The theme this week on the Retirement Quick Tips Podcast is: What to do with a $300,000 inheritance

Today, I’m going over a case study to help illustrate how to handle a $300,000 inheritance in the real world. 

Here are the details of the case study: 

• Married couple. Receives an inheritance of $300,000 - all in investment accounts. 
• They are in their early 60s and are about 3-4 years away from retirement
• Have about $1million saved for retirement 
• HH income is $200,000 and they’re saving $20,000 annually for retirement
• Kids are out of the house
• Retirement spending projections are about $70,000 per year, including basic spending, health care costs, and a few trips a year, as well as some fun money for eating out and hobbies. 
• They’ll have social security and the wife will have a small pension. Income from their portfolio will cover the rest. 
• They have a mortgage of about $50,000 that will be paid off in 8 more years. No other debt.
• They currently have savings in their bank of about $25,000

Ok, so starting with the inheritance amount relative to their other assets. This is a good place to start. The new money is about 30% of their existing assets for retirement, so it’s a meaningful addition to their current portfolio.

Here’s what I would recommend for this couple: 

• The fact that they have a decent amount in savings and no other debts other than their mortgage is a good start. 
• I would take $50,000 of the inheritance and pay off that mortgage. Since they’re planning to retire in the next few years, before the mortgage is paid off, then it’s going to cut down their retirement expenses in a meaningful way and will give them maximum flexibility for their retirement spending
• Since they’re so close to retirement and based on their desired spending needs in retirement, they don’t have enough assets to afford them the luxury of spending any of the inheritance. So I would invest the remaining $250,000 after the mortgage is paid off. No new cars, no vacation. This is important. This couple needs to grow their investment portfolio as much as possible in the last few years before retirement. If they had more of a cushion where their anticipated retirement spending was a much smaller fraction of their overall nest egg, then I would say they could spend some, but even in that circumstance, I would only spend 5-10% of inheritance assets on something that isn’t necessary.
• Then the portfolio needs to be invested based on their goals, timeline, risk tolerance, etc. and folded into the rest of their portfolio so everything is aligned. I talked about this a couple days ago…

If they had more debt and less in savings, I might use more of the inheritance dollars to knock out some additional debt and boost savings to a healthy level, but in their case, they were already in good shape here to begin with. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance