Personal Finance

Life insurance claim received, how to invest?

  • Last Updated:
  • Jan 12th, 2014 3:32 pm
Tags:
None
Sr. Member
Dec 23, 2001
926 posts
125 upvotes

Life insurance claim received, how to invest?

A month and a half ago my step dad passed away which was a real mess due to not having a will etc. (details here). The one thing that has gone relatively smoothly is the receipt of the life insurance payout.

I want to help my mom make the best decision for where to invest but most of my working knowledge about personal finance is for my age bracket, not someone that much closer to retirement. The goal would be to find a vehicle to invest it not overly risky and to be accessible for retirement.

Thoughts on where I should start my research?
Heat: 159-0-0
10 replies
Deal Addict
User avatar
Dec 20, 2006
2279 posts
2192 upvotes
At minimal risks, invest all in Canadian Saving Bonds guaranteed by the fed govt. You may split into various amounts (eg 10k, 20K) so that you can withdraw when necessary at its annual maturity in order not to lose full interest. I think you lose partial interest if withrawal is done before CSB matures. Next is fixed monthly/quarterly (whatever duration) term deposits at your local banks; just make sure you spread out as CDIC insure up to $100k per account per financial institution to avoid any financial crisis like those in Portugal. These investments return low interest income. If you like more revenue, then split 75% on term deposits (safe) and 25% on other investments .. some risks (stock share, foreign currency trades , real estate).
“Ninety percent of all human wisdom is the ability to mind your own business.”
— Robert A. Heinlein
Deal Addict
Oct 21, 2012
1436 posts
498 upvotes
Toronto
I would look at getting some professional help. Finding good professional help can be difficult though.
Sr. Member
Mar 4, 2007
738 posts
734 upvotes
Halifax
Go with her and speak to a financial planner. They will know far more than us armchair financial peeps. Also, we have hardly any info on her to work with....
Sr. Member
Dec 23, 2001
926 posts
125 upvotes
Time to resurrect this thread 1) because the second amount has shown up and 2) we finally have some time to review over the holidays.
Thank you to everyone for your replies. Here is more info:
  • Change in circumstance: she has been laid off for the foreseeable future.
  • Savings: for the most part, this is the majority of her savings due to recent economic issues.
  • Debt: She is being left with a bit of debt to contend with ($<20k) as well but not much at all in personal debt. (< $4k I think, if that now).
  • She is in her early 50s. Before all this, the hope (not sure what the plan actually was) was to retire close to age 60.
  • Home: The home she’s in isn’t worth much of anything. Property is likely the only thing of value. (100k is likely being optimistic)
  • Risk Tolerance: Not very high, especially given this is the majority of her savings, she can’t really afford to lose much. I say that understanding that for any decent growth, she’ll need to take on a little risk.
  • Annual retirement needs: Good question. I would estimate 50-60k/yr, ideally.
  • She is eligible for survivor benefits and should start receiving them if she hasn’t already.
  • Payout, not counting debts that need to be taken care of and such should be between 3-400k
  • She had a pension plan but that went to smoothing the “recent economic issues” mentioned previously.
Question:
How does one determine the CPP benefit at 60-65?

“Finding good professional help can be difficult though” Agreed. Tons of people are willing to offer their advice, trick is finding advice worth listening to.
Heat: 159-0-0
Deal Expert
Jan 27, 2006
21844 posts
15619 upvotes
Vancouver, BC
One thing you should do before spending any more time thinking about what to do - deal with the outflows in money first. You can't save money if there is more money going out...

Look at the debt - Is it worth play it off completely? ie. If she is paying 5+% interest on the debt while only collecting less than 1% on her money in the bank, she is loosing 4+% every month she doesn't pay off the debt. On the other hand, if she has low interest debt (she's not loosing any money month to month), you can wait until the final plan comes together but really debt should be retired sooner rather than later.

