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A safe place for money

Chris Farrell Mar 20, 2009

Question: My Dad, 68, is dying of cancer and recently entered Hospice. He has a life insurance policy in the amount of $500,000. This is money my mom, 68, would be living on along with Social Security. Her house and car are paid for and she has very little debt. Her Insurance Agent, who sold her the policy, is suggesting she place the money in a 10-year annuity. That she doesn’t want to do.

She would like to place it somewhere she can live off the interest and hopefully not draw down the principal. If need be, she could access some for special items…if she were to buy a new car in the future, etc. She also mentioned she would prefer to handle this herself, not going through a broker.

A few questions… Should she manage this herself or work with a broker? Where can she put the funds that will allow her to live off the interest? Any other issues we should consider or need to know when an insurance company pays out for life insurance? Thank you for your advice. Cheers, Shelly, Shelly, Cotton, MN

Answer: I’m sorry to hear about your father. There are no easy answers to your questions. That’s why my main piece of advice is to be extremely conservative with the money in the near future. I would put some of it into an FDIC insured savings account, and the rest into short-term certificates of deposit, say, 6 months to 1 year. I would simply focus on making sure that all the money comes under the $250,000 FDIC limit. With this strategy your Mom can’t lose any of the principal, although she won’t make much in interest payments. The FDIC has on its website––an easy explanation of how to accomplish this goal of principal preservation.

Then the two of you together need to figure out the best way to invest the money. You don’t need a broker for this, although I’d talk to lots of people to dig for thoughts, information, and ideas. For instance, one common low-risk low-return strategy is to create a fixed income “ladder.” She could invest the money in 3-month CDs, 6-month CDs, 1-year CDs, and 2-year CDs. The basic idea is if interest rates rise she can reinvest the short-term money at the higher interest rate and if interest rates fall she is still earning a decent yield on the longer term CDs. She could accomplish the same strategy by buying Treasury securities directly from the U.S. government at That’s just one idea. Another common strategy is to take a slice of the proceeds and put it into an immediate annuity with a blue chip life insurance company. The immediate annuity would guarantee her an income for life.

Of course, much depends on what your Mom wants to do in the coming years. What does she want to spend her money on? Other issues to talk about include how will she handle the money as she gets older? What will be your role?

Investing the money very conservatively for now gives the two of you time to think through what’s the best course of action.

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