Dear Susie, Here’s what to do with the money if I die first

This post was originally published on dumbpassiveincome.com on September 7, 2022. I am re-publishing this post here with updated numbers that are closer to our current life situation in mid-2024.

The greatest gift I can give to my wife, while we are both still alive and kicking, is peace of mind to know that she will be taken care of financially if I die before she does. The greatest gift that I can leave (if I die first) is a massive pile of money and clear instructions on what to do with it.

The money part is taken care of. We have term life insurance in place that will provide my wife and family with more than enough money if I die before the term is up. If I outlive the term policy… well, by then, we will have plenty more than enough built up in our savings and retirement accounts, whereas we won’t need life insurance anymore.

In either case, this blog post will serve as instructions for what to do with the money if I die first. I’ve always known that I would need to provide passive income for my loved ones in case I die first – and this post will detail exactly how I would suggest for the pile of money to be handled if I do die first.

Everything is in the “I Love You” folder

We have a file cabinet in our office at home. It’s a typical metal 3-drawer cabinet with a bunch of file folders inside that hold papers for most of the important stuff in our life. Each file folder is labeled and was once neatly organized. The entire system has been neglected over the years and needs a serious cleaning out and re-organization.

But, one file folder remains intact. The file folder itself is pink (it’s the only pink folder we have) and it is labeled with just three words – I Love You. The “I Love You” folder contains our life insurance policies and information for our investment accounts at Edward Jones. It also now contains a printed hard copy of this entire blog post so that my wife has clear written instructions on how to turn the life insurance payout money into passive income for her to live on (if I die first).

This is an extremely important step – to have everything in one place and be sure that your spouse or other loved ones know where to find it. You can call the folder whatever you want. I’ve heard that some people call it the “Legacy Folder.” It doesn’t matter what you call it – just make sure that your loved ones know where to find it.

Hi Susie! I’m dead now. Here’s what to do…

I’m not really dead while I’m writing this. But I could be dead when you read this someday. I think we had a pretty good run. 19 years and going strong as of the time I am writing this. If fate takes me first – I just wanted you to have some clear instructions on how to handle the life insurance money (or the investment money), so you’ll be able to live comfortably and not have to worry about money for the rest of your life.

Wait. Do nothing for at least 6 months to a year

If I die first and we still have term life insurance policies that haven’t expired – here’s what to do right after the funeral.

• contact the life insurance company (or companies) and follow their instructions to get the money
• deposit ALL of the money into our investment account at Edward Jones
• contact my employer and move ALL of my 401k savings over to our investment account at Edward Jones
• transfer enough money over to checking to cover the funeral expenses and an amount to live on for 6 months to a year
• do nothing else with the money for several months (at least 6) until you’re comfortable

The purpose of doing nothing for the first many months is that you may need that amount of time just to be sad and to come to terms with the fact that you’ll have to finish this life without me. Spend lots of time with the kids and family. Put these instructions back in the “I Love You” folder and revisit it in several months, when you feel that you are ready.

Pay off ALL debt & set some money aside

When the time is right, and you’re ready to make some financial decisions – here is what I suggest.

• pay off any/all debt if we have any – including the full balance left on the mortgage
• figure out what the new estimated monthly expenses are and multiply that number by 6
  • this will be your emergency fund – put that amount in a savings account and forget about it
• do not use debt for big purchases (like a car) going forward
• only touch the emergency fund money for true emergencies then replenish it as soon as possible

The purpose and plan here is that there will be plenty enough money to pay off everything and still have a sizeable chunk left to invest and be able to live on for the rest of your life. Without having a monthly mortgage payment anymore, you won’t need as much money to live off of each month. Having a good sum of money in the investment accounts, you won’t need to take out loans for large purchases (like cars).

Spend some money. Have some fun.

Life is short. That’s what unbelievers say & think anyway. I think it’s a stupid saying because, as a believer, I know that life is eternal and lasts forever. But the forever life is the next life. The one that comes after we die in this life. So, I think the saying should say, “This life is short.”

