How to Manage an Inheritance

[Derekk27]

I have an unusual situation that is fortunate but comes at a weird time given the state of the economy.

I'm 24 and employed in a $47K per year job in Washington. My expenses are high but I'm managing, with a little help from a trust fund each month.

That trust fund, and a second inheritance, will soon become available in full on my 25th birthday. Combined they are worth $1.065 million.

I have a family financial adviser who I plan to consult with. My initial concern is that I am continually pulling from one of the accounts each month, draining it, albeit at a slow pace (less than $2,000 per cycle, when needed). Are there any tried and true rules for inheritance gifts that I should follow (like leaving it intact in a Money Market?)

Thanks.

[jIM_Ohio]

The conventional wisdom with RETIREMENT planning is that if you withdraw 4%, the money can last for 30 years. Lower the percent and increase the years (like 3% for 40 or 50 years). If you withdraw 2%, IMO the money would last forever (because you could keep the dividends and let the principal keep growing- most good funds can yield 2% and grow principal 5% on average).

1.065 M suggests to me you could withdraw 3% ($31,950) and it would last into your 70s... this would suggest the money is invested in around 60% stocks and 40% bonds.

Ask the advisor what his "cut" is- because if he gets a percentage off the top, the 4%/30 years might become more like 5%/20 years or even 6%/15 years. The 4% withdraw rule does not include paying commissions.

If you research how to invest, you won't need the advisor for the investment side of things. Maybe you need him for estate or tax reasons... but not choosing or selling the investments.

A company like T Rowe Price will offer you a free advisor if you transfer $100k to them or have $500k in assets. You fit both criteria. I am sure Fidelity and Vanguard would offer you a similar benefit/service.

[responduser]

Its great that you have this 'lucky problem'. I wish I too had some excess money all of a sudden. Perhaps I could invest this, as the costs have come down quite a bit and it seems a really good time to invest.

It is good that you have a family financial adviser - yes, this is the way to go.

[GrimJack]

Here is a blog by someone who had the same 'problem' - it is a fascinating look at 3 years of handling an inheritance w/o going crazy. She still picks up change when she sees it on the ground.

[TBH]

I think your goal should be to get to the point where you are living on your wages only. It sounds like you are mostly doing that, which is great. You sound like a hard worker and a conscientious person. You will probably have to save less for big things like retirement and buying your first home than most people, but still, I would argue that you should try to wean yourself off living on the proceeds of the trust fund.

Definitely look hard at the "family advisor". The fees may not be worth it. They may be selling you a bunch of mutual funds that give them a commission, and you may be able to find funds that are just as good and cheaper for you to own. You may want to liquidate the account at some point, when you're ready, and move it to a discount brokerage firm like Vanguard or Fidelity (T. Rowe is also good) and manage it yourself.

Another idea is to make rules for yourself about how you can use the money, like using it to pay for medical and dental emergencies, or education, or to buy a house, but not for regular day-to-day living expenses.

Just my two cents. It's great that you have it, and it can have a very positive impact on your life, but I think you'll get a lot of pride and self-sufficiency out of supporting yourself without it.

[cptacek]

If you moved to a lower cost of living area, that $31,950 Jim was talking about would go further.

[EEinNJ]

A million bucks ain't what it used to be. In the long run, nothing's getting any cheaper, and at your age, you will need much more before you're done. Right now,I would put it somewhere very safe, and diversified, with a reputable firm. Also consider the tax implications, as taxes will chip away at it.
It may be tempting to make some investments yourself (or well meaning friends and family may come to you if they figure out you have money). Nobody learns without making mistakes, so if you can't resist, set aside a small portion and use that for "play" money.

[Broken Arrow]

Well, a good starting point is to start gathering all the information possible on the trust fund and second inheritance. You'll want to find out what the exact arrangement is, who is managing it, and what your limitations are with it.

Then, yes, I would take all that information and find yourself a reliable (and fee-only) financial adviser somewhere for consultation. Best of luck! I wish I had your "problem"!

Here is a blog by someone who had the same 'problem' - it is a fascinating look at 3 years of handling an inheritance w/o going crazy. She still picks up change when she sees it on the ground.

WHAT?! She totally did not tell me she's managing a boatload of mulla. Dinner's on her tab next time! (Which is probably why she does not tell me these things. )

[Snodog]

-deleted-

[zetta]

There was some guy that won $1 million in the lottery and turned it into $15 million -- might be worth reading about...

[gamecock43]

Somewhat difficult in this economy right now- but never touch the principle.