Look at that annual retirement needs - 50 to 60k/year is a lot of money for a single person (assuming that she doesn't have any dependants). If you multiply it out for the next 30 years, will she have enough funds? Workout what she spends her money on and check if it's realistic to spend it. If not, cut back.
Deal Fanatic
User avatar
Feb 19, 2010
6237 posts
2992 upvotes
wesboag wrote: This is exactly what I am warning against. No investment plan should have Canadian savings bonds at their current rates, especially someone looking to retire or even more so, planning for it. Even if someone's risk tolerance is completely zero, there is no place for CSB's at their current rates given the available alternatives.
^This (and the one previous to it).

Anybody who recommends CSBs has no business participating in threads like this and should stop giving financial advice altogether. :facepalm:
Sr. Member
Dec 23, 2001
926 posts
125 upvotes
craftsman wrote: One thing you should do before spending any more time thinking about what to do - deal with the outflows in money first. You can't save money if there is more money going out...

Look at the debt - Is it worth play it off completely? ie. If she is paying 5+% interest on the debt while only collecting less than 1% on her money in the bank, she is loosing 4+% every month she doesn't pay off the debt. On the other hand, if she has low interest debt (she's not loosing any money month to month), you can wait until the final plan comes together but really debt should be retired sooner rather than later.

Look at that annual retirement needs - 50 to 60k/year is a lot of money for a single person (assuming that she doesn't have any dependants). If you multiply it out for the next 30 years, will she have enough funds? Workout what she spends her money on and check if it's realistic to spend it. If not, cut back.
We ended up doing just this today; well, what's possible at the moment anyway. The LOC has been paid off. The other debt she'll be taking on isn't officially hers yet. Everything else has been taken care of on the debt side of things.

We also sat down and made a budget for 2014. I can say with relative confidence that 35-45k after tax should be more than enough to sustain her current living standards. The biggest question mark is if there will be a new(er) house in her future. That will be trickier to plan for. And your assumption is correct - no dependents. If we're doing a straight multiply x30 years, the answer is definitely no - that's not enough.
Heat: 159-0-0
Deal Expert
Jan 27, 2006
21844 posts
15619 upvotes
Vancouver, BC
Invincible wrote: We ended up doing just this today; well, what's possible at the moment anyway. The LOC has been paid off. The other debt she'll be taking on isn't officially hers yet. Everything else has been taken care of on the debt side of things.

We also sat down and made a budget for 2014. I can say with relative confidence that 35-45k after tax should be more than enough to sustain her current living standards. The biggest question mark is if there will be a new(er) house in her future. That will be trickier to plan for. And your assumption is correct - no dependents. If we're doing a straight multiply x30 years, the answer is definitely no - that's not enough.

That's great about retiring the debt. Not so good about how long the money will last... Don't forget to factor in some CPP and OAS.


The next step would be to figure out how much she will need when you factor in inflation. There are a number of retirement calculators out there and a good financial planner should be able to do this as well. However, it's good to have a general ideal of what the figures might be so that when you talk to a planner you can kind of tell whether they know what they are talking about. Keep in mind also there might be higher bills later on in life due to unwelcomed medical bills/conditions as well....
Deal Guru
User avatar
May 13, 2004
11471 posts
559 upvotes
Toronto
How does inheriting someone else's debt work in this case?

Invincible wrote: We ended up doing just this today; well, what's possible at the moment anyway. The LOC has been paid off. The other debt she'll be taking on isn't officially hers yet. Everything else has been taken care of on the debt side of things.

We also sat down and made a budget for 2014. I can say with relative confidence that 35-45k after tax should be more than enough to sustain her current living standards. The biggest question mark is if there will be a new(er) house in her future. That will be trickier to plan for. And your assumption is correct - no dependents. If we're doing a straight multiply x30 years, the answer is definitely no - that's not enough.
Sr. Member
Dec 23, 2001
926 posts
125 upvotes
HowEver wrote: How does inheriting someone else's debt work in this case?
The debt becomes part of the estate, so it becomes the executor's responsibility.
Heat: 159-0-0

Top