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My financial future
Old 02-09-2013, 07:50 PM   #1
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My financial future

As some of you know I recently discussed how I inherited around $225k. I am very fortunate to inherit this and have not spent any of it and will invest it for the future. I am in my mid 20s, work in finance, and am currently saving about $10k a year into a roth 401k. My NW is about $280,000, primarily due to the inheritance.

I have been advised that I will inherit around $2m (in today's dollars) throughout the ages of 30-45. Again I realize I am lucky and fortunate.

I am not posting this here to brag but to generate conversation. I do not / cannot / chose not to discuss this with anyone other than my immediate family, and even with them, we don't go into detail.

Realizing that I will inherit such large amounts of money is weighing heavy (not in a bad way) on my mind lately. I realize that I am leagues ahead of my peers, financially. I realize that I may be able to realize financial independence at a young age in life and therefore be able to fulfill my time with more meaningful activities vs the daily "corporate grind".

My long term plan, as it stands now, is to continue focusing and progressing at my career. I will admit, sometimes it is challenging to maintain my drive and efforts.

However, every financial calculator I've played around with, including the Fire Calc, says that I could retire with $70k-100k income, adjusted yearly for inflation, as early as 30-40 assuming $2m + 280K is invested from now until I am 35-40.

Again, I'm not posting this as a bragging outing, but because I do not discuss with most of my social circle.

If you were in my shoes, how would you handle things?

Would you give up the corporate grind and pursue something more meaningful (perhaps volunteering or teaching) where I could earn a small salary, and therefore delay ER?

Also, do you recommend that I ignore contributions to retirement nontaxable accounts (roth 401k, IRAs, etc) if I do plan to retire early?
I am currently e most of my yearly savings to my roth 401k; however, I have been told that you can withdraw your principal in your roth accounts before 59.5 with no penalty BUT you must leave in the earnings.
Do you think I should just contribute most of my savings to my brokerage account so all of my money is available to me at any time in my life (not just the principal)?a

Thanks for your input.
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Old 02-09-2013, 08:03 PM   #2
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My advice?

Do not tick off your parents! Don't count the chickens until you have the eggs! Do not hitch up with LiLo (that is true for you and your father) !
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Old 02-09-2013, 08:12 PM   #3
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Until you have actually received the larger inheritance (or, at least, until it is legally set aside in a segregated fund of which you are the sole beenficiary), I would plan your life with the possibility that either some or all of it may not actually eventuate. There are all sorts of things that could affect whether and what you inherit - changes to tax laws, law suits, bad investment decisions, fraud etc.
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Old 02-09-2013, 08:13 PM   #4
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Congratulations on the 6 figure inheritance! Glad to hear you are planning to invest it.

My advice would be to continue living your life as if you had never heard about the $2-3m. It is not yours yet, and "there's many a slip twist cup and lip". That is, your future benefactor could go broke, change his or her mind, or disinherit you. Try to stay motivated on living well, below your current means, being fulfilled, and making a future for yourself. If and when you inherit, it will be icing on the cake.
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Old 02-09-2013, 08:26 PM   #5
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+1 While it would be great if it happens, don't count your chickens before they are hatched.

I had a good friend who was not very disciplined in savings and investing, in part because he was counting on (and had been promised) a large inheritance when his parents passed. For a variety of reasons, some that were and some that were not of his own doing, it didn't happen as expected. As a result, he is still working. Mind you, he is not destitute or doing poorly, just not near as well as he expected based on what he was "promised".

I expect a nice inheritance as well, but it isn't part of my plan and will be "gravy" if it happens.
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Old 02-09-2013, 10:47 PM   #6
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Be careful about counting on an inheritance. Many currently unforeseen things could cause that windfall to disappear. Agree 100% with advice to live your life as if you were 100% on your own.
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Old 02-09-2013, 11:04 PM   #7
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Your 20s are a good time to learn how to make it on your own. Later in life such skills can be more valuable than money, and tougher to catchup-learn. Any inheritance, if it happens, will be icing on the cake of your self-made life.
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Old 02-09-2013, 11:52 PM   #8
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What everyone else has said.

