inheritance options

[dtbach]

Getting approx. $360K from an inheritance. Should I mingle it with present assets and take my normal 3.5% WR? Or as my wife thinks, keep it separate and use it as our vacation piggy bank?

With a military pension, SS and a low 7 figure investment pool, we can easily meet all our financial obligations. In fact, really don't budget much but live beneath our means.

Psychologically, if we keep the inheritance separate and use it to upgrade our vacations (longer cruises, upgraded cabins, 1st class flights, etc) it would be easier to justify the higher expenses. I know it really doesn't make a lot of difference, but its "found" money and I could raid it and watch it dwindle without worrying about our "regular" life.

Is this stupid?

[Sarah in SC]

I tend to believe that inheritances should be kept separate from your regular funds, for estate and planning purposes.

If God forbid you should get divorced, commingling of the assets would make it harder to establish the origin of those funds. Likewise, if you'd like to pass any remaining money along to your heirs, it is easier to keep separate if your spouse outlives you and remarries.

Not exactly cheery thoughts, but certainly reasonable to consider.

[rodi]

I'm Sarah's lemming on this. From an account management pov - keep it as a separate account in your name (or appropriately titled 'beneficiary' name if it's an IRA.)

How you use it is up to you and your wife.... but for legal reasons, I wouldn't commingle the holdings. Commingling the spending is fine.

I received an inheritance several years ago. I still have it in a separate account. That said - I use it as part of our overall nest egg for planning purposes. (Got it before retirement and it accelerated retirement by 2 years.)

I like your wife's idea of using it for perks. That's a fun way to use it, and you'd think of your parents as you enjoyed the upgrades.

[mpeirce]

> Is this stupid?

No.

If you want to up your spending this is a good way to "justify it."

You'll probably spend this money quicker with this approach - if you lump it into your assets and stick to your 3.5% WR, you can increase your spending, but less so and so it'll last longer.

It really comes down to personal preference.

[utrecht]

Since you are totally fine without the money, I would keep the money in a separate mutual fund or funds and withdraw about 6% per year and totally splurge with that money. Vacations, a big new TV or whatever "wants" you have. Since you don't need the money, you dont have to worry about running out of money if you over spend by withdrawing 6% but it will dramatically increase your standard of living as far as vacations and splurges go. If you run out at some point, so what. Odds are you wont run out of money for a very long time anyway. It would be pretty hard for it not to last 25 years.

[MBAustin]

Another vote for keeping it in a separate and individually titled account, and for spending it on luxuries/upgrades. If you don't need it otherwise, then I wouldn't worry about setting a WR. I'd just tap into it whenever the occasion comes up and when it's gone, it's gone. I hope you will have some good memories of the person you inherited it from to make all of those luxury purchases even more special.

[dtbach]

I like the way you all think! I thought I was being silly but your ideas do make more sense in keeping it separate. And I will think of my folks when upgrading a cabin or adding on a few more days to a cruise!!!

[Meadbh]

I like the idea of keeping it separate. That way, when you spend it on something you enjoy, you can say "we went to Fiji on Uncle Joe's money" and you can drink a toast to him when you are there. A great way to remember a loved one!

[Throwdownmyaceinthehole]

I got a 50k inheritance a few years back and wish I had kept it in a separate account for vacations etc as DH puckers every time I book another trip, even tho I am pretty frugal as I like to travel, a lot. It would give me great pleasure to tie it back to my mom, and how happy she would be to see it spent. Maybe I will upgrade our next trip....we just spent 2 weeks camping thru New Mexico, Colorado and Utah, then we leave in 7 weeks for 2 weeks in South Africa, again, doing it cheap. This FIRE is hard yakka

[ExFlyBoy5]

I agree on keeping it separate. Plus, a paltry 3.5% return is over $12,000 a year...that could fund some pretty nice vacation upgrades.

Sent from my mobile device so please excuse grammatical errors.

[dtbach]

Quote:

Originally Posted by FlyBoy5 I agree on keeping it separate. Plus, a paltry 3.5% return is over $12,000 a year...that could fund some pretty nice vacation upgrades. Sent from my mobile device so please excuse grammatical errors.

And a 5% withdrawal gets me $18,000/year. That will make for some fine upgrades I think!

Thanks Mom and Dad!!! Only thing is, I wish you had spend more on yourselves over the years. But they were products of the Depression.

[Nunthewiser]

^^ I am in just about in the same spot you are in. Mom just died and left $300K and a house worth $100K (that she didn't upgrade in 30 years). I will be keeping the assets separate. I was married once before and learned that lesson myself.

[redduck]

Seems unanimous so far: use a separate account and upgrade what you enjoy and celebrate the parents when you do. I'm envious.

