I (32m) just found out that I will be inheriting a very large sum of money and am completely unprepared on what to do with it, if I should do anything at all with it.
Over the holidays a close family member passed away and just this week, I found out they left me a huge surprise…
$500,000 in a Schwab account and $50k cash. I have no idea what stocks/bonds/etfs/etc. it is invested in yet, nor any idea on how to handle this life changing windfall. My wife and I have a few ideas for the cash , but this is an amount I only ever dreamed of having and certainly dont want to squander it or make a mistake that I will regret decades down the road.
Some information on our current financial situation:
We own our home valued at $360k still owing $278k with a 2.75% interest rate. I have $26k in a personal brokerage account. $3k in a Roth IRA, $25k in my company 401k and make an annual pre-tax wage of about $90k – $100k with salary and overtime. The Wife makes around $90k annually as well, with only $3k in a Roth IRA. No other investments. We've only had these well paying jobs for about 2yrs. We have a vehicle loan with $9k left on it, and a solar loan with about $10k left on it. No other debt (besides the previously mentioned mortgage).
As I stated, I am completely over my head with this amount of money and am looking for guidance on how to navigate this.
Any insight is welcome.
P.S. The wealth management company that handled my deceased family members account is a possible resource, but I want to be prepared outside of what they may have to say. They charge .6% of the account balance annually.
Surprise Inheritance, I was totally not prepared for.
byu/Tonyb97 inpersonalfinance
Posted by Tonyb97
15 Comments
My advice…keep it separate and don’t touch it. If you commingle it and end up getting divorced, you’ve given half of it to your spouse. You have plenty of income to deal with your expenses. Let this money grow.
[https://www.reddit.com/r/personalfinance/wiki/windfall/](https://www.reddit.com/r/personalfinance/wiki/windfall/)
I would pay off your debts first, then put money in a high yield savings account for an emergency fund (6months worth). Without your debts you probably will not need a big emergency fund. If there is any money left, invest it ( after taking a nice vacation)
Whatever you do, don’t pay off that mortgage.
Spend 10% on what makes you happy. Put the 500K into a broad low cost index fund like VTI.
Don’t hire a financial advisor. Their fees destroy gains. Even 2% will destroy long term investing.
Forget about it for 7 years and it will most likely double. 14 years and you should have 2M. 21 years 4M. .
With 4M on a 4% withdraw rate, 160K a year.
https://youtu.be/y6yCmdIkw_E?si=GpWF7q4jb-hbHt6M
I’d pull enough of that into your regular savings where you and your wife can both max out all available retirement accounts. No excuse now to not be doing that every year.
1. Keep the $500k in your name only in a high yield savings account*.
2. Use the $50k to pay off cars, and take a short but luxurious vacation with your spouse, beef up your emergency fund. The money you would have spent on the car, now that they are paid off, can go into her IRA.
3. Understand that, although you’re in a good financial position, that can change in an instant. Your mortgage is low, you have no other debt. If you play your cards right this money will provide a significant cushion when you need it most.
4. Revise your will to ensure the funds are distributed the way you would like in case of death, and that your wife only has access to the funds if you are debilitated in some way and she is acting in your best interests.
Edit: *HYSA, and other diversified managed investments
Pay off high interest loans (car and solar) and divert money saved for those bills to your retirement accounts. Max Roth IRA. Invest what comes liquid, all that you can, in VOO and hold.
Okay, first off, don’t think of $500k as a “large sum of money” because it’s not an insignificant amount, but it’s also not enough by itself.
Second, if you’re interested in investing but don’t want things complicated, you can visit r/bogleheads and read about passive investing. It’s very simple and you also don’t need someone managing your money for you.
Third, don’t pay off your mortgage. A 2.75% loan is basically free money, as you can easily make more than 2.75% by investing the money you would pay the mortgage off with.
Forth, as others have mentioned, do not co-mingle assets, at least so early into your marriage. In fact, the best option is to tell no one of the money you are receiving.
If you need to/feel the urge to buy something, or splurge a little, just use a part of that 50k cash.
Oh, also, you and your wife need to max your Roth IRA every year and try to max it at the beginning of the year in one lump sum so it gets the full year to grow.
Btw, this is not financial advice. 😆👍
Echoing others to say: pay down the higher-interest debt i.e car loans, maybe spend a little on a pet project, then put the rest in index funds and pretend it isn’t there.
You mention you are 2 years into better-paying jobs, and your household income of $180k/yr should leave you pretty comfortable in most parts of the US. If you haven’t already, review your retirement contributions and consider increasing them. Don’t let lifestyle inflation gobble up your income gains.
$500k tax-free is certainly a big wad of cash, but IMO it’s only life-changing if invested for the long haul. 20 years of compounding growth, plus your regular retirement savings (which you have dutifully increased to reflect your higher income, right? *Right?*) could have you considering early retirement or other fun options.
stock market is over valued. Use that.
diversify a percentage in metals. Physical delivery. if you don’t hold it you don’t own it.
Keep an emergency fund Liquid. for 3-6 mo. expenses
metals eliminate third party risk.
metals will always be worth something to someone.
keeping things in cash is the poorest choice.
There’s a nice section on Windfalls in the WIKI…
https://reddit.com/r/personalfinance/w/index
Find someone to manage it for you, and keep almost all of it invested. It’s a nice chunk of change which will help offset the fact that you’re both significantly underinvested in your retirements without it.
What state are you in?
Would deposit a large portion of that to right size your retirement savings first.
If you haven’t already, max out your own retirement savings and use the inheritance to cover that income.