What should my MIL do with this money to ensure a steady retirement?
July 24, 2013 7:09 AM Subscribe
After the untimely death of my soon-to-be-father-in-law, my future mother-in-law is expecting to receive a fairly large life insurance pay out. What should she do with this money to ensure a comfortable retirement without her husband?
My FIL recently passed away suddenly, although not entirely unexpectedly, as he was diagnosed with a terminal condition, but which advanced far more rapidly than predicted. My MIL is just beginning to pick up the pieces, and the major piece is a $250k life insurance policy. While I am not privy to the exact details of the finances, she’s asking my fiancé and I for input, and I want to help insure she can use this money wisely when it’s paid out, especially as there are already sharks in the water in the form of at least two dubious “financial advisors” already trying to bend her ear, one who had the nerve to appear at the visitation.
They already had some significant assets, but she is understandably worried about income in retirement. She now owns the house free and clear, but it is older and needs some work (minor flooring, major kitchen and windows) and has a high property tax bill. She also owns ½ of a 4-unit rental building and a duplex, co-owned with a surviving uncle. The rental properties were not well-run for maximum income, and currently have at least 1 nonpaying tenant and an 1 unit occupied by the uncle.
She plans to teach for another year before retiring on a reduced teacher’s pension (many years break as a homemaker with children), and should receive Social Security widow’s benefits for about $800/mo (FIL was self-employed and rarely paid the maximum in). Additionally, she has probably $500k in legacy investment accounts, mainly through a Merrill Lynch advisor, but some tied up in some kind of underperforming investment partnership through a family contact, she had been trying to get him to divest of the partnership for years.
So in sum, assets she will have to live on after retiring in the next year:
- House, mortgage free, needs some work
- ½ interest in 2 rental properties, also need some work, at least management wise. Both are in good locations and at least decent physical condition
- 1 year of salary, then teacher’s pension / SS
- ~500k in investments, as far as I know not currently generating any significant income stream
- 250k life insurance policy
My personal investment experience ends at maxing my employer contribution and buying index funds. My first idea for her was to explore purchasing an annuity for income, but after reconsidering, unless protected for inflation, that’s seems like only guaranteeing an ever reducing lifestyle. What should she do with the 250k to make the biggest impact and ensure a steady retirement?
My FIL recently passed away suddenly, although not entirely unexpectedly, as he was diagnosed with a terminal condition, but which advanced far more rapidly than predicted. My MIL is just beginning to pick up the pieces, and the major piece is a $250k life insurance policy. While I am not privy to the exact details of the finances, she’s asking my fiancé and I for input, and I want to help insure she can use this money wisely when it’s paid out, especially as there are already sharks in the water in the form of at least two dubious “financial advisors” already trying to bend her ear, one who had the nerve to appear at the visitation.
They already had some significant assets, but she is understandably worried about income in retirement. She now owns the house free and clear, but it is older and needs some work (minor flooring, major kitchen and windows) and has a high property tax bill. She also owns ½ of a 4-unit rental building and a duplex, co-owned with a surviving uncle. The rental properties were not well-run for maximum income, and currently have at least 1 nonpaying tenant and an 1 unit occupied by the uncle.
She plans to teach for another year before retiring on a reduced teacher’s pension (many years break as a homemaker with children), and should receive Social Security widow’s benefits for about $800/mo (FIL was self-employed and rarely paid the maximum in). Additionally, she has probably $500k in legacy investment accounts, mainly through a Merrill Lynch advisor, but some tied up in some kind of underperforming investment partnership through a family contact, she had been trying to get him to divest of the partnership for years.
So in sum, assets she will have to live on after retiring in the next year:
- House, mortgage free, needs some work
- ½ interest in 2 rental properties, also need some work, at least management wise. Both are in good locations and at least decent physical condition
- 1 year of salary, then teacher’s pension / SS
- ~500k in investments, as far as I know not currently generating any significant income stream
- 250k life insurance policy
My personal investment experience ends at maxing my employer contribution and buying index funds. My first idea for her was to explore purchasing an annuity for income, but after reconsidering, unless protected for inflation, that’s seems like only guaranteeing an ever reducing lifestyle. What should she do with the 250k to make the biggest impact and ensure a steady retirement?
I don't see her age mentioned which is important. Annuities are usually poor choices because of various hidden fees, but Vanguard offers a good product. Specifically she could look into their immediate fixed annuities, which can be indexed to inflation. Actually you can speak to Vanguard reps over the phone and get pretty good advice, but definitely avoid those dubious financial advisors. Also, I'd recommend posting this over at the Bogleheads forum in the format they suggest. You will get very knowledgeable recommendations from people with no financial stake in your choices.
posted by Durin's Bane at 7:28 AM on July 24, 2013 [1 favorite]
posted by Durin's Bane at 7:28 AM on July 24, 2013 [1 favorite]
I'm very sorry to hear about your FIL.
The life insurance is not the biggest issue here -- she can put that somewhere FDIC-insured and take her time on deciding where to put that. The biggest issue here is the (much larger) chunk of her money that is currently in underperforming assets -- the 500K in the investment partnership and the apartment buildings (and it's likely a 1/2-interest in the 2 anf 4-unit apartment buildings is worth as much as the life insurance payout, or potentially quite a bit more depending on where you are located).
I would find these investments potentially troubling for several reasons:
1) From the sounds of it, they are non-diversified. (What does the investment partnership invest in? Does she even know? If it's holding, say, a handful of buildings, she's very over-invested in real estate.)
2) The investments are underperforming.
3) Family friends (the investment partnership) and family members (the apartment buildings) are involved, which will make it much more difficult to get her money out, especially if she were to need to do so quickly.
