Newly widowed, how do I invest 1.5 million life ins. proceeds

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JoeRetire
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by JoeRetire » Mon May 21, 2018 7:16 am

aristotelian wrote:
Sun May 20, 2018 4:35 pm
I would suggest you read the free PDF essay, "If You Can" by William Bernstein. He makes a very simple case for Do-It-Yourself investing instead of going to a professional. As Bernstein says, most people with the intelligence of a 5 year old should be able to construct a simple portfolio that outperforms most professionals once you consider their fees.
Actually, Bernstein didn't say that.
He did say "Finance isn't rocket science, but you'd better understand it clearly."

The essay is good. And it's worth reading, and perhaps re-reading.

Grt2bOutdoors
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by Grt2bOutdoors » Mon May 21, 2018 7:39 am

4stars wrote:
Sun May 20, 2018 11:49 pm
Thank you all again for the advice. I see so many consistent ideas. I will pour over this over the next few months and read the recommended books. I'll answer some of the specific questions ASAP. Busy day today! One of my first tasks is to get an accurate idea of how much I really NEED to spend each month. Interestingly, after all my meetings with banks/advisors (most lasted 2+ hours), not one of them suggested cutting spending. Maybe they didn't want me to have any negative feelings, so they told me what they thought I wanted to hear. Also, the last bank I met with (BBVA Compass) IMMEDIATELY tried to sell me the "American Legacy Series B-Share Variable Annuity". She wanted me to put 700k in that. Said I really needed it because of the "guaranteed income". I instantly thought "I have a bad feeling about this", and that's when I started to research on my own. I will also focus on the other immediate issues that were suggested such as health insurance, getting clarity on my future SS benefits and the regulations/limits attached, etc. The main thing I keep hearing is don't do anything too quickly and watch out for people who have something to gain financially from their services. I will take the time needed to get this right. It is how I can honor my husband. THANK YOU ALL AGAIN for taking the time to help someone when you have nothing to benefit from it. I'm sure I will be back with more questions. :happy
I'm very sorry for your loss.
Do not place your money in a variable annuity. The advisers (salesperson) wanted you to place your money there because she would make 8% sales commission on the sale, did she disclose that to you upfront? The product is unsuitable for you, you don't need retirement savings at this juncture.
Key products to be on the lookout for: Whole Life Insurance and Variable/Fixed Deferred Annuities. You hear those words, get up and RUN!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

PhilosophyAndrew
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by PhilosophyAndrew » Mon May 21, 2018 7:52 am

OP, I am very sorry for your loss, and am pleased that you have deicided to defer all big decisions and to fill in gaps in your knowledge about investing.

As you work to educate yourself, I would avoid putting yourself in positions where you need to say no to salespeople. Although their forms may pitch those meetings as educational opportunities for you, they are not — they are opportunities for salespeople to manipulate you with the tools of their craft, potentially to your extreme financial disadvantage.

The BH site is an excellent place to find useful educational resources. Knowledge is power, and taking the time needed to empower yourself is one of the best things you can do for yourself!

Andy.

aristotelian
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by aristotelian » Mon May 21, 2018 7:53 am

JoeRetire wrote:
Mon May 21, 2018 7:16 am
aristotelian wrote:
Sun May 20, 2018 4:35 pm
I would suggest you read the free PDF essay, "If You Can" by William Bernstein. He makes a very simple case for Do-It-Yourself investing instead of going to a professional. As Bernstein says, most people with the intelligence of a 5 year old should be able to construct a simple portfolio that outperforms most professionals once you consider their fees.
Actually, Bernstein didn't say that.
He did say "Finance isn't rocket science, but you'd better understand it clearly."

The essay is good. And it's worth reading, and perhaps re-reading.
The first line is:

Would you believe me if I told you that there's an investment strategy that a seven year old could understand, will take you fifteen minutes of work per year, outperform 90 percent of finance proessionals in the long run, and make you a millionaire over time? Well, it's true, and here it is...

I was off by two years on the age of the kid, but five year olds are precocious these days. I think I got the content of it pretty good for top of the head recall.

Penguin
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by Penguin » Mon May 21, 2018 8:08 am

Please accept my condolences on your loss.
You are getting excellent advice.
There is one thing you must consider quickly. Health insurance is very expensive. Death is a qualifying event to allow you apply for insurance under the affordable care act, but only for 60 days after the death.
If you need health insurance the affordable care act may save you up to 90% of the cost if you make a timely application.
Jon

afan
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by afan » Mon May 21, 2018 8:33 am

I would not hire anyone to invest your money for you. Investing your money is so simple it would be wasteful to pay for this service. Vanguard's PAS is a good price, compared to the alternatives, but still too expensive.

