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Need advice on how to live off small life insurance payout

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auntiepam
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Need advice on how to live off small life insurance payout  Reply with quote  

I'm trying to help my aunt with financial advice. Her husband just passed and she'll get $100K life insurance. She will not qualify for any of his pension, social security, etc. She's only 59, not employed, and only qualifies for low paying jobs. Taking his social security at age 60 will not be enough to pay the bills and will be reduced with the additional income she'll need anyway. It's obvious that she'll have to start working, but it will not be enough to pay the mortgage & bills.

They just purchased a house on a VA loan with no money down, so there's no equity in the house. Monthly bills will run between $2600-$3000 per month. It looks like she'll have to work 40 hours, along with supplementing her income by withdrawing from the life insurance money.

She wants to stay in the house as long as she can, and then deal with renting a cheaper place when she has to. They waited all their life to buy a house, and she wants to do what she can to stay. Besides, she'd probably lose money by trying to sell it right now anyway since they only bought it 6 months ago.

What do we do with the life insurance money when it arrives this week? It looks like she'll could have to withdraw $20K-$25K per year depending on how much she'll be able to earn with a job. Someone is trying to convince her to buy an annuity, but that doesn't seem like the right choice to me since she needs so much of it right away.

Would CDs be a reasonable place to put the majority of the money? Or a money market account where we have it automatically transfer $2000 per month to help her budget? She figures she'll use the money until it runs out, and then start receiving his social security, since she knows she'll receive more if she waits longer.

Any advice on this situation?
Post Mon Aug 03, 2015 2:39 pm
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littleroc02us
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100k and a house with no equity at age 59 could be a real scary retirrement if she believes that SS will fulfill her income in retirement needs. You mentioned annuities. I'm personally not a fan of annuity's, because they are most of the time associated with large fees and commissions that the sales people get. The only type of annuity I'd look into is an Immediate Annuity. No salesman wants to push them because they have no commissions. The basics for an Immediate Annuity are you pour the 100k into one and for 20 years they disperse an income out of that. One drawback is that should you pass they keep all of the money and the heirs get none.

My biggest concern for aunt financially speaking is this house she cannot afford with a VA loan and no money down. Because of this and a low paying job, she's house poor and that can quickly drain resources of ones income. The option I would choose is if she is unable to make more income at age 59, then I'd sooner sell the home and make nothing, then to continually make interest payments on the mortgage. Find something less expensive and I'd work for another 11 years stocking away retirement money so that when she's 70, she could have plenty to live on.
As for the 100k mentioned in your post, if the Annuity isn't something you'd consider, then why not take 50k of that and put it into an index fund with a company like Vanguard account that tracks the market and has averaged 11%. Take the other 50k and put into something safe like a money market fund.
If over the next 11 working years, should the market continue to return 11% that 50k would be worth 157k. Plus she'd have another 50k in a safe account.
If she doesn't have the stomach for the market, then your only option is the annuity or a savings account at this point so that losses aren't an issue.

Good luck and I think selling the home is of biggest concern to me.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Aug 03, 2015 4:06 pm
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oldguy
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quote:
Any advice on this situation?


To just burn thru $100,000 in 4 or 5 years and then be flat-broke and be forced to move?? That sounds like a terrible plan.

As for the annuity idea - keep her away from that "someone", they are not working in your aunt's best interests. The life insurance company wants to hang on to that $100,000 (the annuity) and her bank wants to get that $100,000 into their portfolio.

She should sell the house soon (take whatever loss is required while she still has the money to handle it) and move to an apt.
Then bank the money in a savings account, and see how things go for a couple years. Without the house, maybe the SS check next year and whatever salary she is able to earn will cover her costs. The big issue is to get rid of that house before it burns thru the $100,000 and leaves her broke.
BTW, you might be surprised when the house goes on the market, prices have jumped over much of the country, she might actually make money.
Post Mon Aug 03, 2015 4:33 pm
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