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May 16, 2008

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Umm...how much money would he make if you have him invest all of it? Maybe that's why he's pushing so hard for you to invest all of it. If you don't feel comfortable with the strategy he is suggesting, then I say go with your gut.

I'd invest it in a writing skills education. ;)

I'm certainly no expert but I have counseled my wife, if she were to become a widow, to take the life insurance money and invest the bulk of it in Vanguard. 500k will get you expert advice at Vanguard and they can set up a plan for you. Their fees are reasonable, 1% of assets annually. For that you get ongoing financial planning advice. They can set up a portfolio that will provide a combination of income and growth to help you pay your bills, save for retirement and put money away for your kids, should they need it for college. They can advise you on what to do with the 85k each child will eventually receive.

I strongly recommend Vanguard over your local insurance agent. They are a very reputable company. Go to Vanguard.com.

Good luck and you have my sincere sympathy.

ps. Also talk with an attorney that specializes in estate planning.

I like the idea of using the proceeds to pay off all your debt - investment is nice, but what's the point of investing at 6-10% profit per year if you're paying 6-10% on a home loan, or 18% on a credit card? The interest accruing on your home and any other debt will offset your investment gains.

Pay off the debt, and if you feel comfortable, invest the rest. You'll have a lot of your regular income freed up by not spending money on a mortgage each month, which will allow you to invest even more over the long run.

I think your plan sounds really good.

I agree with Trent. Pay off all your debt first, and then worry about investing. And tell the insurance guy to take a hike.

rwh,

What's the point of investing while debt is dragging you down? I agree that investment is wise, but I think it should be very limited until all debt is paid off...do you disagree?

First, two questions you must ask yourself. 1. Can you afford the mortgage payments and all other bills with just your income? 2. Have you ever had a lot of money toi spend?

Many people who get large amounts of money don't know how to manage it. I like your thinking, pay off the mortgage, invest a sizeable amount of the balance for your retirement and keep a little bit in a slush fund.

You obviously have reservations about the insurance agancy. Follow your instincts. Do not give him control of your money. He thinks you are vulnerable (which you are) and he sounds like he will take advantage.

Please accept my condolences to you and your children for the loss of your husband and father.

I'm sorry for your husbandss premature departing. Slow down! Don't rush into anything. If you advisor is pushing you to do anything. Go somewhere else. Obviously pay off consumer debt. There's no rush on paying the mortage. but you can certainly expedite the payments.. Again slow down... no one should be telling you what to do. They should at least be persuading you, but you need to gain more knowledge on money and for you to make real decisions. This is alot of money and will change your life drastically, so there is no rush into anything...

You advisor is just seeing you as their cash cow.

I wouldn't rush into paying off the mortgage, depending on the interest rate and if you plan to stay in the home, it very likely may not be the best move. The first steps would be to pay off any credit card debt, car loans, and setup an emergency fund in a savings account or money market accout that would allow quick access to funds if you should lose your job or have other problems. Contact a representative at Vanguard.com before you do anything with the money. They offer low cost funds and have services that can help you. Their website has tons of easy to understand information.

Trent:

I recommended investing with Vanguard because the amount she mentioned is well above the 250k threshold for their investment management service. They will recommend to her the best way to manage her money, which includes advice on paying down debt vs. investment for various objectives. She will get the full package of advice on how to manage her money.

STOP!!! First of all, you don't need to do anything right now except cry and honor your husband's memory. The insurance guy is going to stick you in an annuity that has crappy rates and high surrender fees, along with nice commissions for him. Here's what I would do:

1) Sounds like Social Security will cover his lost income right now, and for awhile until the kids turn 18. Unless you need some to replace his income, I would not recommend setting up an income stream.
2) Drop it all into a money market account right now and take another three to six months to assess your situation and clear your head so you can make rational decisions. Right now you're still too close to the event and may make a decision based on emotion rather than logical, clear thinking.
3) Taking possession of the check is OK. It is not taxable income, so you don't need to worry about sheltering it or anything.
4) Make sure you have life insurance and a will in place to take care of your children.
5) If you do have expenses related to his death (medical, burial, etc) that you need to address now, it's also OK to take a little of the money and clean up those things.
6) If you have other consumer debt (credit cards, student loans, cars, etc), knock those out next, then vow never to borrow again.
7) Next, set aside six months worth of your expenses in an emergency fund (OK to be in a money market account) and only touch it for real emergencies.
8) Fully fund college for your kids if the 85K in the UTMA's isn't enough.
9) Then and only then consider paying off the house, if you decide you're going to stay there.
10) Get rich on the rest - if you can get 12% growth on $200K of this, then in 10 years that account alone will grow to over $660K before taxes.

Couple of rules of thumb:

a) Don't let someone else be in charge of your destiny - you retain control throughout the whole process.
b) Don't invest in anything unless you understand it 100%.

Vanguard is also where I have my money, and they are a great company. This is a very large sum of money, however, so I would explore my options with an investment professional. To find one with the heart of a teacher, go to http://www.daveramsey.com, click on Endorsed Local Providers, and find an investment professional in your area.

Best of luck to you!

If you have any CC debt or other non mortgage debt. Pay that off, unless its at 0% for some period of time, then before the rate changes pay it off.

Pay off the mortgage and be free from that debt. Some people may talk about how you get to write off the interest and whatever, but at most its 25% of the interest you pay that you get in tax savings.

I would keep a year worth of expenses (Will be a lot less without a mortgage) in easily accessible emergency fund getting at lest 3%. I think ING and what not have them.

Stash some more money away for some family trips and kids college, maybe private high school.

Then stash the rest away into/for retirement. Fund your 401k/roth. And put the rest in vanguard or other similar low expense market index fund. Maybe like 80% s&p500 tracker and 20% international.

Agree! Kick the insurance guy out! Access your situation and make sure you understand every little detail before investing anything. Financial people can be crooks too so watch out and don’t let anyone scare you. Take your time and do not be in a hurry. Check with your insurance to see if the check is tax free.

Remember, if you pay off your house debt. You are already gaining that interest back instead of paying it to the bank.

Dk, I posed the same question to rwh, and I'll pose it to you:

Let's say her Mortgage is at a reasonable 6% interest rate. Let's say Vanguard's investments earn 10% a year on her money. That 6% paid to the mortgage is decreasing her net worth as the 10% earning Vanguard investment increases it - assuming that basically the same amount is invested that is tied up in the mortgage, she's only gaining 4%. What's the point in that?

My comment is based on the assumption that building net worth is the goal - paying off the house results in a nice valuable asset that will appreciate a lot more than it depreciates (especially after the current downturn ends).

Plus paying off the house frees up the money that was previously used for a Mortgage payment, so it can now be invested, used for fun, etc.

Take a lump sum and do the following:
1) Pay off all consumer debt if any
2) Set aside $10,000-$15,000 for an emergency fund
3) Think about any upcoming purchases you will need to make and set aside some money to pay cash for those (is your car about ready to die? will you be needing a new water heater, dryer, in the next few years?)
4) Pay off the mortgage. People will argue that you shouldn't do this but they probably don't have the lump sum that you do. If anything happens to you, you won't have to worry about losing your home, and your monthy budget will have so much extra room.
5) You will have ~$250k left. I would put it into an index fund for the future - some in your retirement and some in after tax accounts. You can consult a professional if you want, but make sure its someone you trust. I would tell the insurance agent to get lost.

Don't listen to "George" below encouraging you to invest in writing skills. He probably needs to invest in viagra. I'd ask around and look at all of your options.

"George" ABOVE! Posted 11:21am 5.16.08

Trent:

The point of my comment is to let a professional, low cost, highly reputable company set up a plan for her and then manage her assets. They may very well tell her to pay off her mortgage. They may tell her not to. But in the end, I'm very confident the plan they devise for her will be a very good one that will provide her with the most return for her money in the long run.

Nothing personal, but why should she listen anonymous advice instead of getting advice from a very reputable company such as Vanguard?

rwh,

I understand where you're coming from. And I take no offense at your question about "anonymous advice". Plenty of people have made bad decisions at the behest of "internet geniuses".

The value of my anonymous advice is that it makes perfect financial sense. We know getting out of debt is a good thing, because you're not paying interest. So why not get out of all your debt? We know that investment is a good thing. So why not invest after you're out of debt to benefit from compounding interest?

There are plenty of financial experts who echo the same basics I'm spouting here.

To turn the question around (no offense intended) - why should she pay a fee to hear the opinions of a commission-driven "financial adviser" instead of following own financial common sense? Especially when that common sense seems pretty spot-on?

I am truly sorry for your loss. I don't know your total situation but here's what I would suggest on the information I know.
1. Build a slush (emergency) fund of 6 months to 1 year of expenses.
2. Make sure you proper insurance (life, disability, umbrella, etc.) If I were the sole provider, I would want to ensure that my life is insured to the fullest in the event I am injured or no longer there for my kids. This may take a different insurance agent because for life insurance, I would suggest mostly whole life instead of term. You can use a whole life policy to become your own bank and not depend on only a "monthly allowance".
3. If you don't know what to invest in, invest in yourself. Getting this windfall of money can be equated to someone getting a lump sum from a lottery. And history has shown that within 2-3 years, these people have lost everything, mainly because of poor financial decisions. So, invest in learning how to become an investor. Learn how money works.

Best of luck.

Be very careful, as an insurence agent myself, you need to make sure you get what you want, and or need. Talk to a third party, perhaps your account to get some idea's of how to accomplish your goals. Never depend on one source. Look at the picture from all angles. Is what you want really the best long term goal? The answer for you is not a quick thing, you need to really spend time talking it out and analyzing it from different perspectives, to the best of your ability to see various outcomes.

I would just like to congratulate you in correct planning so that the only question you are asking yourself is "what should i do with this money" instead of not having enough. And i am sorry for your loss. Good luck with your future financial planning!

An insurance agent does not likely have the training for this kind of investing. I have a insurance agent friend who helped a client in a similar situation. Both of them are still my friends. In the mind of the insurance agent, he totally paid her off. She was not satisfied with the kind of payment that he made.

Trent:

In keeping with no offense intended:)

You ask why she should pay a fee for a "commission-driven financial advisor". They take 1% of the total asset value. They have an incentive to grow the account balance because as the balance grows so will their cut. And no doubt they will recommend investing in Vanguard funds, which have very low expenses.

You may think your advise makes "perfect financial sense" to you, but it may not be appropriate for others. Paying off the mortgage is part of the total picture of diversification. If a person can do this as well as maintaining a diversified portfolio it makes sense. If paying off the mortgage skews the asset mix too far toward illiquidity (is that a word??) then it is not the right thing to do.

She's going to need current income as well as growth for future needs.

I'll stick with my originial advice of taking her situation to a reputable outfit such as Vanguard. They have the expertise to see the big picture and help her properly manage her money over time, making the appropriate changes as her situation evolves. The fees she will pay are well worth the money.

1) Slow down. Pick up the check and deposit it into a money market account earning interest for the time being.

2) Fire the insurance agent - if he is being pushy, that is a huge warning sign. It sounds like you realize this and just want confirmation.

3) Ask around of friends, colleagues, etc and find a reputable financial advisor or CPA that will help you manage the money, set goals, etc.

4) Your plan of paying off debt sounds solid to me, but the financial people may be able to show you something you hadn't thought of before.

Well, my dad died 5 years ago at the age of 52, and if anyone (insurance agent, financial advisor, etc.) had tried to bully my mom (46) at that time, I'd have kicked his a**. As a stay-at-home mom, she just wasn't equipped to make the financial decisions that had to be made and, on top of that, was going through a terrible grieving process.

This woman needs to find an advisor that will be compassionate and professional. My mom still doesn't have a clue what all of her investments are, but her financial advisor is a wonderful person who is looking out for her best financial interests and meets with her regularly to explain things in terms she can grasp.

For what it's worth, my mom did pay off her mortgage with part of the life insurance money and hasn't regretted it. Having one less bill a month to think about was the right decision for her.

I'd think twice before paying off your mortgage. Your money could be more productive in a safe, liquid, interest earning account. You'll have the tax savings and the money will be in your control, not the bank's. And equity has not rate of return.

That assumes the market keeps going up at that rate. This is clearly not guaranteed and comes with a lot of personal turmoil. Paying of a mortgage is a guaranteed return and brings a lot of personal peace with it for most people.