[EastWest Gal]

There is a 100% here in favor of keeping the money separate. I'm going to play devil's advocate here. I received a large inheritance, about $1.2M in income property and investments when my dad passed in 2009. After 25 years of marriage, neither DH or I see anything changing. We had set up our investments and business stuff in a family limited partnership. I comingled the majority (2/3) of investments with with what we already had, then between 2009 and 2014 the equities skyrocketed and FIRE became possible.

The inherited IRA must be kept separate, and I kept income property and a Treasury account separate.

For us it never occurred to me to keep it separate. We shared being broke together. We shared losing our parents one by one. We shared our many intolerable relatives over 31 years of marriage and have known each other since 1975. Why would I not share one of the most positive things to happen to me?


Sent from my iPhone using Early Retirement Forum

[ExFlyBoy5]

Quote:

Originally Posted by dtbach And a 5% withdrawal gets me $18,000/year. That will make for some fine upgrades I think! Thanks Mom and Dad!!! Only thing is, I wish you had spend more on yourselves over the years. But they were products of the Depression.

Yep. My Dad has more money than he could most likely spend in his remaining years, but can't bring himself to spend a dime! But, I think he truly loves the fat bank account much more than a stainless steel fridge.

That is something I have noticed...a know a lot of older folks (70+) and they really don't update anything. I often wonder if it's not wanting to part with the $$$ or just the thought of updating something is just stupid. My Dad's place is like that...the last good update was in the mid 80's but it doesn't bother him in the least.

[Meadbh]

Quote:

Originally Posted by EastWest Gal There is a 100% here in favor of keeping the money separate. I'm going to play devil's advocate here. I received a large inheritance, about $1.2M in income property and investments when my dad passed in 2009. After 25 years of marriage, neither DH or I see anything changing. We had set up our investments and business stuff in a family limited partnership. I comingled the majority (2/3) of investments with with what we already had, then between 2009 and 2014 the equities skyrocketed and FIRE became possible. The inherited IRA must be kept separate, and I kept income property and a Treasury account separate. For us it never occurred to me to keep it separate. We shared being broke together. We shared losing our parents one by one. We shared our many intolerable relatives over 31 years of marriage and have known each other since 1975. Why would I not share one of the most positive things to happen to me?

There are two issues here. The commingling issue I won't deal with, because I'm single.

The other issue is whether it is "better" to incorporate an inheritance into one's overall portfolio. Of course, money is fungible, so it really doesn't matter. But I do think the size of the inheritance makes a difference. Like you, I received a large inheritance when my surviving parent passed away. I did a completely new financial plan based on the new reality. While my inheritance was a little less than yours, it was a life changing amount, almost doubling my NW. It made me FI and it was the catalyst to thinking about ER.

If I had been FI or ER, with my withdrawal plan all set up, and then inherited a smaller, non life changing, but meaningful sum, such as the OP has, I might have kept it separate as "fun money" too.

Last year I received another small inheritance. It might have been enough for two modest trips. Not enough to change my lifestyle, though a very nice surprise. I just used it as general revenue, enabling me to decrease withdrawals, and hence, taxes.

There is no "wrong" answer here.

[Meadbh]

Quote:

Originally Posted by FlyBoy5 Yep. My Dad has more money than he could most likely spend in his remaining years, but can't bring himself to spend a dime! But, I think he truly loves the fat bank account much more than a stainless steel fridge. That is something I have noticed...a know a lot of older folks (70+) and they really don't update anything. I often wonder if it's not wanting to part with the $$$ or just the thought of updating something is just stupid. My Dad's place is like that...the last good update was in the mid 80's but it doesn't bother him in the least.

Many older people get comfortable with their surroundings and don't want upheaval and constant change, even when it would make life safer or more convenient. You will probably feel the same way some day!

[ExFlyBoy5]

Quote:

Originally Posted by Meadbh Many older people get comfortable with their surroundings and don't want upheaval and constant change, even when it would make life safer or more convenient. You will probably feel the same way some day!

Someday? Shoot...I'm there NOW!

Sent from my mobile device so please excuse grammatical errors.

[Meadbh]

Quote:

Originally Posted by FlyBoy5 Someday? Shoot...I'm there NOW!

From Top Gun to Old Curmudgeon in one step, eh?

[mpeirce]

Quote:

Originally Posted by EastWest Gal For us it never occurred to me to keep it separate. We shared being broke together. We shared losing our parents one by one. We shared our many intolerable relatives over 31 years of marriage and have known each other since 1975. Why would I not share one of the most positive things to happen to me?

I agree with you, but I can see the other side too.

25 years ago my wife and I had few assets and we built everything together. I can't really imagine "my" money and "her" money. Anything that we get from any source just comes in as "ours."

On the other hand, one of my brothers had very "bad luck" with his two marriages. He walked away from each one with essentially no assets. He now vows to never get married again and I can see his point. And of course he no where near ready to FIRE, sadly.