If you deposit that $1.5M into a Vanguard money market fund you will qualify for a free financial plan from Vanguard. That plan will outline exactly what PAS would have done for you, and it will do it for free. It will tell you how to invest your insurance proceeds, and you can then do it yourself by simply transferring money from the money market fund.

I agree that you MIGHT need advice on non-investing financial questions like health insurance, life insurance for you, college tuition planning, etc. There are financial planners who charge hourly rates for advice, do not manage money and do not sell investment or insurance products. They have no conflicts of interest. I would not consider getting advice from any planner who had something other than advice to sell.

The Finance Buff refers to these as "advice only" planners and they are the only sort you should consider. "Fee only" includes a lot of highly conflicted practices that you can avoid by going advice only.

If you can improve your financial situation by moving that is a good idea- after giving yourself time to think about it and adjust to the changes in your life. Also consider whether you could go back to work part time to earn enough money to close the gap between what you can reliably pull from your insurance proceeds and what you think you need.

To repeat:
Do NOT hire anyone who will charge you a percent of assets to manage your money.
Do NOT hire a financial planner who will sell you stocks, mutual funds, annuities, life insurance or any other product.

If you decide you need financial help that you cannot get here, then hire an hourly rate advice only planner for ADVICE. Then go implement that advice on your own.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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CollegePrudens
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by CollegePrudens » Mon May 21, 2018 12:49 pm

4stars wrote:
Sun May 20, 2018 11:49 pm
Thank you all again for the advice.
4stars - I am sorry for your loss.

A couple of people upthread mentioned putting your money in Vanguard's prime money market fund while you recenter yourself to make decisions. I just wanted to highlight that they are referring to VMMXX (https://personal.vanguard.com/us/funds/ ... irect=true).

I concur with the recommendations others have made. As soon as you can, move your money to the above money market account so that you are earning a competitive interest rate (higher than most other money market, checking and savings accounts) while you reestablish your life.
Live as if you were to die tomorrow; learn as if you were to live forever - Gandhi

newtonc
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by newtonc » Mon May 21, 2018 1:36 pm

My condolences on your loss.

You can put it in the bank or credit union or Vanguard as some have people posted. Then after a year or two you can decide where to invest it. I trust Vanguard and they have been around and are very low cost. The 3 fund is a good idea. I would not pay anyone 1% to 1.5% to manage money that you can do yourself by coming here and reading a little.
Don't tell anyone when you receive the money~

I also think that getting a job will help you out, it will get you out of the house and give you structure and you might find it a needed break from the home front.

Best of luck to you!

newbie_Mo
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by newbie_Mo » Mon May 21, 2018 2:02 pm

Sorry for your loss. Ally bank has a no penalty cd (1.5% interest rate). You can open a few of those. Whenever you feel ready you can withdraw from your cds and invest. All the best to you and your family at this difficult time.

retiredjg
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by retiredjg » Mon May 21, 2018 2:57 pm

I'd have to say that $1.5 million dollars is a lot to have at one bank or credit union for more than a few days or weeks. I think the FDIC and NCUA limit is $250k, isn't it?

newtonc
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by newtonc » Mon May 21, 2018 3:56 pm

Good point retiredjg I had not thought that through thanks for your help.

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cockersx3
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by cockersx3 » Mon May 21, 2018 7:36 pm

4stars wrote:
Sun May 20, 2018 11:49 pm
Thank you all again for the advice. I see so many consistent ideas. I will pour over this over the next few months and read the recommended books. I'll answer some of the specific questions ASAP. Busy day today! One of my first tasks is to get an accurate idea of how much I really NEED to spend each month. Interestingly, after all my meetings with banks/advisors (most lasted 2+ hours), not one of them suggested cutting spending. Maybe they didn't want me to have any negative feelings, so they told me what they thought I wanted to hear. Also, the last bank I met with (BBVA Compass) IMMEDIATELY tried to sell me the "American Legacy Series B-Share Variable Annuity". She wanted me to put 700k in that. Said I really needed it because of the "guaranteed income". I instantly thought "I have a bad feeling about this", and that's when I started to research on my own. I will also focus on the other immediate issues that were suggested such as health insurance, getting clarity on my future SS benefits and the regulations/limits attached, etc. The main thing I keep hearing is don't do anything too quickly and watch out for people who have something to gain financially from their services. I will take the time needed to get this right. It is how I can honor my husband. THANK YOU ALL AGAIN for taking the time to help someone when you have nothing to benefit from it. I'm sure I will be back with more questions. :happy
Good call on the annuity. Unfortunately there are a lot of greedy, ignorant people out there selling financial instruments - very glad to see you not getting sucked into it all and thinking this through. So far you are doing all of the right things and asking very good questions.

