An Open Letter to The Big Lottery Winners

 Are you the winner (or do you just wish you were)? The recent Powerball jackpot was estimated to be about $550M.  That is $550 plus six zeros – that’s a big number!

Let’s take a look at the math and then a few suggestions on how your next steps:

If there had only been a single winning ticket, and assuming you receive your payout in 2012 and you elect the lump sum, you are looking at about $248M after federal income taxes.  Have you heard about the fiscal cliff?  Well, now that you won you might take notice.  Unless Congress elects to act and extends the Bush tax cuts, you are looking at potentially an extra $18M in federal income taxes next year – yikes!  Not that you can’t get by with only $230M – but you might race to pick up your check before 2013 hits just to be sure.  You see, the top tax rate is expected to increase to 39.6% and there is a new Medicare surtax which probably increases the tax bill by 5.5% or $18M in your case.

Some action steps you might consider:

• Get a good team on your side.  Work with a good financial planner, tax accountant, and estate planning attorney BEFORE you collect (so that means right away because the clock is ticking down to the end of the year.
• Tell your boss what you really think of him AFTER you have your money.
• Then, and this is important, give yourself a 6 month "No Decision Zone"!  That's right, hold off on making long term decisions and get your ducks, or bucks in this case, in a row.  There will be plenty of time to spend.
• Don't be a statistic!  The statistics are not on your side.  Unfortunately most lottery winners, regardless of the size of winnings, evaporate their winnings in just 2.5 years*  

 Congratulations on beating the odds.  It has been said that money is a means to an end.  With  smart decisions the means can be meaningful.  Good luck.

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*Source:  Ipsos MORI Market Research

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

Dan's Work at the Institute for Sustainable Social Change

 Many clients inquire about my work in Prescott with the Institute, which is affiliated with--but is separate from--Prescott College.  I spend perhaps 10-12 hours per week on projects there when I'm in town.

The Institute seeks to sponsor programs that are in line with the mission of the college--but which don't have a natural "home" in the academic side of the house.  I am a Fellow of the Institute and have been designated its "Coordinator" of activities, which means that I handle much of the behind-the-scenes "back-office" work which exists in any thriving organization. 

I'll touch on just two of the Institute's programs to give a flavor of our activities: our longest-running program is acting as the administrative arm of the VISTA program for northern Arizona.  VISTA is the branch of the federal Americorps program (akin to a domestic Peace Corps) which seeks to build capacity in those non-profit organizations dedicated to alleviating the conditions of poverty in the US.   A tall task to be sure; but our program has been a leader in creating innovative structures and generating effective leadership tools that may be adopted by other VISTA programs throughout the country.

The second program is one that I'm spearheading in cooperation with the Office of Student Life at the Prescott College.  It is oriented toward facilitating volunteerism and civic engagement as an everyday part of the student experience at the college.  As many of you know, Prescott College is first and foremost all about experiential education--and as such, students (and faculty) are often engaged in real-world activities and challenges outside the walls of academia.  However, these activities are not always easy to connect to, nor are they tracked in any organized way.  We hope to put the pieces in place to facilitate connections and enhance the effectiveness of these efforts. 

Other programs and sponsorships take place under the aegis of the Institute.  Feel free to ask if you're interested in more detail!

What Better than the Gift of Financial Education and Support?

 I don’t know about you, but I can hardly believe that it is already time for the holidays.  It seems like just yesterday that I was racking my brain to come up with creative gift giving ideas for all of those people on my list.  I find that it is just as hard to find gifts for adults as it is for children.  But there is one gift I’ve found that transcends generations – the gift of financial education. 

I know, financial education does not sound as attractive or exciting as say, an iPad or a Wine of the Month Club membership, but it is a gift that can keep on giving for a lifetime.  What am I talking about when I suggest a gift of financial education?  Here are just a few ideas:

For Younger  Kids (elementary – high school):

• If you’re trying to stay away from more electronics, there are hundreds of books, workbooks and other resources available from Jump$tart Coalition (JumpStart.org)
• Games like Monopoly, The Game of Life, and PayDay are great (Most are available as both traditional board games or for the computer, Wii, etc.)
• Make a contribution to a 529 College Education fund to support the child’s future education.

For Older Kids (college - young adults):

• If your gift recipient has had earned income during the year, consider contributing to a ROTH IRA in their name. 
• Gift shares of a mutual fund or stock introduce them to investing and help them start an investment portfolio.
• Make a payment towards their outstanding student loan debt.

For Young Adults and Beyond:

• Fund a year of a credit monitoring service to protect their credit and financial identity from fraud.
• Purchase financial software to help them with budgeting and financial tracking (i.e. Quicken)
• Pay for a consultation with a Certified Financial Planner ™ (my personal favorite!).  This can help provide basic financial education and guidance for getting them set on the right financial path.