Act as if you are not getting the inheritance then, if and when you receive it, it will be icing on the cake, albeit a very large dollop of icing
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Old 02-10-2013, 07:38 AM   #9
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Yup, others beat me to it. Don't count on it until it happens. (Of course, it already has happened if it is coming from a non-revocable trust from a relative who is deceased.) Even when the money is in hand make sure you are comfortable with your life style before you pull the plug on work at such an early age. Burke, sure, looking toward your passion rather than a grind will certainly be possible if the inheritance comes to pass.
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Old 02-10-2013, 07:46 AM   #10
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Quote:
Originally Posted by younginvestor2013 View Post
If you were in my shoes, how would you handle things?
You & I may have/had a lot in common. While in my twenties, I was fortunate enough to inherit a modest amount of money (albeit a lot less than you) with the promise/assumption of inheriting more (a FIREable amount) in my forties.

Also, like you, I had no one to discuss this with... money had always been a taboo subject in my house.

In short... hard work and self reliance was the only thing that I knew could be counted on. My family's work ethic was also one which would have prevented me from coasting through to the collection of an assumed inheritance. So, throughout my twenties/thirties/forties... I toiled, saved, invested; always with my personal FI goal in mind.

Then, in my late forties (within a year of achieving my goal)... I inherited an amount that pushed me pasted the goal line, triggering my ER.

It sounds like you have a pretty good head on your shoulders... so I'll offer this advice.

- As difficult as it may be, nothing beats the sense of accomplishment gained in working your own way to FI.

- 15/20 years is a long time. Even the best laid plans can change. Assumed inheritances can be "stolen" by opportunistic people (second marriages, step-children, divorce, etc.).

- Even if you're 50 by the time you ER... you'll still have 30 - 40 years of freedom. Plenty of time to "give up the corporate grind and pursue something more meaningful."
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Old 02-10-2013, 08:05 AM   #11
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Good advice. I'm glad to see someone responsible falling into this kind of inheritance, as it can also be a life wrecker in many ways. Just Google "lottery winners, bankruptcy"
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Old 02-10-2013, 08:31 AM   #12
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My thoughts exactly.

Quote:
Originally Posted by GrayHare View Post
Your 20s are a good time to learn how to make it on your own. Later in life such skills can be more valuable than money, and tougher to catchup-learn. Any inheritance, if it happens, will be icing on the cake of your self-made life.
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Old 02-10-2013, 09:15 AM   #13
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You also asked about financial planning for your savings. I agree strongly with the warning not to count on the future inheritance, but the first inheritance does put you a few steps ahead in planning. For me, I would increase or MAX my Roths now as you know you have this additional money. You can't get this time back and the tax free withdrawls someday might look pretty good!
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Old 02-10-2013, 09:32 AM   #14
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Good advice from everyone. Not much I can add.
To "younginvestor2013" you are most fortunate and congratulations. Act like "it is not there" and "is not going to be there" and go about your life. Those things you accomplish and achieve on your own will be the things that are important and mean the most to you in later years. Those are the things that will help sculpt the person you will become. This is why the really rich do not want money going to their children at young ages, or why they give a large percentage of their assets to charity. They know..."easy" money is not the route to happiness.

I have a nephew who has done functionally very little but traveled the world from college until now. He is now 32. Recently, he wanted "in" on the multigenerational family business as a third generation family member. He is not taken seriously by the family and is perceived as wanting a "soft landing" because he has done little or nothing to prepare himself for the family business (i.e., not one business course). He is perceived this way because he acted this way and made statements of "entitlement" over the course of the last two years. Consequently, he was told "not yet. To go do something else first, work for someone else..yada, yada, yada."

In other words, build a life without the inheritance in mind, strive for "respecting yourself" and being "proud of your own accomplishments". You will be far happier in the long run.
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Old 02-10-2013, 09:44 AM   #15
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Quote:
Originally Posted by younginvestor2013 View Post
If you were in my shoes, how would you handle things?

Would you give up the corporate grind and pursue something more meaningful (perhaps volunteering or teaching) where I could earn a small salary, and therefore delay ER?

Also, do you recommend that I ignore contributions to retirement nontaxable accounts (roth 401k, IRAs, etc) if I do plan to retire early?
I am currently e most of my yearly savings to my roth 401k; however, I have been told that you can withdraw your principal in your roth accounts before 59.5 with no penalty BUT you must leave in the earnings.
Do you think I should just contribute most of my savings to my brokerage account so all of my money is available to me at any time in my life (not just the principal)?a

Thanks for your input.

Whether you give up the corporate grind for a more satisfying pursuit is a personal decision only you can make.

I would not advise you to give up IRA contributions. It, at least for now, will lower your current taxes.

Continue to fund your IRA's and putting the residual in taxable accounts. There are many posts on this forum about the benefit of having "different buckets" that have different tax benefits to pull from in later years. (i.e., taxable, deferred IRA's, Roth IRAs, SPIA's, etc. ).
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Old 02-10-2013, 10:08 AM   #16
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I had very good friends in a similar situation 20 years ago. Everything was going to be easy street when the family trust funds paid out...we heard about it for years as we were planning on how to pay for college, pay off a mortgage, save for retirement...they always had this "ace in the hole"...until...

Intra-family lawsuit wiped out part of the inheritance and then grandpa got a girl friend. Family had pissed him off so much he just left it all to the girl friend. They got on a plane for the estate readout after the old guy died thinking they were going to come back millionaires. They actually flew home with enough money to pay off their minivan.

There's an old saying that "people plan and God laughs."

Go make it on your own kid. If you get the bucks later, it will be great. If you don't, it will still be fine.

Good luck.
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Old 02-10-2013, 10:23 AM   #17
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What everyone else said + if you think you'd be a lot more fulfilled teaching, then why wait for a possible multimillion inheritance to do that? Being a teacher is a proven route to FIRE. Don't postpone your dreams, if you can afford them.
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Old 02-10-2013, 10:55 AM   #18
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Old 02-10-2013, 10:55 AM   #19
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Quote:
Originally Posted by younginvestor2013 View Post
As some of you know I recently discussed how I inherited around $225k. I am very fortunate to inherit this and have not spent any of it and will invest it for the future. I am in my mid 20s, work in finance, and am currently saving about $10k a year into a roth 401k. My NW is about $280,000, primarily due to the inheritance.

I have been advised that I will inherit around $2m (in today's dollars) throughout the ages of 30-45. ...

If you were in my shoes, how would you handle things?

Would you give up the corporate grind and pursue something more meaningful (perhaps volunteering or teaching) where I could earn a small salary, and therefore delay ER?

Also, do you recommend that I ignore contributions to retirement nontaxable accounts (roth 401k, IRAs, etc) if I do plan to retire early?...
Do you think I should just contribute most of my savings to my brokerage account so all of my money is available to me at any time in my life (not just the principal)?....
You seem to have such a good head on your shoulders (you handled the first windfall nicely, you work in finance, etc.) that you will no doubt make good future choices too. So these are just opinions.

I do not think you should change your current situation in anticipation of the future. Maybe you are the heir partly because you have shown yourself to be fiscally responsible so changing to what you think may be more meaningful careerwise now might affect that. You'll be able to help out a lot in those areas in a few years with both your time and your money. And for whatever reasons, you chose not to go into those fields before when you were making career decisions, so maybe think about those reasons?

I think keeping up your typical Roth 401k and IRA contributions from your income as if you were not expecting the future windfall is a good idea--you won't need to have those funds available to you anyway.
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Old 02-10-2013, 11:20 AM   #20
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I have been advised that I will inherit around $2m (in today's dollars) throughout the ages of 30-45. Again I realize I am lucky and fortunate.