One very important thing to understand is that this stuff is not nearly as complicated as it may first appear after 60+ blog posts. For what it's worth, I remember being completely bewildered by all of the (to me, anyway) conflicting advice on read on various blogs on how to financially manage the money I received in an unexpected large windfall. I was so terrified at the time, since I knew that it was a life-changing amount of money for which I desperately wanted to be a responsible steward - especially in light of the bad event that caused me to receive the windfall in the first place.

But now, a few years later? It's just a regular thing that I am aware of, but actually pay very little attention to. The Boglehead wiki advice on windfalls is 100% correct - you'll eventually get used to handling this kind of money over time. The trick is to avoid making major spending / finance decisions until you hit that point, which seems counterintuitive to one's natural instinct to DO SOMETHING but is absolutely correct. It sounds like your family was in pretty good financial shape before this event, so you're starting from a good spot.

Like I said in my earlier post, I really would just "park" the money somewhere in a safe place like a Vanguard money market account, get your other affairs in order (including the health insurance thing - that's really important), and start reading up on basic investing (using the Bogleheads' Guide to Investing, which really helped me out). When you are ready (say 6 months or so out), reach out to Vanguard PAS and have them work with you on a (free) financial plan, and then make the call on whether you manage your investments on your own or you pay PAS to do it. Either way is a reasonable call. Best of luck to you!

ncbill
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by ncbill » Tue May 22, 2018 11:11 am

retiredjg wrote:
Mon May 21, 2018 2:57 pm
I'd have to say that $1.5 million dollars is a lot to have at one bank or credit union for more than a few days or weeks. I think the FDIC and NCUA limit is $250k, isn't it?
No need to worry using this service:

https://www.insuredcashsweep.com/home/how-ics-works

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nedsaid
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by nedsaid » Tue May 22, 2018 11:45 am

retiredjg wrote:
Mon May 21, 2018 2:57 pm
I'd have to say that $1.5 million dollars is a lot to have at one bank or credit union for more than a few days or weeks. I think the FDIC and NCUA limit is $250k, isn't it?
There is a CDARS (Certificate of Deposit Registry Service) program where you can deposit the money at one bank, who will in turn invest in Certificates of Deposit at other banks. This gets you around the FDIC Insurance limit and gives you the convenience of having the recordkeeping at one bank. This is probably not available at a Credit Union.

https://www.cdars.com/
A fool and his money are good for business.

NoVa Lurker
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by NoVa Lurker » Tue May 22, 2018 12:27 pm

tc101 wrote:
Mon May 21, 2018 12:32 am
My wife died 6 months ago. It was the hardest thing I have ever experienced. I felt like I was going crazy.

I talked to several grief councilors. Read lots of books. Went to a grief support group. The one piece of advice they all agreed on was to avoid making any big decisions for 6-12 months. I was not and probably still am not in good shape to make a major decision.

I suggest you let the money sit in a money market fund for a year. In a few months start reading more about investing. In a year go ahead and invest the money.

There is no hurry. When my wife died I had the feeling I had to hurry up and make decisions. That is delusion. A very common delusion.
I am sorry to hear this as well.

This is also good advice from tc101, that has not been emphasized above, although others alluded to it.

4stars, you really don't need to rush. While having the money sitting in cash is not optimal, it is not a disaster at all. You can take your time and absorb the advice on this forum, while also focusing on the needs of your family, before making big decisions with the money. The worst thing would be to rush into an investment with a high front-end load, that you later realize is a bad investment.

This is a very good forum that can provide disinterested advice.

pesteele
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by pesteele » Tue May 22, 2018 10:31 pm

Hi and like many others have said, sorry for your loss. With the proceeds from the life insurance your spouse continues to provide for you and your kids. Bless your spouse for being so careful and thoughtful.

With $1.5m you will be eligible for Vanguard Flagship services which includes a consultation(s) with a Vanguard CFP. It's a phone consultation but it would be a good first pass at how Vanguard could develop a comprehensive plan for you going forward. Next time you interact with Vanguard ask them about this free service. You can also review the basics of Flagship services on their webpage - just search for 'Flagship' from the query box.

Best of luck to you and your family.

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onthecusp
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by onthecusp » Tue May 22, 2018 11:26 pm

So sorry about your loss.

