It’s usually a pipedream people entertain to explain why they aren’t working on their financial plan today: “As soon as I win the lottery…” “When I get my inheritance…” “If only I had a million dollars…” Such wishful thinking is not a replacement for a solid retirement savings plan. However, every so often someone does hit pay dirt. Case in point:
I just inherited one million dollars. What now?
Lois and George, both in their late 50s, found out that George inherited one million dollars from his uncle Stanley. They have questions:
- Can they quit their jobs and live off the income from this money for the rest of their lives?
- Can they buy a new house, car, or boat? Maybe all three?
- Where can they get solid financial advice that’s not a pitch for a salesperson to make their quota?
Let’s take their questions one by one.
Can you live on the interest of a million dollars?
In an after-tax account, one million dollars can create about $40,000 of spendable income each year for as long as both of them live. That’s $3,333 per month—probably not enough for the average retired couple. However, if they wait until age 70 to get the maximum Social Security income, the combination of Social Security and distributions from the one million might get them through.
Can you buy some new stuff with your inheritance?
Well, they could, and most folks do. The average American inheritance lasts 18 months and then it’s gone. The risk with getting a bunch of stuff is that stuff often brings maintenance costs or other long-term expenses that eat into your savings. Plus, then you’ve spent your money and have nothing left for retirement. These choices can be tricky and should be carefully considered with some outside advice.
Where can you get good financial advice?
A financial advisor who works as a fiduciary is obligated to serve your interests at all times. They are your paid advocate. And if they are compensated via fees only, there is no worry that they have a financial incentive to recommend products because of a commission they would get. Fee-only fiduciaries can be found at lots of firms, so be sure to ask very specifically:
- Will you be my fiduciary?
- Will you work on a fee-only basis?
Lois and George did quit their jobs—at age 60. They got different jobs that are more fun with better hours, but still with a group health plan. They plan to cut back their work hours as they hit age 70. They now have a solid financial plan for the rest of their life:
- They know what they are spending each month and how they are paying for it.
- They have enough life insurance to care for each other when each of them passes away.
- They have long-term care insurance to be sure they have more choices in their old age care.
- They have a plan to maximize their Social Security benefits.
- They have money set aside to supplement Social Security and cover their monthly living expenses for as long as they live—which is good because they’re planning to see age 100.
- They have money set aside to visit all the grandkids twice a year.
- They have money set aside to provide a nice trip every year for the five years starting in the year they turn 70.
- They have an estate plan to provide for their family and the causes about which they care.
Next time you inherit a million dollars or win the lottery, give me a call at 612-436-3770 or e-mail rdunn@dunncreekadvisors.com. I’m always happy to meet with people who have questions about their financial future.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.