All you rich folks - looks like I'm (almost) one of you. What should we do?
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Anonymous
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Okay, we're not rich like some of you here, but my husband and I recently inherited more than half a million dollars. Of course the circumstances are very sad in that we unexpectedly lost a parent and our kids a grandparent, but the money is (of course) welcome but it's difficult to truly understand how this could changes our lives.
We live pretty modestly and I can't see that changing. We have a combined income of about $85k and a small mortgage (about $150k) plus a ton of equity (about $400k). We have two young kids (under 3). Interested in opinions (from random internet strangers of course because I haven't even told my closest friends) on what to do. Ultimately we'll probably see a financial advisor, so interested in thoughts on that and/or how that process works too. One big question right now is whether to pay off the mortgage entirely. Other thoughts are whether we should move - we need more room but love our neighborhood and our house. We already have about half of the money in investments the rest is currently tied up in real estate which will be sold. What would you do? |
Anonymous
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1 - definitely discuss with an FA.
2 - don't pay off your mortgage. You probably get a tax deduction from it (the interest portion, tho that may be small) and you are clearly "in the money". 3 - a good FA will tell you how best to invest your money (make sure you are diversified). If I were you, I'd put aside a small amount for "fun" money (vacation, new clothes, whatever) and then be very very strict about leaving the rest in investments for college, retirement, etc. 4 - if you love your neighborhood and it is in a good school district (and even better if it is close-in), then I'd consider remodelling over moving. |
Anonymous
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Probably the first thing I'd do is set some aside for retirement and college savings.
An IRA/Roth IRA would be 5k for each of you (per year, so you could do 2012 and 2013 by April 14 2013). You can each "give" up to 14k in 2013 to each child for college savings without worrying about tracking the gift for estate tax purposes (plus you can put 5 years worth of gift tax into college savings as one lump sum, with only one simple form to file-- so you could probably setaside enough for state college tuition if you wanted). |
Anonymous
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Agreed that you need to talk to a FA about your windfall, but since interest rates are so low right now, I bet they will suggest that you refinance to keep your payments low and instead invest the money for the kids college and retirement.
Oh, and I just noticed about the house being too small - consider using some of the money to build an addition if you have the space for it. I'm sorry for your loss. |
Anonymous
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As some advisers would say, you have downside and upside to think about. First the downside:
1. Make sure that you have enough life insurance 2. Consider putting at least a basic will in place. You might need more than that in light of your increased amount of assets, but you should have at least something basic in place. My husband and I went to Anthony Carducci (888-628-2220 or call him on his cell at 410-693-7323). He explained all of our options to us and let us decide what we wanted to do. We never felt pressured into making a decision. He also worked around our busy schedule by coming to our house on a Saturday. 3. I am not sure how old you are, but if you are in your 40s or older you might consider a long-term care insurance rider to your insurance plan. Your upside: 1. You want to try to grow these assets without taking a ton of risk. Talk to a good financial adviser. Call James Dunn (703-394-1913) or you could call Chris Brown at 202-364-1671. Both are a good guys and will steer you on the right path. 2. Consider putting a plan in place to take care of your kids education. That might be a 529 plan or something else that allows you to handle those costs at the time. 3. Talk to a good accountant about any tax ramifications of this inheritance (Call Chick Becker at 301-941-8090). |
Anonymous
Excellent advice. Childrens education and retirement will be expensive - so definitely talk with an FA re: best way to save for these things. You'd be surprised how fast half a million can go, definitely meet with that FA to stretch and grow it. |
Anonymous
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Personally I would
$500K Establish two college funds ($100K each- $200K total) Put the rest into retirement funds ($300k). |
Anonymous
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I'm sorry for your loss. It sounds like you are approaching this windfall with a level head.
If you like your home and neighborhood, then I would stay put. I would use the money to bolster retirement and college savings funds. If both spouses are working a lot of hours, one could reduce hours. In the studies about human happiness, they say it is experiences, not things that bring happiness. So is there a place where your family would love to travel? For example, I'd love to take off summers and live with my family in Spain or Latin America where we could travel and learn Spanish. If you have the stomach for being a landlord, now would be a good time to buy a rental home or two. |
Anonymous
| How much retirement do you currently have, and how old are you? $500k is not very much in the long run. |
Anonymous
I agree. First stop: Financial Advisor. Look for a fee-only one. I inherited $200K last year and this is exactly what we are going to do. I've allocated some of it for travel, some for home improvement (our 1952 master bath will thank me), and the rest will remain invested for retirement and college. |
Anonymous
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I'm sorry for your loss. Regarding what to do now, since you're asking for advice, I would recommend holding off and not making any decisions until you've had time to think about it. Above all, do not make any spending decisions at this time! $500,000 may be a lot, but it can go quickly, as another poster noted. 2 kids will eat up that money for college.
You should keep the money in the bank in a regular savings account for now. Then read up a bit on investing, perhaps consult a financial planner, and then decide how you want to allocate the funds -- ie, between regular savings, money market, CDs (probably not advisable given low interest rates now), stock or bond mutual funds in a regular brokerage account, or putting some of that money into college/retirement-specific accounts (eg, Roth or regular IRA). Above all, do not spend any of that money now, and continue as you are. Good luck! |
Anonymous
OP here. Just re-found this thread as it was moved. To answer the above and some other questions: We are late 30s and currently have about $120k in retirement accounts (and are adding about $14k a year). We also have about $10k in college savings and I'm adding at least another 5k before the end of the year (it's a DC529). One of the properties that we inherited a share of will be kept as a rental. Our share of profits from the rental will only be a few thousand a year but we're expecting that property to increase in value so don't want to sell immediately. About $100k was inherited in an IRA which has tax advantages if we keep it there and withdraw only the required minimum each year for the rest of our expected lifespan. We live close-in DC, not a great school district but nearby charter schools are good. We could build an addition (a very small one) and that's something that we're considering. $500k was conservative and depends on the sale of the properties. Total is probably more like $600-750k. I like the advice about not doing anything for a while because it's all so overwhelming that feels like the right thing to do. Can anyone walk me through a step by step of what to expect from a financial adviser? |
Anonymous
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Assuming you've refi'd recently and have a nice low mortgage interest rate, I'd lean to investing over paying off the mortgage (especially if you might want to move somewhere a little bigger).
The big gap in your finances seems to be your retirement savings. $120k in your late 30s is on the low side (though of course, still ahead of many people). I'd beef up your savings there as much as possible. |
Anonymous
| Can you invest in your own education to increase your income? |
Anonymous
| I'm going to go against the grain and say go ahead and pay off your mortgage. Not having a mortgage is a delightful feeling. If the stock market crashes, you still have your home, if you lose your job, you still have your home. It's not the "clever" financial decision, but the piece of mind it brings has some value. |