According to the Center for Retirement Research, two-thirds of baby boomers can expect an inheritance.
If you’re lucky enough to inherit money, you might wonder: how will an inheritance change my financial picture? For some, an inheritance could mean a drastic change in their finances. For others, inherited money might be a nice cushion against unexpected events.
If you do receive an inheritance, here are some tips to make the most of your loved one’s hard work:
Don’t blow it. Think carefully about how you can best use the money to further your financial goals. That’s not to say that you can’t spend any of an inheritance, but it’s very important to act in a careful and considered way. Your inheritance could mean many things to your family: college for your children, an early retirement, a larger nest egg, or a legacy for your loved ones.
Take a step back. Inheritances come in all shapes and sizes, and they can mean different things to your lifestyle and long-term financial picture. Take time to think about your situation and consider all of your options. If you share an inheritance with others, don’t rush into decisions based on someone else’s timeline.
Speak to a professional. A financial professional who understands your personal situation can help you understand your options and show you how you can use your inheritance effectively. When multiple family members are involved, a neutral expert can help keep discussions on track and find solutions that benefit all parties.
Remember rules about inherited Individual Retirement Accounts. Special rules apply when you inherit an IRA. If you inherit a Traditional or Roth IRA, speak to a qualified professional who can help you understand your options and obligations.
Don’t count your eggs before they hatch. While you might be expecting an inheritance, there’s no guarantee that it will arrive. Most people receive inheritances upon the death of their parent or grandparent. With today’s elders living well into their 80s and 90s, they may end up spending down more of their assets than you anticipate. Rather than count on an inheritance to finance your lifestyle, make sure that you’re saving enough to thrive anyway.
Inheritances can be a wonderful opportunity to use a loved one’s legacy to improve your life. Some of our clients have used inheritances to shore up their retirement nest egg. Others have chosen to use the money to support their family’s values and remember their loves ones through a family vacation fund or a second home where relatives can congregate. The important thing is that they made decisions that were right for their situations.
If you have any questions about inheritances or want to discuss your personal financial situation, please let us know; we would be happy to help you find answers that work for you.
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Originally published on February 8, 2016 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.