In any case, you should be enjoying this life. You don’t necessarily need a lot of money to enjoy life – but you can certainly do some enjoyable things if you do have access to a lot of money. If I happen to die young and you get a pile of life insurance money – spend some of it and have some fun!

Go on weeks-long trips to the Caribbean or to Hawaii – somewhere with awesome beaches. Take the kids (if they’re still kids) to their dream vacation destinations. I know Ethan has always talked about going to Alaska. Eli wants to go to the UK. Do it! If the kids are adults by now… pay for them to go on these vacations themselves (or perhaps with their spouses/families).

I know I’m making it sound like you’ve won the lottery or something. I know that’s not the case. But there is a sizeable chunk of money for you to “play with” – and there will be plenty left to live on. So do it! Go out and have some fun!

Invest the rest of the money, aggressively

Again, all of the money should be within our Edward Jones investment accounts. Whomever our financial advisor is at the time – they will be able to walk you through all of these steps and give you advice based partly on my instructions here. For this reason – I don’t have to get super-specific. But, I do want you to show this letter (blog post) to the financial advisor so he (or she) can have a reference point to help get you situated.

My plan has always been to keep nearly 100% of our investment money in the higher-risk category. This means that nearly all of it should be invested in stocks (sometimes called ‘securities’) and ideally, none (or very little) should be invested in bonds or bond funds. If some of the investments are in bonds or bond funds, be sure that no more than 10% of the entire investment account is invested in them. Keep at least 90% invested in the higher-risk mutual funds.

Keeping the money invested aggressively like this will be like a roller coaster ride. The investment balance will increase substantially in some years and will decrease wildly in other years. But, this strategy is proven (by historical data) to produce higher rates of return on your investment (on average) over time.

Many advisors will tell you to invest more conservatively, either in less risky fund types or by putting a higher percentage of the investment money into bonds. Ignore that advice! You should have plenty enough money invested that when you take your regular withdrawal amounts during the down times, it will hardly be noticeable over the long term.

Setup monthly distribution withdrawals

This part should be extremely easy. Have the Edward Jones advisor set up a monthly transfer for the amount that you need to live on each month for things like; utility bills, groceries, clothing, gas, entertainment, insurance payments, etc.

Ideally, this monthly withdrawal amount should be far less than 8% of the total investment divided by 12. For example: if you have $1 million invested, 8% of that would be $80,000, and that number divided by 12 would be $6,667.

The idea here is that your investments should return at least 10 to 11% on average (like they have throughout our years together) – and your total balance will continue to grow despite the fact that you are withdrawing a good chunk each month. The less you can comfortably withdraw – the better the chance that the investment balance will continue to increase even more.

Hire an accountant. Pay as little in taxes as possible.

There is no reason for you to stress over finances or taxes. I’ve handled most of our family’s accounting and tax filing preparations throughout the years. There’s no reason that you need to take over that role now.

Personal accounting is no big deal. We use Quicken to keep track of all of our accounts, and you already know how to handle that if needed.

Around tax time each year – I suggest that you hire an accountant. It might cost a little bit of money – but that is money well spent, in my opinion. Be sure that the accountant and your investment advisor at Edward Jones are on par with helping you pay as little in taxes as legally possible each year. The government squanders enough of your hard-earned money. There’s no sense in giving them a dime more than you legally owe in taxes.

Big expense coming up, like a new car?

This one is simple. Just take some money out of the investment balance to pay cash for big expenses, like a new car or maybe even some new furniture. As long as your monthly withdrawal amount is far less than the maximum of 8% as suggested above – you should be just fine.

Another strategy would be to gradually save a portion of your monthly disbursements each month into a savings account to pay for future big expenses. This would be just the same as we did prior to having a giant pile of money… we saved for large future expenses with a portion of our regular income (or bonus money or tax return money).

Ideally, you might use a combination of both of these strategies. Save some of your monthly income each month (from the investment withdrawals or from any other source of income you have), and if you don’t have quite enough to pay for a big purchase – just withdraw the remaining amount from the investment balance.

The bottom line here is that you don’t need to go into debt any more for the rest of your life!! The money is there. Use it!

