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Help a Reader Who Inherited $10,000

This article was written by in Personal Finance. 20 comments.


Does anyone have advice for Sibyl? She commented on an article reviewing Jane Bryant Quinn’s latest book with a question pertaining to her own finances. Sibyl was kind enough to include many details about her family’s finances.

I have some suggestions, but this is always a good opportunity to have readers provide theirs as well.

Here is her story:

I just inherited $10,000. What do I do with it so that it earns rather than loses value? I currently have it in a checking account earning 3.25%.

I’m female, age 61, and married. Our income comes from my husband’s retirement ($1,700 a month), two annuities ($1,040 per month and $2,000 per year), and a part-time job ($20,000 per year). I do not work outside the home.

We can collect Social Security in January 2011 as we will both be 62 in October. My husband expects about $1,700 a month from Social Security and I expect about $700 a month. He hopes to retire after we receive Social Security. Is this a good idea or should he keep working?

We have no expenses except the household (our cars and house is house are paid for). Our current credit card debt totals $3,000 at 0% and we have about $8,000 in savings earning 3.48%.

After my mother’s estate is settled in January 2012, I may receive as much as $100,000. Should I ask again at that time?

My opinions: It sounds like Sibyl is in a solid financial situation. Her main question is what to do with the $10,000 inheritance. First, a 3.25% is a great interest rate for a checking account right now. At this time, cash flow doesn’t seem to be a problem, although I’m confused about the $1,700 a month they are drawing from his retirement right now. Debt is not a problem either. Since cash flow is covered, I think Sibyl should consider investing the $10,000 in a mix of tax-advantaged bonds and stocks with a time horizon of twenty years or so.

Sibyl’s next question is whether her husband should retire or keep working. Although she has provided her annuity income, but I’m not sure about the terms of the annuities. Annuities have a tendency to be too expensive for the benefits they provide, but they can offer some stability in income along with growth. The biggest danger with annuities would be the penalties you have to pay in order to access your money if needed.

If Sibyl’s plans for retirement are modest, they should be in a good position for her husband to stop working when he would like to do so.

An additional inheritance of $100,000 will be a nice shot in the arm. Sibyl didn’t mention children, so I’m not sure if she has pans to pass her estate down to another generation, give all her funds away to organizations, or spend all that is left on her “bucket list.” $100,000 will help boost any of these goals.

Keep in mind I’m not a financial adviser. These are only my opinions and I can’t be held liable for the results of any actions made based on information posted on Consumerism Commentary.

What advice would you give Sibyl and her husband?

Published or updated January 21, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar Jim

They have $3k in debt and $8k in savings. Thats not a lot of cash on hand really considering their monthly income levels. I’d keep that $10k in the checking at 3% as an emergency fund. Or they could put the $10k into Roth IRA’s. $5k each for him & her. Since he has earned income with the PT job they can do that. If they need the money they could then get the principal back out. But I’d put it in something safe like a CD.

If they take social security at 62 then it will be worth a lot less. If they expect $1700 at age 62 from SS then they could get like $2200/mo if they wait till 66. Thats $6k more every year for life if they wait just a few more years. They’ve already got about $35k coming in other than the part time job. Can they live off that? If not then maybe they could cut back on their spending? Or he could just keep working or she could work instead.

So: I’d say they WAIT on taking SS and then either get buy on their income or keep working part time a few years.

When they get the $100k, I’d put that in a relatively safe investment like bonds or bond funds.
They are fairly old to be gambling their money in the stock market. They have good retirement income so there is no reason to take risks betting on higher returns.

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avatar sibyl barnwell

The $1700 was the estimate given based on data through 2008.

I think the CD is a good idea if I could find one at 3.25% or better.

Our expenses are modest: cell phones for two $99 – we don’t text, no Internet, etc; cable, phone, Internet service $109; electricity averages $140/mo; water&sewer $40; our tithe at church; gas for work (no uniforms) and travel – he gets about 8 vacation days a year; taxes on house $900), 3 cars and a camper which are low since we have older model vehicles (1985 camper, cars 1992 – 2000); food. We buy as many of our clothes as we can at Goodwill.

After reading this, I think another late model vehicle is in our future in 2012. We never buy new cars.

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avatar Outlaw

May just be me, but I treat “windfall” money differently from earned money.

If you earned $10,000 with sweat and hard work (or hours in an office somewhere, at least), you would want that money to work very hard for you in turn. And you would want to protect your principal from any possible loss.

With a windfall or inheritance, I think it’s better to think of it as the house’s money. You didn’t really earn it, so you can afford to take on (slightly) more risk with it:

1. Enjoy yourself. So I would take $1,000 to $2,000 and go on a really rockin’ vacation with your husband. Maybe even $500 is enough; there are some awesome cruise deals right now, and maybe you only need a 3-night mini-vacation.

2. Put the rest into a broad ETF, something that is pretty much a total market index with a very low expense ratio. Set it and forget it. Come back and check on it in 10 years.

(Disclaimer: These are just my opinions. Stocks and ETFs can, and often do, lose value. I’m not responsible if this happens.)

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avatar sibyl barnwell

Ten years is a good time frame. This is when my parents began to stay at home all the time because they were having their heart/bypass surgeries. LOL

I had thought about taking my son, his wfe and our only grandchild on a rocking cruise for Christmas this year. He’s Air Force. After Afghanistan, it will be a real treat for him!

Thanks for in input and insights. I know I have to make my own decisions re: this money AND take full responsibility and accountability for the outcome.

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avatar Jim

Another thought: Does his job happen to offer a 401k with an employer match? I’m guessing it probably doesn’t but some PT jobs do have the option. If he has that option I’d put up to $10k into the 401k over the next year or two and then use the $10k to supplement their existing expenses. That way they’d get the employer match and a tax dodge. If theres no 401k matching funds then forget about it and do the Roth IRAs.

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avatar sibyl barnwell

Yes he has a 401K at his part-time job and his employer does put into the fund. I don’t know if it matches or not.

We have always based our living expenses on my husband’s income so we don’t really need to supplement our existing expenses.

I will talk with my CPA re: how to best dodge those taxes!

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avatar Apex

I want to second nearly everything Jim said.

I would keep the 10K fairly liquid. It’s not enough to make a substantial difference from a growth standpoint. The 100K might be a different story but I would not tie up the 10K.

The more important thing is taking SS at age 62. Unless you must, I highly advise waiting until 66. I find that its almost always a bad idea to take it early. I have had multiple relatives do this and they still end up working part time in retirement doing less than desirable jobs to supplement income. Please do not take SS early unless you can look at your finances and know that there is almost no chance that you will end up with not enough to live on when you are 85.

The objection I most often hear to this is, I might not live that long and then I will lose all that money that I could have had if I took it now. My response to this is very simple. If you don’t live that long you will obviously be dead, and as a dead person, you won’t care about the money you missed out on. However if you do live to be 85 or 95, then you will not be dead, and not dead people definitely do care about the money that they have available to live on and the money you drew early will be long gone leaving you with a much smaller payment at age 85. By age 85 that difference in payment will make a significant impact on how you are able to live at that time in your life.

Sometimes it does make sense to have the person who can draw the least draw as soon as possible and then have the person who can draw the most wait as long as possible (even to age 70 if you can afford to do that) (usually that means the woman draws first). This way you start getting access to some of those funds right away but since women usually live longer and the spouse draws the full amount of the husband if the husband dies then the spouse will have a much larger draw later in retirement. But if the husband starts drawing right away that will potentially leave the wife with a substantially smaller draw later in life.

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avatar sibyl barnwell

Genetically speaking, he will outlive me. His people live into their 90′s with little to no health problems (they just wore out). My people have cardiovascular problems and I don’t plan on having surgery after surgery just to live longer.

I began working summers at 14 and my husband worked in high school & put himself through college. I think that is one of our considerations. I think we are really wanting to be ‘free’ for a while and devote our time to charitable organizations, like Water Missions International here in town, while we’re still frisky enough.

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avatar Kimberly

I think they should put the money in Roth IRAs while they still have earned income.

As to what type of investment to choose, I am unsure. I keep my own investments simple (index funds or target retirement date funds), but I’m also 30 years younger so I’m mostly in stocks.

