Dear Quentin,
I unexpectedly inherit about $850,000, and I need advice on what to do with it. I am a mother in my 40s and am financially independent. I make about $100,000 a year, and I have $50,000 in savings and stocks. I have no experience with this amount.
Financially independent
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Related: My wife inherited $800,000. She put $300,000 into our mortgage and $500,000 into her own bank account – after 35 years of marriage
Dear Financially Independent,
There’s one thing better than an inheritance – and that’s an unexpected inheritance.
Take a deep breath: $850,000 can go a long way even in 2024 if you’re smart, but it can also disappear faster than you think. Set up a 529 tax-advantaged savings account for your children’s college education if you don’t already have one. Maximize your contributions to your 401(k), if your employer provides one, or your IRA. If you don’t own a home, put some money aside for that, although you may want to wait until mortgage rates drop before committing. Set aside enough money in an emergency fund to cover at least six to twelve months of expenses. And yes, treat yourself to something: for some people that might be a spa retreat or a philosophy course, while for others it might be a new bathroom or insulation in their home.
Approach your windfall as stealth wealth. Be careful when talking about it with others; this also applies to neighbors, friends, relatives and financial advisors who work on commission. It’s a hard lesson to learn, but if you share the news of your happiness, not everyone will be happy for you. Some people may have business ideas of their own and may see you as their golden ticket. Plus, the average American household has $62,410 in savings — and the average household only $8,000 — so no matter how much your real-life friends wish you well, it can still be hard for them to see an Instagram META update about your brand new cuisine or a TikTok video from your trip to Turks and Caicos.
“An unexpected inheritance or windfall like this can be an emotional, confusing and life-changing event all at the same time,” says Martin Schamis, a certified financial planner with Janney Montgomery Scott in Philadelphia. “Depending on how this $850,000 inheritance is received, there may be taxes due or specific distribution rules you must follow once you receive the assets. An inheritance can be a life-changing event, and seeing your personal wealth increase can have a major impact on your life goals, both for you and your children. This is the perfect opportunity to discuss your financial goals, both short and long term.”
What if part of your $850,000 is in stocks and bonds? This offers you the opportunity to review your overall investment strategy in a timely manner. You may want to take on additional risk – or play the long game with less risk now that you have more capital to work with. “For example, if you have an aggressive allocation that is suitable for wealth accumulation, you may want to dial it back to focus on capital preservation,” according to Fidelity Wealth Management. On the other hand, “the additional assets may give you the opportunity to take on some additional risk, especially if you plan to pass on some or all of the assets to future generations.”
And this is perhaps the most satisfying and encouraging part of inheriting a large sum of money: If you have personal loans or credit card debt, pay them off as quickly as possible. The current average interest rate on personal loans is 12.2% and the average rate for credit cards is 20.7%, according to Bankrate.com. With inflation hovering around 3.5% year over year in March, these rates are hemorrhaging money. There’s nothing like paying off debt to give you a boost before meeting a financial advisor. (On that note, be wary of bad actors—advisers who coddle and undermine you.)
Get inspiration from others. In September 2018, this woman wrote to Moneyist to ask how to invest her $150,000+ windfall. It was life-changing for her. She had no college degree, worked full-time at $15 an hour, on top of a part-time job at $10 an hour, and said she would never make more than $30,000 a year. She paid off her car and bought a small house, which she owns free and clear, as she wrote in an update. She deposited $70,000 into a high-yield online savings account. She replenished her retirement portfolio and invested $10,000 in very safe dividend stocks and exchange-traded funds. She also spent $7,000 on dental work in Mexico.
If the Moneyist had a hero’s gallery, she would be number 1. You can do everything she did and more, and still set aside some money for your favorite charities. “This planning foundation supports your decisions about whether you want to use the money to pay off debt, invest the money in long-term growth and retirement, or do something for yourself like home repairs or travel ” says Michele Martin, president of Prosperity in Minneapolis. , Minn. Like that inspiring woman who inherited a fraction of your fortune, you should take your time.
Enjoy every minute.
Previous columns by Quentin Fottrell:
‘I have a modest Roth IRA that has not performed well’: My wife and I are savers – and enjoy driving old cars. Where should we invest $15,000?
Are they cheap?’ I’m going on a trip with two friends for Memorial Day. I spend $90 on gas, and neither has offered to help pay for it. What should I do?
‘He plans to bleed me dry’: My husband turned into a monster after we got married. I own a $1.3 million house. How do I save my finances?
