“A few years ago, I opened a food truck and after paying the bills, I was making about $200 a week.” (The subject of the photo is a model.) – Getty Images/iStockphoto
That’s a lot – sorry.
I was just days away from receiving an unexpected inheritance of just over $400,000. I had no experience with anything in life other than a paycheck, and sometimes worse. I have no savings, certainly no pension, and I receive about $900 a month in Social Security. A few years ago I opened a food truck and after paying the bills I was making about $200 a week.
I am well educated and at 64 years old I still have most of my wisdom. I have no major health issues and no debt other than two credit cards (currently with limits of $500 and $750). I also inherited my beloved – or at least my own – ramshackle home that had been unoccupied for over twenty years.
I have two adult children, both working in low-wage fields, and no grandchildren. One is a 44-year-old gas station cashier and the other is a 26-year-old seasonal outdoor educator for a nonprofit organization. I feel like this is my opportunity to help them succeed, but based on the actuarial scale, I also want to make sure that I’m not burdening them with the 20 or so years that I may have left.
I’m trying not to waste this incredible opportunity to leave something behind for my children – something we never imagined would happen. I am very grateful, and although I would trade the $400,000 for the person I love, I am also very stressed. I don’t want to pay a financial advisor of any kind. It seems to me that I might be an overlooked person.
My initial thought was to make sure the three of us had our own emergency funds (maybe six months’ worth each). I’m also considering purchasing solid whole life insurance for the three of us – so they would have their own tax-free funds available. I want to set up an HSA and Roth IRA for my two children. Of course, I would set aside taxes for this windfall.
Should I invest the rest of my money in index funds? Should I try to get a loan to fix up the home I inherited and move there so I don’t have to pay rent? It’s probably not worth selling it as the total value is less than $56,000. I’m also wondering if I should try to grow a food truck business to get a better income or maybe sell the business later.
Related: “When he doesn’t get money, he gets angry”: My brother lives a life of chaos and financial ruin. What are my ethical obligations?
When you break down and spread that $400,000 over your lifetime, your inheritance should be more realistic and less stressful or scary. – MarketWatch Illustration
You have a lot going for you, especially this $400,000.
First and foremost: you are in good health. This is the greatest gift of all, and may this gift last. You didn’t mention health insurance, but you will become eligible for Medicare at age 65 – less than a year. Remember, health insurance is not free. You must pay premiums – Medicare Part B, supplemental insurance or a Medicare Advantage plan, and prescription drug coverage. These costs can add $300 to $600 per month, depending on the plan.
The food truck business is an entrepreneurial venture that nets you $200 a week, which I guess pays most of your bills. I admire you for starting this business. I can understand why you do it: it gives you structure, social interaction, a sense of purpose, and some cash. On top of benefits, you get $1,700 per month.
Considering you will soon inherit $400,000, that $200 may seem like a drop in the ocean, especially given the time and effort involved, but it may keep you busy and engaged. If you are able to expand your business, even an extra $300 to $500 per month can effectively save you money. However, you now have the opportunity to switch gears and think about how you can use your free time to make some extra money—for example, working part-time in a bookstore.
More good news: In most cases, heirs are not required to pay federal estate taxes. Spouses are exempt anywhere, while children, siblings and others pay taxes between 0% and 16% depending on state and kinship. Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania impose estate taxes, which vary based on relationship to the deceased. (These taxes start at 1% to 5% and go up to 16%.)
Your $400,000 inheritance can be used to supplement your current income, and if managed properly—and don’t skimp on gifts—it could keep you alive into your 80s and beyond.
Based on your advice, you could put $360,000 into low-cost and diversified stock market ETFs and bond market ETFs (60/40 or 70/30 stocks/bonds, depending on your age). Many retirees use a simple three-fund approach: a broad U.S. stock index fund, an international stock index fund, and an overall bond market fund.
When you break down and spread that $400,000 over your lifetime, your inheritance should be more realistic and less stressful or scary. Withdrawing 3.5% of $360,000 using common retirement rules – withdrawing about 4% per year, or 3.5% given your age – would give you $12,600 per year or $1,050 per month.
This amount could bring your total monthly income before taxes to $2,700. One big caveat: Inflation will gradually reduce your purchasing power, so keep some of your money in stocks so they can continue to grow.
Whole life insurance is an option for estate and funeral expenses. It offers guaranteed lifetime coverage, fixed premiums and final cash value. It’s more expensive than term life insurance, and in your 60s a $50,000 policy can cost $200 to $350 a month. Considering your income, I doubt this makes sense.
Take care of yourself first. This is a life-changing payment that will give you extra income, improve your quality of life and make your home as comfortable as possible. Your loved ones will want you to use the money to create the retirement life of your dreams; that’s why they leave the money to you.
Whatever you do, take your time and put your financial needs first. I’m glad you want to make sure your two children are taken care of, this is a great opportunity. You could give them each a gift of $10,000 for emergency funds and $20,000 for your own fund; give too much at once and leave yourself open to requests for more money.
On that note, I also implore you to take the news of your windfall to heart. Don’t tell the well-wishers at the dog park or the patrons at the food trucks. There are a lot of people with a lot of needs, and while many people, including your children, may be overjoyed at your good fortune, there will be others who are secretly jealous and resentful.
Your home is your castle, if you can, put some money away in an emergency fund and see if repairs can be made immediately that will save you money over the years.
As for the inherited property: Since it has been vacant for over 20 years, hire a professional inspector to check the condition of the roof, plumbing, electrical system, foundation, and possible mold or water damage. If the repair costs are high, perhaps you would consider selling it now and starting over.
Improving insulation can save you money on heating bills in the winter and air conditioning bills in the summer.
Assuming each of your children is working, you can make Roth contributions for each child, but given your lack of retirement savings and living in a $56,000 home that needs work, even one meeting with a financial advisor can help you outline your priorities. Make it clear that this is a one-time fee and that you do not require a recommendation for a financial product.
Finally, don’t neglect basic estate planning: create/update your will, add beneficiaries to your stocks/bank accounts, and create powers of attorney and health care directives in the event you become incapacitated.
The most important thing about the next chapter of your life is: enjoy it.
Related: ‘I didn’t ask a man to rear-end my car’: Social Security is replacing my disability benefits. Is the foundation short of money?
More columns from Quentin Futrell:
“I don’t own a house”: I’m 62 years old, unemployed, and have a $1.5 million pension. Can I divorce my husband?
‘My parents begged me never to leave him at home’: I have spent my entire life caring for my disabled brother. Am I doing enough?
Can I prevent my children from using their heritage to support political causes that I strongly oppose?
