. “Workers: Social Security Info is Eye-Opening.” https://squaredawayblog.bc.edu/squared-away/workers-social-security-info-is-eye-opening/. Accessed March 3, 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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Graduation Gift Ideas

Do you have someone in your life who is graduating this spring? The form and function of graduation gifts can be sticky territory. It’s important to consider not only the level of degree being attained but also the personal traits, interests and ambitions of new grads to ensure your gift will enhance their life.

High School Graduate

High school graduates, specifically in this immediate gratification era, like something they can use right away. This is especially true if it’s cool and somewhat unique among their peers, such as an Apple watch. This generation also likes to do its own shopping. They’re not limited to the mall and fashion magazines — they are influenced by ads, celebrities and “influencers” all over the globe, and they can order anything they want online. You may consider a prepaid credit card or gift card if they have a favorite store. This type of present lets you align the cost of the gift to how personal your relationship is to the grad and still offer a valuable gift they’ll enjoy.

If your high school grad is college bound, think about gifts/gift cards to help decorate their dorm room or apartment, or buy technology they can use during this time. This type of gift also takes some financial heat off the parents, since it may be something they’d have to buy anyway. Consider ideas like a portable charger/power bank, Bluetooth speaker or noise cancellation headphones, in case they live in a noisy dorm or want to listen quietly to their own music at all hours.1 Another idea is to pay for an annual Amazon subscription and/or a prepaid gift card. The subscription not only gives them fast, free delivery but also access to Amazon Prime music, movies and TV series, as well as limitless cloud storage for their smartphone photos.2

Grandparents in particular may want to contribute to the cost of going to college, buying a car or renting an apartment. Consider seeding a savings account or prepaid credit card to help them establish credit history. If the grad is taking a gap year, perhaps choose a high-end backpack for traveling or a prepaid gas card to help them get to and from a job.3

If you live on a fixed income, remember that some life insurance policies and annuity contracts allow you to take limited cash distributions each year. If you anticipate needing ad hoc cash during retirement, we’re happy to discuss various insurance options to ensure you have extra funds when you want them. Call us for more information.

College Graduate

A college grad may have many needs as she makes the big step from the relatively sheltered world of academia to “real life.” It may be the first time she rents her own apartment or moves to a new city. You might consider a subscription to Amazon Boxes, which offers regular deliveries based on personal proclivities — from tea lovers to pet owners.4 If the grad is setting up a new household, consider gifting a small toolkit, kitchen appliance, home store gift card or office supplies gift card if they’ll be working from home.

A busy young professional might appreciate a subscription to one of the popular meal kit services. These kits deliver a set number of meal plans/serving sizes and include the specified ingredients and instructions to cook at home. It’s a great way to encourage healthy eating as well as help your young adult learn to cook.5 If your new grad is a fitness guru, consider gifting a membership to a gym near where he lives. The costs of streaming services tend to add up, so consider paying for an annual subscription to a service like Netflix, Hulu or Spotify.

Not every entry-level salary allows young adults to splurge on luxuries. Think about their interests and something you can give that they wouldn’t be able to afford for a while, such as season tickets to a sporting event or live theater.

If your new graduate has time off before starting a job, you may want to gift a vacation. If you have credit card rewards points, you could use them for hotels/flights or even coordinate with other parents to spring for an Airbnb for your graduate and her friends.

When in doubt, you can never go wrong with cash. It’s easy, scalable and provides instant gratification. A big smile and a hug go a long way, as well.

Laura McMullen, Briana Boyington, Emma Kerr and Josh Moody. U.S. News & World Report. June 8, 2021. “20 High School Graduation Gift Ideas.” https://www.usnews.com/education/high-schools/slideshows/10-high-school-graduation-gift-ideas?slide=23. Accessed March 28, 2022. Amazon Prime. 2022. “Give the Gift of Prime.” https://www.amazon.com/gp/prime/pipeline/prime_gifting_landing?ots=1. Accessed March 28, 2022. Adam West. CardRates.com. March 10, 2022. “Best Gas Cards For Students in 2022.” https://www.cardrates.com/advice/best-gas-cards-for-students/. Accessed March 28, 2022. Amazon Subscription Boxes. 2022. “Amazon Subscription Boxes.” https://www.amazon.com/top-best-amazon-subscription-boxes/b?ie=UTF8&node=14498690011. Accessed March 28, 2022. Mili Godio. NBC News. Jan. 21, 2022. “8 best meal kit delivery services in 2022, according to experts.” https://www.nbcnews.com/select/shopping/best-meal-kit-delivery-services-ncna1287814. Accessed March 28, 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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The Financial Stress Toll

