Jack and Sally were referred to me after Jack received a sizeable inheritance from his father.
Let me say up front that this post should not be taken as specific financial or investment advice, and you should consult your tax advisor before making decisions that will impact your tax bill.
With that out of the way, part of Jack’s inheritance was a large non-IRA annuity contract with over half a million dollars in gains. The annuity company sent him beneficiary paperwork with several settlement options, and he wanted to know which he should choose. My response was a very definitive, black-and-white, “It depends.”
From there we built out a long-term financial plan, modelling future cash flows accounting for his current and future income, tax rates, investment preferences, and liquidity needs. Our planning platform allowed us to build different scenarios that corresponded to each annuity settlement option. That way, I didn’t have to tell them what to do. He and Sally were able to understand for themselves the tradeoffs inherent in each option and make the best choice for themselves.
Incidentally, the option they chose was not even one of the options the annuity company provided Jack as beneficiary. They decided that it made financial sense to transfer the funds to an annuity company that offered a lifetime stretch feature.
So, while what we did with Jack and Sally may not be specific to you, this advice is:
Always start with a plan. Understand the long- term trade-offs of financial decisions before you make them. And if your current financial advisor can’t or won’t do that, find one that will.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.