Investing mother-in-law's life insurance proceeds

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Morse Code
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Investing mother-in-law's life insurance proceeds

Post by Morse Code »

Diehards,

My 56-year-old mother-in-law suddenly became a widow last week. She will be receiving life insurance proceeds that will not be needed for income for many years, however, she has a history of health problems.

I've never invested a lump sum in a taxable account. Obviously, a stock index fund is very tax efficient, but I anticipate the largest allocation of this money to fixed income.

Would a Vanguard variable annuity be appropriate under these circumstances? Any other suggestions?
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InvestingMom
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Post by InvestingMom »

Big qualification-I don't know a heck of alot about annuities, but I know they are complicated.

You mention that your mother in law has heath issues. Wouldn't that mean that 1) she may need the money in the near future and/or 2) that she may not live long? If so then that tells me you should not go with an annuity.

I would consider one of the Vanguard Life cycle funds and/or a combination of fixed income/bonds and one of these funds.

You don't say anything else about her financial situation and so it is difficult to give very good advice. Does she have any other income source? Does she have health insurance?
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mephistophles
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HELLO

Post by mephistophles »

I would recommend putting 100% of the money in a fixed account with FDIC guarantees and with no penalties such as C.D.'s Look for a high rate of return from a local bank, credit union or internet bank.

Keep the money here for at least one year. Hasty decisions generally should not be made shortly after death of a spouse. As time passes you both will have a clearer idea of what short term, intermediate term and long term needs are.

Just a guess, but at that age and with health problems any form of equity should probably be out of the question.

Regards,

ole meph
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White Coat Investor
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Post by White Coat Investor »

I disagree and think almost everyone will benefit from a small (10-25%)amount of equity for any investment horizon greater than 5 years.
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snowbound
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Post by snowbound »

I agree with Meph completely. No hasty decisions should be made so soon after the death of a loved one. You are often times unsure of your needs. There is money coming in from a variety of sources i.e. insurance, pension and death benefits. You may be better off gathering everything in a big bucket first then making decisions with less emotion later. This is how I did it and it worked for me.

Sorry for your loss.
"When someone you love becomes a memory, the memory becomes a treasure"
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dm200
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Based on the facts

Post by dm200 »

supplied, I do not think annuitization would be a good thing to do at this time. Wait until there is a more well-defined need for the funds, and then purchase an immediate annuity to meet such needs.

Whether equities make sense depends a great deal on her tolerance for risk. Not mine, nor yours, not other diehards - but hers. If she goes into equities and there is a loss, there is a real chance she will panic and make some other bad choices. Much better, IMO, if there is real aversion for any risk to never go into equities.

dan
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mickeyd
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Post by mickeyd »

I'm sorry for your family's loss.

I would put 100% in the Prime MMF and not touch it for at least 6 months. During that time try to assess what her needs will be in the long term and develop a well-though-out plan that will insure that the funds are well used.
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Angel
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Post by Angel »

I agree with what most of the others wrote. She should not make any major decisions for at least one year. Have her put the money in Prime Money Market Fund for now. She has too many other things to think about right now and she needs to grieve.
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Morse Code
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thank you

Post by Morse Code »

Thanks for the thoughtful advice, Diehards.

She will have health insurance and enough sources of income such that she shouldn't have to tap this money for many years. I guess the gist of my question is, "What is the most efficient way to invest in fixed income with taxable dollars to maximize returns?"
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mudfud
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Re: thank you

Post by mudfud »

Morse Code wrote:Thanks for the thoughtful advice, Diehards.

She will have health insurance and enough sources of income such that she shouldn't have to tap this money for many years. I guess the gist of my question is, "What is the most efficient way to invest in fixed income with taxable dollars to maximize returns?"
What is her federal and state income tax bracket?
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dcbonnett
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Post by dcbonnett »

Many people have NO risk tolerance. If the market moves downward, expect to hear often how well CDs are doing at the local bank.
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Morse Code
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mudfud

Post by Morse Code »

She's 15% federal, 4.3% state.
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MP173
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Post by MP173 »

I have been thru this and agree completely with the MM or similar type cash investments.

This is possibly a bit over your head (it was mine) and I sought out some help with the projected income and expense scenarios (I then had two sons ages 5 and 14) and also tax situations, etc.

While no one can accurately predict the future and budget accordingly in this type of situation, in my opinion it is good to get outside help. A complete inventory of all assets including pension, SS benefits, etc. is needed.

Best of luck in this.

ed
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mudfud
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Re: mudfud

Post by mudfud »

Morse Code wrote:She's 15% federal, 4.3% state.
Morse Code,

Thanks. Based on her tax bracket, increased costs, and decreased flexibility, a variable annuity is not worth the trouble IMHO.

I agree with others that a comprehensive assessment of her finances is needed, and until then, a MM fund is a good place for her money.

Mud
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