Giving a gift tied to financial education and support may not make you the hero of the holidays, but you can be certain that the gift will long be remembered as one that lasted long after the holiday decorations are put away for another year.

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Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investments mentioned may not be suitable for all investors.

Reflections on Gratitude

 Gratitude combines the awareness of unbidden blessings in our lives (gratefulness) with the ability to articulate this awareness to ourselves and to others (thanksgiving, with a lower-case "t"). In my own life, I have been uncommonly blessed to be born in a strong, loving family; to have had a great education; to have found my vocational calling; and to have had the opportunity to share my passions with others who care about them. It doesn't get much better than that.

Most often, gratitude is seen as a virtue because of its connection to generosity--an outward display of this inward "feeling". As I reflect more deeply, however, perhaps the most significant impact of an "attitude of gratitude" is in how it changes the one experiencing it.

To realize a moment of the sheer beauty in a November sunset, or to receive the unqualified forgiveness of someone you've unintentionally hurt, or to experience the joy of seeing someplace entirely new--these change the lens trough which we see the world, how we interact with others, and how we see ourselves in relation to others. In short, it changes for the better how we experience this world.

This is the true gift of Thanksgiving (with a capital "T" this time). Gratitude is a gift that can keep on giving to each of us all year long.

November is National Caregivers Month

 November is a month of gratitude.  We celebrate Thanksgiving Day and express our appreciation for the good things in our life.  What better time to say an extra “thanks” to the caregivers in our lives?

According to the National Caregivers Association, over 65 million Americans – approximately 29% of the U.S. population – provide care for chronically ill, disabled or aged family members or friends during any given year.  Family caregivers provide an average of 20 hours of care per week.  Over 66% of these caregivers are women, and 37% also have children or grandchildren under the age of 18 living with them.  What, you might ask, does this have to do with financial planning?

The reality is that the value of the services provided by family caregivers in the U.S. is estimated to be upwards of $375 billion each year.  Most of these caregivers receive little to no compensation for the services they provide.  Providing caregiver services to friends and family can create a drain on family funds, as these caregivers must often leave their jobs or significantly reduce their hours.  This, in turn, drains savings and delays retirements.

Action steps can be taken to protect the financial well-being of these valuable caregivers:

• Have a family plan in place for providing care.  My recent blog on holding a family meeting is a good guide for starting this conversation. 
• Coordinate family resources.  This involves sharing responsibilities among family members (even those living at a distance) so that no one member is overburdened.
• Put financial resources in place to cover potential long term care expenses.  This includes purchasing long-term care insurance or alternative self-funding strategies so that care can be paid for (this includes providing possible compensation for family caregivers).

One of the best ways to say “thank you” to current or future caregivers in your life is to plan.  Contact your financial planner to provide assistance with family meetings, coordination of resources, or long-term care funding.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily of RJFS or Raymond James.

Memories of Thanksgivings Past

 When I was a young child, my father liked to hunt small game.  There were a few Thanksgivings when we had rabbit.  We never saw the rabbit until it came to the table and it tasted like chicken to us.  He not only enjoyed the hunting but also liked the idea of being self-sufficient.  My mother was a city gal and dad understood the rules. The game was to be ready for the pot before she saw it, looking just like it came from Kroger.

One year dad decided to raise a turkey in our basement intended for Thanksgiving dinner.  He was smart enough not to let us name the bird.  We simply called it “turkeyboy”. My sister and I fed and watched “turkeyboy” grow to be a nice fat bird.  The big day came and dad brought the bird upstairs ready for the oven. A few hours later, we all sat down for the big feast.  My mother ceremoniously brought the turkey to the table for carving.

The only one who ate turkey that Thanksgiving was dad. My sister and I ages 4 and six sat there and cried.

Years later, while living on the Connecticut sea coast town of Mystic, Ron and I decided to have lobster for Thanksgiving dinner as a treat for visiting Grandma Gunther.  Ron let the lobsters crawl around the kitchen floor before throwing them into the pot.

The only one who ate lobster that Thanksgiving was Ron.  Our two little girls sat there and cried. 

Some lessons are never learned!

The Seasons of the Markets

 One of the Center’s Core investment beliefs is in “Market Cycles and Risk”. Before I explain our approach, I think it’s essential to remember that just about everything is cyclical.  There’s little I’m certain of but I do know this: Nothing goes in one direction forever.  Trees don’t grow to the sky. And there are few things as dangerous for investor health as insistence on extrapolating today’s events in the future.

(Above is a sample chart of cycles with a discernible trend over time)

Our lives are full of different types of cycles.  There are those that occur naturally, like the cycle of life and those cycles that are biologically driven. There are also manmade cycles like the presidential cycle and the workweek cycle.  Ever wonder where we are in the current economic cycle or market cycle? Economic and market cycles are not quite as spherical, but they have different seasons and they do typically rotate in a circular fashion over time.

