Settlement Advice
Hi all
A relative of mine was almost killed in a workplace accident and is close to getting a settlement from the company he worked for. It could be in the 7 figures and he is about 30 years old. I want to encourage him to invest the money into a portfolio that he might possibly be able to live off of for the rest of this life. He also has extensive damage to his legs and will probably struggle with that for the rest of his life.
Any advice on how he would go about that? Who should he go to? Do companies like Vanguard provide services like this?
Thanks
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A 7-figure (or near) settlement is definitely when you bring in a pro. He should shove it in a regular, high-yield savings account while he looks for a good, fee-based financial planner, preferably one who can couple their advice with good advice on tax planning, incorporation of any government benefits your relative is entitled to, etc. Technically the money should be in 4 accounts ($250K each) because of FDIC, but at a good, well established bank in the current economic climate, I wouldn't be worried too much about needing FDIC insurance for the short period of time it takes to find a planner. But that's me.
A good place to start is NAPFA: https://www.napfa.org/-
And condolences and healthful recovery wishes to your friend!
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Good advice above. The exact amount is going to matter, because at Age 30, this person still has the possibility of a long life ahead of them. Some other questions that need to be inswered is if ongoing medical care will be covered or if this person will need to acquire their own insurance and pay for coverage. That's going to play a huge role in how long medical will last, because private insurance can be very expensive.
Also at that age, the amount is going to make a big difference. What might seem like a large sum might not go as far as one thinks. At the low end of 7 figures (aka $1 million), and invested in a conservative to moderate portfolio that is wisely invested for tax efficiency and able to beat inflation, you will only be able to safely withdraw 25 to 30k and have it likely to last 50-60 years.
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No personal experience, but a local story that seems similar. Someone was involved in an accident, large settlement, and they built a huge house and purchased many sports cars. For a while we saw the cars out (garage doors all open), but nothing in the past year of him or the cars. He lives in my mom's neighborhood. Maybe those were the right decisions for him, but it seems odd. The house is like 4 times any house in the area. Most homes in the plat have 1 car garages, his had like 5. He had to buy multiple lots to build. He owned one because that's where he lived before the accident.
I'd stay close to advice for large sums coming from inheritance, do nothing for a year with the bulk of it. Only take out income replacement from lost wages. Then, after a year, consider professional investment aid.
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suninmoon said:
Who should he go to? Do companies like Vanguard provide services like this?Vanguard provides a personal advisory service (Vanguard PAS). It costs 0.30% of assets under management annually, which is on the low end of things for a manged account. They basically recommend a diversified portfolio, and will set help set the appropriate asset allocation level.
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I know that the Dave Ramsey endorsed providers would be a good place to start. They are supposed to be vetted to have the heart of a teacher so at age 30 he will know not just what to do but why he is doing it. Then in the future as life events happen he will have the knowledge to decide if he needs to change anything.
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MXMOM Dave Ramsey is good for getting out of debt, but stay far away from his investment advice and his investment advisors.
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I can give a thumbs up to Schwab Private Client, for a little more in fees (around .70% I think). I've used them to manage my mom's assets for 10 years and now my own, and they've never let me down. They helped me with a really extensive financial plan that helped put my mind at ease. It was something that would have cost $2,000 but is free as a private client. I've had access to bond specialists, estate specialists, and most recently, options specialists (who were all very patient with me as I tried to wrap my head around this different breed of trading). My "meetings" are with advisors out of state, but I also have the advisor in my local office who works in concert with them. They have NEVER pointed me towards anything risky, leveraged, or plain bizarre. So it's just another option to consider if you want to go a little less discount than Vanguard, but still stay in the comparatively low cost fee-based scene.
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Thanks for all the advice, I think I'll recommend he get with Vanguard or reach out to a fee based planner
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This is old, but I recommend a fee-based planner. They don't get compensated for ongoing decisions unless you also hire them to manage one's portfolio. They can take into account taxes, future planning, insurance, give advice as to what other experts one needs to talk to. I had a much smaller "inheritance" from a wrongful death suit and I didn't want to just blow it. I also didn't have the long-term considerations of ongoing medical and other needs, i.e. disability, etc.
I would also advise your friend to talk to a special needs attorney about legal options to secure his future regarding social security, disability, long term care or in-home care if needed, and if there are any ways to shelter any funds he may have coming in, if he can make a trust for himself. For example, we are planning creating a trust in the next year for our autistic child. He currently is using Medicaid and when we die, if we leave him money not in trust, he can't continue using medicaid because it will go over his asset limits. If it's left to the special needs trust for him, it doesn't. Also, when he dies, Medicaid and the government can't go after those assets in trust (as I understand it, they will seek repayment for the funds they spent on his behalf), he can leave them to his beneficiaries.
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Technicolor Cheetah Thanks for that advice. I have recommended a fee based planner, but I will pass on the advice about the attorney to him.
Thank You.
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