Make sure the kids are taken care of

Being mindful that you still need to take care of yourself first, feel free to generously help out our kids (and their future families) as you see fit. Again, don’t put your financial future at risk by handing out obscenely large sums of money. I know that you wouldn’t anyway.

The kids will get their share when we’re both dead. It’s called inheritance. But if you’d like to see them enjoy some of their future inheritance while you’re still alive – by all means, do it within reason.

Be sure to have beneficiaries set up in the Edward Jones account, and you might need to make out a new will after I die (if I die first). Check with your accountant and the Edward Jones advisor about that and possibly get advice on hiring an estate planning attorney to properly set everything up.

By the numbers (for example)

Here are some example figures for you to look at for reference. These numbers are actually pretty close to our real numbers at the time I am writing this blog post – but the numbers will surely change over time.

Our earliest term life insurance policies will expire only about a year after I’ve published this. Our mortgage balance will decrease over time, and our retirement savings will continue to increase.

Regardless, this should give you a good idea of how I envision your financial situation if I should die first.

The Pile of Money – $1,905,000

Private term life insurance – $1,500,000

Employer life insurance – $100,000

Retirement Savings – $305,000

Outstanding Debts to Payoff – $373,000

Mortgage – $345,000

Car loan – $18,000

Misc debts – $10,000

Money Left to Invest at Edward Jones – $1,532,000

I think you’ll survive on this tiny fortune that you’ve been left with. Ideally, you will thrive and continue to grow this savings amount so the kids will end up inheriting small fortunes one day after you die.

For this example, let’s say that you had $1,532,000 total, minus $305,000 in retirement savings (more on this below). That’s a total of $1,227,000 that you need to invest and withdraw from to live on. Using the 8% rule – the absolute maximum you should withdraw each year would be $98,160, or $8,180 per month.

Using today’s dollars (at the time I am writing this) – that amount would be WAY overkill, especially given the fact that you will have zero debt, including the mortgage. You should easily be able to get away with a withdrawal amount closer to 4%, which would be $49,080 per year, or approximately $4,000 per month. This will ensure that your overall investment balance will stand a much better chance of continuing to grow year over year.

NOTE: RETIREMENT SAVINGS AND LIFE INSURANCE PAYOUTS

Leave any retirement money alone until you reach retirement age (59-1/2). At that point, you can lump it together with the rest of the money. The reason is that you will be penalized on any retirement savings you withdraw before age 59-1/2.

If I die young, the majority of the money you have to work with will be the life insurance payouts. The retirement money can remain invested as-is, and you can let it continue to grow. At this point, you will also move any 401k savings from my employer into the Edward Jones retirement savings account (via direct rollover, so you don’t have to pay taxes on it).

If I die old, the term life insurance plans may have expired. If this is the case, the vast majority of the money that you have to work with will be in retirement savings.

A few notes on spending and personal accounting

Most of your personal accounting will be pretty straightforward. Money comes in from the automatic monthly withdrawal, and money goes out to pay the bills and purchase goods.

However, you will need to be mindful of the annual and bi-annual bills and payments. Since you will no longer have a mortgage, the mortgage company will not be taking care of the home insurance and property taxes anymore. You will have to pay those bills when they come due. Same thing with auto insurance, lawn care expenses, and anything else that you could or should be paying in one lump sum rather than paying monthly.

You should be able to easily figure these amounts into your monthly budget by taking the total amount for each and dividing it by the term (number of months). In any case, none of this is a big deal overall. You will be fine. The big picture main point here is that you are left with plenty of money so that financial ordeals will not be a burden to you whatsoever.

I’ll see you on the other side

We know that this life on Earth is only temporary. Our Christian belief ensures us that the eternal life to come will be better than we can possibly imagine. I look forward to seeing you and the rest of our family and all fellow believers in the promised land someday.

Well Susie… This life on Earth has been a wild ride, and it has been my absolute honor and pleasure to spend it with you by my side. You have been an awesome wife and mother during this chapter of my life. I can honestly say with certainty that we undoubtedly crushed it in life this time around. I can’t wait to see what’s in store for the next life. I love you lots, and I’ll see you on the other side! ~ Matt

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