4) Even without the family ties, it sounds like these are not particularly liquid investments, and from the sounds of things, they also may not be paying much of a dividend to her.
The non-paying tenant and the uncle living in one of the units... ouch. If he manages both properties, does she know they have enough insurance on the properties? That could be catastrophic.
I think the best advice to give her is to find a well-recommended, fee-only financial planner (NOT someone who sells her products at the same time) and discuss with them the best way to work with those assets moving forward. A fee-only financial planner can also help with the life insurance money once she's ready to deal with it.
I also agree that the Bogleheads forum is a great place to ask questions like this one.
posted by pie ninja at 7:31 AM on July 24, 2013
The life insurance is not the biggest issue here -- she can put that somewhere FDIC-insured and take her time on deciding where to put that. The biggest issue here is the (much larger) chunk of her money that is currently in underperforming assets -- the 500K in the investment partnership and the apartment buildings (and it's likely a 1/2-interest in the 2 anf 4-unit apartment buildings is worth as much as the life insurance payout, or potentially quite a bit more depending on where you are located).
I would find these investments potentially troubling for several reasons:
1) From the sounds of it, they are non-diversified. (What does the investment partnership invest in? Does she even know? If it's holding, say, a handful of buildings, she's very over-invested in real estate.)
2) The investments are underperforming.
3) Family friends (the investment partnership) and family members (the apartment buildings) are involved, which will make it much more difficult to get her money out, especially if she were to need to do so quickly.
4) Even without the family ties, it sounds like these are not particularly liquid investments, and from the sounds of things, they also may not be paying much of a dividend to her.
The non-paying tenant and the uncle living in one of the units... ouch. If he manages both properties, does she know they have enough insurance on the properties? That could be catastrophic.
I think the best advice to give her is to find a well-recommended, fee-only financial planner (NOT someone who sells her products at the same time) and discuss with them the best way to work with those assets moving forward. A fee-only financial planner can also help with the life insurance money once she's ready to deal with it.
I also agree that the Bogleheads forum is a great place to ask questions like this one.
posted by pie ninja at 7:31 AM on July 24, 2013
I don't like people who answer every question about mental health with "Get therapy," and I don't like people who answer every financial question with "Get a financial advisor." But get a financial advisor! You have the perfect storm with plenty of potential for error: complicated existing financial investments, real estate investment (but only a partial ownership!), new cash, retirement decisions, potential decisions about pension and Social Security claiming, and a person who's just suffered an emotional loss, which naturally makes it harder to think calmly about the future.
You could help her by prescreening some advisors and then giving her two or three to speak with. Fee-only advisors, as others said. And make sure that they understand her goals. One option to discuss is an annuity that begins only at later ages, such as this one. The goal of the annuity should be to protect her at older ages, not at the beginning of the retirement, when she has substantial assets to rely on.
posted by Mr.Know-it-some at 7:37 AM on July 24, 2013
You could help her by prescreening some advisors and then giving her two or three to speak with. Fee-only advisors, as others said. And make sure that they understand her goals. One option to discuss is an annuity that begins only at later ages, such as this one. The goal of the annuity should be to protect her at older ages, not at the beginning of the retirement, when she has substantial assets to rely on.
posted by Mr.Know-it-some at 7:37 AM on July 24, 2013
I came here to say basically what pie ninja said, with the addendum that you and your MIL should work to identify an attorney with extensive real estate experience to represent her in any eventual sale of the properties or divestment from the partnership entirely. This attorney should also be tasked initially with researching her property tax bill and finding out whether the assessment of the property conforms with current standards; it is not unusual in many counties for property valuations to be wildly inconsistent across review cycles.
It would also not hurt to identify a well-regarded insurance broker to review and advise on coverage levels for the partnership's properties as well as the home your MIL owns outright. Consider also whether a life insurance policy for your mother in law is a good idea (the answer is almost certainly "yes", but the specifics will take research and discussion and probably some uncomfortably frank moments).
posted by Inspector.Gadget at 7:41 AM on July 24, 2013
It would also not hurt to identify a well-regarded insurance broker to review and advise on coverage levels for the partnership's properties as well as the home your MIL owns outright. Consider also whether a life insurance policy for your mother in law is a good idea (the answer is almost certainly "yes", but the specifics will take research and discussion and probably some uncomfortably frank moments).
posted by Inspector.Gadget at 7:41 AM on July 24, 2013
Also, don't lose sight in all this of the purpose of putting in all this work (to say nothing of the work your FIL and MIL did in their working lives): Is your MIL happy in that house, happy owning property with the surviving uncle? Is she close to friends, entertainment, good medical care, and conveniences? Maybe the best thing to do before taking any other action is to sit down with your MIL and ask her what she would like to with the free time she will enjoy in the near future.
posted by Inspector.Gadget at 7:44 AM on July 24, 2013 [6 favorites]
posted by Inspector.Gadget at 7:44 AM on July 24, 2013 [6 favorites]
Her whole portfolio needs to be taken care of, but waiting a few months on that won't hurt anything.
Doing this sort of thing requires that one is out of the greiving process and on firm ground and now is not the time.
Park everything as safely as possible and re-visit next year.
No big financial decision should be made right after a huge life event like the death of a long-term partner.
posted by Ruthless Bunny at 10:01 AM on July 24, 2013 [1 favorite]
Doing this sort of thing requires that one is out of the greiving process and on firm ground and now is not the time.
Park everything as safely as possible and re-visit next year.
No big financial decision should be made right after a huge life event like the death of a long-term partner.
posted by Ruthless Bunny at 10:01 AM on July 24, 2013 [1 favorite]
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Among other things, she may need to looking at reducing fees on that $500k chunk.
posted by Dansaman at 7:25 AM on July 24, 2013 [1 favorite]