No. of Recommendations: 2
… unenviable spot to help …
A perfectly valid and perhaps the best way(for everyone) to help them is to help them find a fee only financial advisor for a one time consultation.

…$250K…$15K…6% cash flow…
You are mixing up cash flow with total return. Even if the farm land only appreciates 2% per year to keep up with inflation then you are looking at an 8% total return. In addition the rent next year will most likely go up a few hundred dollars because of inflation.

… If sold, they would realize about $250K after taxes…
I assume that is capital gain taxes. If it is not sold and still in the estate would it qualify for a stepped up cost basis and not have to be taxed? Could they sell it off in a few pieces in different years to keep their capital tax at the lowest possible rate? Not as simple as it sounds.

… They have an actuarial life expectancy of less than 20 years…
Be careful this is tricky. Individually they each have a 50% chance of outliving their life expectancy. Together, given that they are already retirement age, there is a reasonable chance that one of them will live to beyond 95 . See the following link for some more info;
http://www.ssa.gov/OACT/STATS/table4c6.html


… can one invest the $250K in a "safe" investment which would realize a 6% annual cash flow..
Not without reducing the principle or taking a hidden risk. In the worst case, they could just put in under their mattress and take out $15K each year and it would still last over 15 years. In addition inflation would make the $15k worth less each year. Then again there are significant risks with the farm land.

.. Annuity..
Annuities sound very simple but in fact they are extremely complicated. Inevitability there is something in the details that ends up being very very unfavorable to the buyer and equally favorable to the seller. About the only situation that seems to make annuities a good choice is when the buyer is very wealthy and there are some tax advantages that go in their favor.

.. get a higher return investing it in a S&P mirroring fund. However, is there a mechanism for drawing out cash on a regular basis…
Have a money market account with the same fund company and have the dividends deposited there. One phone call can also set up a monthly transfer from the stock fund to the money market account or there regular checking account. The Vanguard Total Market Index fund is probably better because it covers more of the small and mid size companies.

.. Maybe an income fund?…
It all depends on your in-laws risk tolerance. Will they freak out if the account is down $50K? Probably. A lot depends on their entire situation and if this is their main asset. I agree that they should have some money in the stock market but they should also look at how much to put in a ladder of bonds or CD's.

Greg
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