There is much to work through and lots of good advice above. You have already sidestepped a land mine on the annuity. I second (third, fourth or fifth) Vanguard. You can post the advice they give you here for comments as well. (If somehow the free advice is not enough then the advisory service for .3% and then you can drop the for-fee advice after the first year.)

You already have your 60,000 emergency fund so that is a great start, you don't need to start withdrawing anything for a year. $5,000/month is also 60,000/year which is 4% of 1.5 million (even assuming no growth for the next year) and is a reasonable number for the first one or two years, if you need it, while you get a handle on other expenses, downsizing, and possibly entering the work force. But with 4 children, college, disability, your young age etc. I can see why much of the advice focused on getting expenses down and moving to a safer withdrawal rate.

Flexibility is important, keeping your usual withdrawals lower will likely allow you to spend a little more later when college and car replacements come around.

Cb442
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by Cb442 » Wed May 23, 2018 5:25 am

Another option, is to put the 1.5 in a Vanguard Money Market and buy a 250,000 one year brokered CD for 250,000. FDIC insured and paying about 2.25% at this time. Then wait until July, when the Fed is expected to raise rates again and purchase another 250,000 one year Cd at a higher rate. Then every three months buy another CD so the maturity dates are staggered at different times and with different banks. So still under the FDIC insured limit.

trueblueky
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by trueblueky » Wed May 23, 2018 3:17 pm

Cb442 wrote:
Wed May 23, 2018 5:25 am
Another option, is to put the 1.5 in a Vanguard Money Market and buy a 250,000 one year brokered CD for 250,000. FDIC insured and paying about 2.25% at this time. Then wait until July, when the Fed is expected to raise rates again and purchase another 250,000 one year Cd at a higher rate. Then every three months buy another CD so the maturity dates are staggered at different times and with different banks. So still under the FDIC insured limit.
Actually, that would guarantee the interest is not insured. CD should be small enough that it falls within FDIC including accrued interest. Otherwise, not the worst idea.

WhiteMaxima
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by WhiteMaxima » Wed May 23, 2018 3:42 pm

Sorry for your loss. Put 1.5 into Vanguard Balanced Admiral Fund. The AA is US/Int'l/Bond 30/30/40. Reduce your budget and withdraw from Vanguard fund to cover the gap. Assuming you take 2%, that would be $2500 month, plus your survival SS would be your monthly budget. Reduce your spending according to your income. DCA 1,5 mil into Vanguard, let's say you put a 5 year expense into a laddered CD (60 CDs, 2500x60=150k), the rest DCA into Vanguard to minimize the market risk.
Last edited by WhiteMaxima on Wed May 23, 2018 5:21 pm, edited 1 time in total.

JakeyLee
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by JakeyLee » Wed May 23, 2018 5:05 pm

I'm so sorry for your loss. You have received a lot of great advice on this thread. A 3% withdraw rate should put you in a safe enough position that you could modify during most downturns. I will echo what a few have already stated: Focus and examine your expenses. This will be the key to your success moving forward. On a side note, I assisted my mother with a very similar task 20 years ago. My father was the sole bread winner. We discovered that the household expenses went down a lot more than we calculated upon his absence. My point is that it may take a few months to really get a grasp of what your annual expenses will look like.

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ray.james
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by ray.james » Wed May 23, 2018 5:27 pm

4stars,

Some really thoughtful comments from others. I will add a few that weren't focused much

--9K per year spending will go down as kids go to college. So your real need is possibly much less post kids phase, especially with paid off home. You start with high need of money which goes down slowly.
--Have the kids take loans/aid for college. No one lends for retirement/disability.
--Health insurance(ACA ?) and your life insurance is the only thing most important to check now. Investments and others like selling house, you can learn/decide over next 6 months/1 year before you do something. They can wait. A simple CD will do until then.
--Slowly rein in spending where you can reasonably.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

bluedemon67
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Re: Newly widowed, how do I invest 1.5 million life ins. proceeds

Post by bluedemon67 » Wed May 23, 2018 6:04 pm

Very sorry for the loss of your husband. I also admire your strength and initiative to get through some difficult times.

You have received some excellent advice here which I cannot add a lot to. But I did want to emphasize what others have said about taking your time in finding a course of action that you are comfortable with.

Also I fortunately learned early on in my life to be very wary of dealing with bankers, insurance people and broker-advisors (ie, Edward Jones, Ameriprise, Morgan Stanley,etc.) and I would advise you to do the same. Most of these are polished sales people who do not have your best interest at heart. As you have seen you can get some excellent guidance here. You are on the right track.

I wish you the best.

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