You do still have to deal with taxes and such, but these should be much smaller, even if they rise in the coming years.

I applaud taking control of your money, getting rid of the insurance agent, and getting rid of consumer debt.

That done, seriously consider paying off the mortgage. You could then invest on a month-to-month basis the majority of what would have been your mortgage payment. Maybe you do this by raising your 401(k) contribution to the max or by setting up another retirement account. Either way, this allows you to balance your investment so you aren't investing everything at one time especially in this volatile market.

My two cents. I'm sorry for your loss. Take care of yourself and your children. Nobody can do a better job of that than you!

If you make it this far down the comments, let me just say that I'm very sorry for your loss. This must be a very difficult time for you. I'd like to echo what others have said, that if your instinct is telling you to avoid the insurance agent, you should absolutely not do anything with him.

Understood rwh, I certainly see where you're coming from, and can respect your advice. My question about "why hire a salesperson to handle your money" was mostly a devil's advocate question in response to your own.

There's not just one way for her to succeed here, and your method makes sense in its own way.

sow,

There are several good reasons being mentioned here for not paying off the mortgage, but, respectfully, I don't think your suggestions are among them:

--"I'd think twice before paying off your mortgage. Your money could be more productive in a safe, liquid, interest earning account..."--

What type of interest earning account? A money market? You're talking about liquidity, so I assume that's what you mean. what's the purpose of making 3% (my ING rate, one of the best currently) while you're paying 6-10% in interest on the house? You're losing money. Interest is working more against you than for you.

--"You'll have the tax savings"--

Tax savings? You can write off 25% of the interest you paid on your mortgage. If you pay $10,000 a year in interest, and write off $2500, you've still lost $7500 to interest. Why pay that $7500 to save $2500? You can just pay no interest instead. That's four times the savings.

--"...the money will be in your control, not the bank's."--

If you own your house free and clear, the bank has nothing to do with it. It's yours, unlike when you do have a mortgage, and the bank owns part or most of it.

"...And equity has not rate of return."

You're kidding, right? The last year or two notwithstanding, home values RISE. Historically, owning real estate is one of the greatest investments that you can make. Not to mention in owning your house free and clear, you're not paying interest to the bank. Paying interest is the same thing as a "negative rate of return".


I don't mean to attack, I just disagree respectfully, and wholeheartedly :)

First off, let me extend my condolences regarding your loss. It's never an easy thing, and I feel for you.

However, if your insurance agent is trying to pressure you into reinvesting right now, drop him. I'd tend to agree w/Paul that it sounds like he's going to set you up with an annuity that will get him a decent commission, and fees, and isn't really the best for you and your family right now. He's trying to get you to do it now, while your grieving, and will more likely make an emotional decision instead of a factual one.

I'd also take the stance that you should put the money into an MMA or high-yield savings account for the next few months since it doesn't sound like you'll be needing anything immediately. Then once you have had time to grieve, and are ready to make plans and move forward, contact a fee only financial adviser (these people charge a per project or hourly rate, and don't receive commissions from the products they sell, so you won't have to second guess on whether they're selling you something to make money). Two great resources to find a qualified planner in your are are:
The National Association of Personal Financial Advisers
or
The Garret Planning Network

Doesn't look like my links worked:

NAPFA website - http://napfa.org

Garrett Planning Network webisite - http://garrettplanningnetwork.com/pages/splash/index.htm

I'm so sorry for your loss. I was almost exactly in your position at age 38 with three children (ages 5,10, and 13) when my husband died at age 40.

What I did:

1) Put all life insurance proceeds in CD's & money markets for one year.

2) Educated myself about investments.

3) Paid off my mortgage and all other debts (which were very small)

4) Worked with a financial advisor and invested in mutual funds.

5) Several years later, after much study, started buying invididual stocks and bonds.

Do not buy an annuity or let an insurance agent or anyone else push you into something you do not understand. Right now, you are grieving and under great stress. Your children need you

Do what is right for you when the time is right.

Definitely get to a financial advisor/CPA as soon as possible (a reputable one - ask friends, the estate attorney, family, etc. for recommendations). Ideally, this would be done BEFORE picking up the check. DON'T DEPOSIT IT UNTIL YOU SPEAK WITH SOMEONE. How you initially deposit the money can have tax consequences and you should get advisement before you do so.