Below is a graph of the market cycle. The Pink/Purple is the fall at the top is fall, the Red is winter and the capitulation and bottoming process, Green represents the spring a thawing out of a new bull market, and Blue is the summer representing the bull market.  Luckily, in the seasons of the market, summer is usually 2-3 times longer than winter, same with contraction and expansionary periods in the economy.  

Very few people can consistently pick bottoms of markets within months and even fewer can pick market tops with any accuracy. Some of the best investment strategists make predictions that are years off the mark. But understanding the season is something that we try to do at the Center.  In our approach, we attempt to manage the exposure to equities during the late fall and early winter as some inevitable downturns can get very difficult for investors.  However, we also attempt to get back to normal allocations in the late winter and early spring.  We call this rebalancing and tactical asset allocation of a portfolio.  Adding to underweighted asset classes can be emotionally difficult for most investors to do during the winter and spring season when it seems like things in the world are falling apart. 

Most people would guess that we are currently in the summer or fall of the current economic cycle.  That’s when investors are comfortable, more at ease with a sense of relief and even optimism and excitement can prevail.  However, this cycle will end and again we will find ourselves with a different season where markets are uncomfortable and statements are not as cheery.   Another winter will be looking us in the face again.   Try to remember what was going on both internally (your stomach) and externally (the newspaper, fundamentals and technical indicators) in the last trough and it can help with the next one.  Because it’s in the winter that opportunity exists, you just have to remember it doesn’t always feel like opportunity. 

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The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning and not necessarily those of RJFS or Raymond James.  Investing involves risk and investors may incur a profit or a loss.  Past performance may not be indicative of future results.

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Heard Around the Thanksgiving Day Table

 

 Thanksgiving Day Traditions

Thanksgiving day memories make me smile in gratitude for all of the blessings I have in my life.  The tradition of gathering together to share a meal, stories, laughter, love and the good natured rivalry over football games seemingly coming to life out of the TV are all part of the experience. 

Every year when mom says, “Time to eat!” we all know what comes next . . . . . you can see the pride and joy in mom’s eyes when she asks all of us to hold hands around the table so she can take it all in and say out loud how much it means to share the day together. Laurie Renchik 

I am thankful for adoption and marriage!  I’m living my happily ever after with the three loves of my life. Kimberly Wyman

Thanksgiving frames family memories from times gone by and challenges me to make the lasting special memories for my family today.  I think of North Texas Novembers and large family gatherings as I was growing up. There was the annual family picture on my grandmother’s front porch, sneaking a seat at the adult table (always closest to the mashed potatoes), syrupy, delicious pecan pie, and always Dallas Cowboys Football after a big meal.

This year, the Detroit Lions will take priority over the Cowboys.  My scenery has changed from dusty open Texas ranges to a quaint northern Michigan village sharing the day with my husband and our family. I will always be grateful for the special memories that keep me close to family near and far, here and gone, and savor the opportunity to continue to experience priceless moments entwined with a truly American holiday. Melissa Joy

I am thankful for both of my families…my personal family and my Center family.  I cannot imagine being able to do the work that I love or being able to pursue my passion for financial gerontology without the support of both of my families. I am thankful for and truly cherish my relationships with my husband, children and parents, as well as my co-workers and clients.  I wish everyone a Happy Thanksgiving! Sandy Adams

Year End Tax Planning: Capital Gains -- Good or Bad?

 The holiday season is the perfect antidote to the sadness of yet another beautiful fall ending.  Once the last leaves have fallen off of the trees and the smell of them burning in our fire pits has wafted away, it is promptly replaced with good food, family and the smell of something baking in my oven.  The holiday season is an exciting time of the year with many of us frantically buying Christmas presents, and some even planning New Year’s celebrations.   However, in the middle of the holiday hustle and bustle, it is important to stop and put your taxpayer hat on.

Typically from mid-November to the end of the year investment companies must pay out their capital gains distributions.  As you can see from the chart below, the majority of firms tend to distribute in December.

If you own mutual funds in a taxable account and the distributions are anticipated to be large, you should weigh the advantages and disadvantages of owning the investment and incurring the capital gain.  By incurring the capital gain you are increasing your basis in the investment.  This year is a unique year with the complications of the fiscal cliff.  It may be a good time to incur those gains this year to have fewer in coming years!   You will want to consult with your tax advisor and financial planner to determine this for yourself.

Many companies will release estimates in October and November as a service to their shareholders, but not all do.  You can typically find these by checking the company’s website.  So take some time out from all the shopping mall traffic this holiday season and talk to your financial planner today!

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.