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avatar Kyle

I would say pay off the $3,000 CC debt, no question. The fact that they have any CC debt, however, is troubling. It means they probably aren’t living within their means. Which in turn means perhaps they’re stretching to get by on their income. The extra $2,700 per month from social security will certainly help, but that still doesn’t seem like a huge cushion. I’d keep the remaining $7,000 in cash as an emergency fund. I would also advise the husband postpone retirement for a few years. Even an extra 1 or 2 years will make a significant difference.

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avatar sibyl barnwell

Our credit card debt is $800 at 0% for six months (a used piano). The balance is at at-home business I started in Oct 2009. I’ll be able to used the ‘loss’ for tax purposes. The interest rate on this is 2.9% for 18 months. I don’t plan on investing any more capital into this business. If it can’t generate a cash flow to support itself in 2010, then it would be foolish to invest more in it.

We do live modestly. Our activities include movies, dining with our friends from church, visiting relatives scattered along the East Coast, which, at our age, are getting fewer and fewer. We have gone on missions trips to Haiti and to the Gulf Coast after Katrina but our church funded us completely except for a couple of meals.

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avatar lynn ♦155 (Cent)

Kyle, This is not always the case with Boomers. The interest is 0%, so they are using their finances wisely. They could pay this off anytime they’d like.

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avatar Financial Samurai

Main Question for Sibyl is where can I put my money in a checking account earning 3.25%? That is sweet!

Just save it for a rainy day is what I say. And please please don’t count on the 100K from your mom. Just doesn’t seem right. Expect it to never come and focus on what you can control

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avatar sibyl barnwell

The $100,000 will come from the sale of their business which is 11.9 acres in prime real estate. Someone is leasing the property with option to buy in Jan 2012. Even if they don’t exercise the option, the property is currently valued at $1M. Since it generates rental income at present, it would continue to generate income even if it wasn’t sold.

The 3.25% we enjoy is at First Federal.

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avatar Holly

I definitely agree w/the poster who advises keeping the $10000 as an emegency fund.

Also, it’s nice to want to send your son’s family on vacation, but what about a less expensive treat, like a weekend bed-and-breakfast getaway for just the couple while you babysit? Keep the rest of the money in a hard-to-access savings account or cd so that you can rest easy in the event that the cash may be needed for more pressing needs.

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avatar Jackie

I think there are a lot of different questions here that should be evaluated as a whole. Taken separately, they are easier to respond to.

What would I do with a $10,000 windfall? The same thing I’d planned on doing with the next $10,000 I earn.

What would I do with $3000 in debt? Pay it off ASAP, regardless if the interest rate. I hate debt, and my money goes so much further now that it’s really mine.

Would I take social security at age 62? In my case, probably not if I’ve lived that long. People in my family who make it past 55 tend to live into their early 90s. Having no idea what the future will be like then, the potential for a little more cash each year is probably worth the wait, especially if I was already doing ok without it. However I would also investigate what happens if one of us takes it at 62 and one takes it late, etc.

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avatar JoeTaxpayer

I understand the tendency toward wanting to spend a windfall differently than income, but I’d advise against it. It’s what makes lottery winners go bankrupt more often than not.
For anyone, pay off any credit card debt first. If any money is left, revisit how your emergency fund is doing, 6 months expenses is an ok target. After that, why not pay toward principal on the mortgage, nothing like knocking a few years off the back end.
Every one wants the approval to go on a spending spree. Sorry, that would never be my advice.

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avatar Same situation!

Unless this money is from life insurance policys (which do not have an inheritance tax) you are going to have some big taxes to pay to Uncle Sam. Big taxes, can be 45% or more depending. Consult that cpa. Sounds like this is more money that your used to and it may seem simple but you can bet IRS will want their share. And the state.

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avatar JoeTaxpayer

Big taxes on $10,000? You might want to read a bit. The only way tax would be due is if the $10K were inside an IRA, in which case the beneficiary can take it out over their lifetime and pay minimal taxes.
If the estate were large enough, it would owe tax before distributing. The beneficiary is not the one to pay the estate tax.

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avatar Sibyl Barnwell

Well, here it is the end of the year. I still have about 1/2 of the money left.

We did take a rocking vacation to Chile, South America. We went there on a mission trip after their earthquake, made lots of friends and decided to return in October as a birthday present to both of us.

It was probably the best vacation I’ve ever had. We are hanging onto the $$ in a 3.25% interest bearing checking account. We hope to return to Chile in early 2012.

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