...
If you were in my shoes, how would you handle things?
I'm the uber-thinking/planning type, so I would analyze this to death 7 ways from Sunday if I were you.

For starters, as others have pointed out, the future could be different than you expect. The way you describe it ("throughout the ages of 30-45"), it sounds like you'll be receiving distributions from a trust that is already legally set aside and is legally yours and yours alone. Is this correct, or is your $2M part of someone's current estate who is still living, and will likely pass on when you are 30-45?

If the $2M is legally set aside in a trust that you are 'guaranteed' to be the beneficiary of, I would next find out what the terms are of this trust - who is managing it? What are the fees?

It's quite sad to hear of the many situations where a well-intentioned elder sets aside large funds to something as honest-sounding as a bank trust company, only to have the bank trustee (who bears a fiduciary liability to the heirs to manage the trust in their interest) stick it in high fees/high kickback mutual funds that underperform the market - not to mention tack on "trustee administration fees, lawyer fees, etc."

If the latter is the case, that $2M in today's funds could honestly be worth $2M OR LESS in 10-15 years from now (i.e. just barely tracking inflation, or worse!). While still a nice stash, it could considerably effect the inflation-adjusted values you could take from it compared to a diversified stash in Vanguard cuthroat expenses mutual funds.

If the funds are in a trust, and your relatives have explicitly told you of the existence of this trust, I would make my presence known to the trustee that you are aware of the ins and outs of the finance industry, and that you will be examining the holdings of the trust and want to see copies of all required quarterly/annual reports of the holdings, and that you expect the funds to be in low-fee mutual funds and adequately diversified.

From being a member on this forum, you are already aware of how few people in the world are even aware of the aspect of how fees impact performance, so the trustee is likely banking on you and the other heirs just not caring what the investments are in - all they want is that money coming to their hands.

Quote:
Originally Posted by younginvestor2013 View Post
Would you give up the corporate grind and pursue something more meaningful (perhaps volunteering or teaching) where I could earn a small salary, and therefore delay ER?
Depending on your first answer - even if the funds are legally yours, I would discount it somewhat both for the effect of a crappy trustee mutual fund selection, as well as possible legal expenses of lawsuits to get some funds by other heirs. Perhaps not a HUGE discount, but some reduction. As such, I personally would still pursue a career that pays the bills and lets you max out your 401k - but I wouldn't pick anything that causes a great deal of stress or subjects you to hazardous conditions to increase your income.

Just realize that EVERY job has its pluses and minuses - ANY career you pick will have a few pain-in-the-@ss coworkers, or a micromanaging boss, or a company that has crappy benefits, or a customer that is uber demanding, etc., etc. It's up to you to figure out what are bigger issues than others.

Quote:
Originally Posted by younginvestor2013 View Post
Also, do you recommend that I ignore contributions to retirement nontaxable accounts (roth 401k, IRAs, etc) if I do plan to retire early?
I am currently e most of my yearly savings to my roth 401k; however, I have been told that you can withdraw your principal in your roth accounts before 59.5 with no penalty BUT you must leave in the earnings.
Do you think I should just contribute most of my savings to my brokerage account so all of my money is available to me at any time in my life (not just the principal)?a
I'm a big believer in diversification for both portfolio holdings as well as current/future tax rates and policy changes.

Since it sounds like your inheritance will be in after-tax funds (unless it's mostly in a beneficiary IRA, with required minimum distributions), I would want there to be some funds set aside in a tax-advantaged retirement account simply for the ability to help pick different investments (like higher dividend/bond holdings in my IRA to let the funds reinvest without paying taxes on it). Also, there are some benefits like lawsuit protection for funds in an IRA vs your taxable account (this varies by state).

Also, it gives you an opportunity to take advantage of any future tax rates. For instance, you could put half of your contributions in a ROTH 401k, and half in a traditional 401k, so that way, regardless of what future tax rates/policies are, you can pick some years where you have less capital gains/dividend income (when you're retired) to convert part of your traditional 401k rollover to your ROTH 401k rollover.
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