Definitely get to a financial advisor/CPA as soon as possible (a reputable one - ask friends, the estate attorney, family, etc. for recommendations). Ideally, this would be done BEFORE picking up the check. DON'T DEPOSIT IT UNTIL YOU SPEAK WITH SOMEONE. How you initially deposit the money can have tax consequences and you should get advisement before you do so.

Definitely get to a financial advisor/CPA as soon as possible (a reputable one - ask friends, the estate attorney, family, etc. for recommendations). Ideally, this would be done BEFORE picking up the check. DON'T DEPOSIT IT UNTIL YOU SPEAK WITH SOMEONE. How you initially deposit the money can have tax consequences and you should get advisement before you do so.

Above all, definitely do not go with the insurance agent who is pressuring you to invest in annuities. Even if after talking to a fee-only financial adviser you were to decide annuities are the way to go, you would need to shop that around.

Scott Burns has some advice on selecting an adviser:

http://assetbuilder.com/blogs/scott_burns/archive/2008/01/02/selecting-an-adviser.aspx
http://assetbuilder.com/blogs/scott_burns/archive/2007/10/19/how-much-do-you-pay-for-financial-services.aspx

Trent D.,
It's all good. Let me share from a different perspective.
1. What type of interest earning account? - I'll even throw out "interest earning". What's the difference between having all your money in your house and having that same amount of money in a jar buried in your yard. The money in the jar is more liquid and safe. Oh but then you have a mortgage...
2. Tax savings - Yes, you would save on tax if you paid off your home. But, you still have to come up with that money. Your savings on interest has an opportunity cost...the interest that you could have earned on that equity in the house.
3. Control - When money is in your hands, you have the control. Let's say that you own your house. How can you get the money? You'll have to either sell or take out an equity loan/line. Well, what if you can't pay that loan back (disabled/unemployed)? Banks won't lend it to you because they lend on the account that you can pay. Ok, what if they give you the loan? Now, you're paying interest on your own money...to the bank! The banks love this.
4. And equity has not rate of return - Sorry, not kidding. Homes appreciate...they don't have a rate of return. Let's use an example. Let's say Person A and B have the same kind of home and they cost $100,000 each. A has $90,000 in equity while B has only $10,000 and $80,000 in an account earning interest. The houses appreciate 10%. How much are the houses? They BOTH are $110,000 because equity has no rate of return. But who was in a better position? A earned $10,0000 locking up $90,000 while person B only locked up $10,000...plus the he's earning interest on $80,000.

a similar situation happened to my mom after my dad died in a car accident. she was pressured into placing some of the money in what turned out to be a very low return account, which she could only access after 5 years. Luckily she placed the rest of the money with a very good broker who invested it well for her - but she lost out on the much higher returns she could have gotten if she hadn't been pressured into putting the money into the first account.

So my advice is stop and wait, shop around for a good investment advisor, and definitely fire this fellow who seems to be pressuring her unnecessarily. there is no rush - put the money in the bank for the moment, and get it invested with the right firm with a well diversified portfolio when you find them.

--"A earned $10,0000 locking up $90,000 while person B only locked up $10,000...plus the he's earning interest on $80,000"--

I understand what you're saying here, but you're ignoring that the person who is "earning interest on $80,000" is also paying a mortgage every month, tying up all that money that could be invested, earning money. The person who paid off the house has no mortgage payment and therefore no interest working against them. I'd rather be the guy with the paid off house and more flexibility in my budget.

--"What's the difference between having all your money in your house and having that same amount of money in a jar buried in your yard. The money in the jar is more liquid and safe..."--

Being free from debt is being free from a financial and mental burden. If you're adequately insured, the value stored up in your home is not at risk. The money in the jar is at far more risk, as is $230,000 (if it's in one bank) - FDIC insurance would only cover $100,000 of that in case of bank failure.

--"Tax savings - Yes, you would save on tax if you paid off your home. But, you still have to come up with that money. Your savings on interest has an opportunity cost...the interest that you could have earned on that equity in the house."--

She has $500,000. Her mortgage is $230,000. She has the money.