In a recent survey by the American Psychological Association, more than 80% of American adults said they were feeling increased financial stress due to:

  • Higher inflation (87%)
  • Ongoing supply chain issues caused by the pandemic (81%)
  • Global uncertainty due to the war in Ukraine (81%)

Furthermore, hardships related to the pandemic — including poor health, loss of loved ones, difficult work and family situations, isolation and inconvenience — have affected the entire nation and the world. In the U.S., 63% of respondents said COVID-19 has changed their life forever.1

A 2021 Employee Financial Wellness Survey by PwC found that since the onset of the pandemic, workers were two times more likely to use a payday loan service, take a loan or distribution from their retirement account or consider postponing retirement altogether. They also were four times more challenged in paying their regular household expenses.2

Following the initial impact of COVID-19, the U.S. has followed a somewhat “K”-shaped recovery. This happens when the lower “arm” of the K drops because certain demographics become financially worse off than they were before, while the top arm shoots upward as other demographics benefit from higher savings rates and the stock market recovery.3 According to a Pew Research study, 20% of adults under age 50 were earning more than before March 2020, while 58% of people older than 50 reported earning lower wages than before the pandemic.4

Regardless of which trajectory your household may have experienced, high inflation is affecting everyone. Some economists predict that prices will stabilize as we move through 2022.5 However, note that throughout history the economy has gone through cyclical stages when inflation has reared its ugly head. It is particularly important that you plan for this contingency during your retirement years, when most people live on a fixed income. If you’re interested in learning ways to position your assets to help accommodate periods of rising prices during retirement, feel free to contact us.

The financial toll of stressed-out employees also has impacted companies. One study concluded that workers who are chronically worried about money are far less productive each week, which has led to a combined $4.7 billion in losses per week for employers.6 In an effort to ease money concerns among the workforce, some companies have begun offering more financial wellness programs, such as low-interest installment loans, medical deductible financing repaid through payroll deductions, and student loan repayment programs (including employer contributions toward student debt and the ability to convert PTO hours to student loan payments).7

American Psychological Association. March 2022. “Stress in America.” https://www.apa.org/news/press/releases/stress/2022/march-2022-survival-mode. Accessed March 28, 2022. PwC. 2002. “2021 PwC Employee Financial Wellness Survey”. https://www.pwc.com/us/en/services/consulting/workforce-of-the-future/library/employee-financial-wellness-survey.html. Accessed March 28, 2022. Erin Gobler. The Balance. April 5, 2021. “What is a K-Shaped Recovery?” https://www.thebalance.com/k-shaped-recovery-5120738. Accessed April 14, 2022. Pew Research Center. March 5, 2022. “A Year Into the Pandemic, Long-Term Financial Impact Weighs Heavily on Many Americans”; https://www.pewresearch.org/social-trends/2021/03/05/a-year-into-the-pandemic-long-term-financial-impact-weighs-heavily-on-many-americans/. Accessed March 28, 2022. Daniel Bachman. Deloitte. March 17, 2022. “United States Economic Forecast.” https://www2.deloitte.com/us/en/insights/economy/us-economic-forecast/united-states-outlook-analysis.html. Accessed March 28, 2022. Ted Godbout. American Society of Pension Professionals & Actuaries. Aug. 25, 2021. “Employee Financial Stress Costs Companies Nearly $5B a Week.” https://www.asppa.org/news/employee-financial-stress-costs-companies-nearly-5b-week. Accessed March 28, 2022. Nick Ott. Human Resource Executive. May 24, 2021. “4 benefits that will help workers improve their financial health.” https://hrexecutive.com/4-benefits-that-will-help-workers-improve-their-financial-health/. Accessed March 28, 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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