You may be able to earn interest on that $230,000 that's still in cash, but you're PAYING interest on the mortgage, offsetting any investment gains.


All good tips, but the first thing to do...

Please, please, please get your estate planning in order.

Up your Life Insurance, get your will in order, and get Power of Attorney in place, someone to take the kids, etc. in place before anything. This is by far the very best thing you can do for them, no matter how much you'll save on interest on your mortgage.

Trent D.,
- Paying a mortgage every month - Ok. back to the example. Let's say the mortgage payment is $1000, A owns the home. B has to pay the mortgage...but his $80,000 is earning a measly 3% interest. So, $1000 at 3% int versus $80,000 at 3% int...plus a tax deduction! Which do you like? And it's safe and liquid to B.
- Being free from debt - There's good debt and bad debt. Good debt puts money in your pocket (what banks and the rich do) and bad debt takes money out. Banks go into debt (pay us interest) to generate more wealth (people pay them interest using our money). Be the bank. And you don't have to put all that $ in 1 bank. You could put it into several or a whole life insurance policy.
- If you're adequately insured, no risk - Again, how do you get that money if your unemployed, disabled, or in an emergency? Also, there is no insurance to the value dropping.
- She has the money - Your house is one of the riskiest places to put it. Let's take my example to the other extreme. Let's say both houses drop to the value of $0 (not so uncommon that house values drop these days). Who's in a worse position? A owned his home and lost all the $. B's value dropped too but still has 80,000 working for him.

OK first things first... Never EVER take financial advice from an insurance salesmen. They are SALESMEN and are not looking out for your best interest. He wants to sell you products that are going to have horrible rates of return and anyone getting a commission on the advice they are giving you are not a true advisor.

Second thing is that you just went through a fairly tough emotional crisis in the losing of your husband I don't care how sudden or not it is still hard. You need to put the money into a money market account and sit on it for 6 months. This will allow you to get your head on straight and figure out where you need to go next.

After that I would go ahead and write a check to pay off your house. You will be debt free at this point and then I would put about $15k in a money market as an emergency fund and then the remaining $255k in an investment account. I would suggest good growth stock mutual funds that have a 5 year or more track record and yield 10% or more on average. This will give you a good income of about 30k a year and with no house payment and your own income it will give you steady money for the future.

Oh and did I mention NEVER TAKE ADVISE FROM A SALESMAN!?!?!?!

Did I make myself clear? :-)

I'm not the most financially astute person, but I think you should pay off the mortgage, if that will help you sleep/feel better.

I'm sorry for your loss. Your family has suffered a terrible blow.

It sounds as though, financially, you have options. It also sounds like you feel your agent is not listening to you and talking down to you. If that is how you feel, fire him. It is your money. Let advisors advise all they want. No one but you decides how the money is to be spent.

Do you have to make a decision right away? NO! Do you have to decide what to do with all the money at the same time? NO!

From what you write it seems you have enough income from your job and SSI to cover your bills. If that's the case, take time to grieve and decide what priorities are important to you. Will you sleep easier knowing that, no matter what, the house is paid for and your family will have some place to live? Perhaps ... I know I would. Still, it's your decision and no one else's.

Someone who bullies, pressures, talks down, or intimidates seems more likely interested in his own agenda than yours. There are lots of financial counselors in the world.

For myself, I would go to www.daveramsey.com and search for the closest ELP (Endorsed Local Provider) in the area. After meeting with the ELP, compare the way you feel treated with how you feel treated by your agent. Was it a better or worse fit? If you didn't hit it off, try another advisor ... there are tons. Best wishes on your journey.

Sorry for your loss, I agree with most of the other posters that you need to put it away before you do anything with it. Have a clear idea what you want to do before you invest or pay off the mortgage.Putting your money into a money market account for a couple months sounds reasonable. The most important thing is DO NOT LET THAT INSURANCE MAN TELL YOU WHAT TO DO. He's probably hoping for a cut. I'd tell that man off if I were you. Best of Luck.

God Bless

It might be a wiser decision if you were to take the money and invest it in a low expense index fund yourself. You need to find out how much the insurance agent is going to make if you let him invest it. Investing it yourself is a better option I think.

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