Should I increase my WR after inheritance

[dtbach]

My father recently passed away at 97 (had a darn good run!) and I have received a pretty healthy inheritance. I had been taking a WR of about 4% but now it's at 3%.

I'm thinking of figuring out my SS rate at 70, and take the amount out of my inheritance yearly which would bring the WR up to about 4.2%. But then delay taking SS so that DW would be able to trade up to mine if necessary.

I know there is a million and 1 ways to divvy everything up, but I could sell this to the DW as benefiting us now and in the future. And it appears to be fairly safe also.

 

[Sunset]

Yes...yes...yes.

 

[RunningBum]

I've always figured never to count on an inheritance until you actually receive it. Too many things could happen, like the person being immortal, or they run through their dough on medical or otherwise finding they didn't have as much as you thought, or they could give it to someone else.


Once you have it though, I would reset my plan with the new money part of it just like the old. I guess you could treat the money separately if you wanted to do things in his memory, but my thought is that money is money. And this sounds like enough money to be a game changer, so dump your old plan and put together a new one.

 

[ERD50]

I'm confused. If you received a large inheritance, wouldn't your WR % go down, even if the amount you are withdrawing goes up (within limits)?

Or are you "compartmentalizing" and keeping the inheritance separate from the WR calculation? If so, my advice is "don't do that!". Money is fungible, look at the big picture. (like I see RunningBum just posted)

With a larger buffer, I'd agree that makes delaying SS more attractive, considering spousal benefits.

-ERD50

 

[Chuckanut]

While I don't advocate spending for the sake of spending, I do think that uping your expenditures for things that improve the quality of life for you, your loved ones and others is a good idea.

 

[joeea]

I'm thinking of figuring out my SS rate at 70, and take the amount out of my inheritance yearly which would bring the WR up to about 4.2%. But then delay taking SS so that DW would be able to trade up to mine if necessary.

If including the inheritance in your portfolio allows you to protect your wife's future by delaying the start of your social security benefits until 70, then it's hard to think of a reason not to do this.

Without know the numbers involved, it would be hard to tell if you are considering an optimal solution, or one that on the surface just seems better than before. What alternatives are you considering?

Remember, all money is fungible. You should probably consider investing your inheritance per your asset allocation strategy immediately, then withdrawing the necessary amount from your overall portfolio. Don't let the inheritance money sit in a savings account earning nothing.

 

[audreyh1]

If you add the inheritance to your long-term retirement assets, then applying the same planned withdrawal rate to the total assets makes sense to me.

If you are using the new funds some other way, then don't worry about "overall WR". All that matters is the withdrawal rate on your current retirement assets not including the new inheritance. Heck you could blow it all on a new house and it wouldn't impact your current retirement portfolio survival characteristics.

I prefer to compartmentalize and only apply the withdrawal rate to the chunk of my assets set aside as "retirement fund" which is what I actually withdraw my annual income from. I can do whatever the heck I want with the rest of my assets without compromising the survival of the retirement fund in any way.

 

[RobbieB]

You should do whatever you want. Especially some things that you would have liked to do before but thought you couldn't afford.

Because now you can -

 

[Danmar]

While I don't advocate spending for the sake of spending, I do think that uping your expenditures for things that improve the quality of life for you, your loved ones and others is a good idea.

Agree.

 

[dtbach]

I agree all money is fungible and it's all in my brokerage account. At present my WR is reduced to 3% because I haven't changed my WR yet. I really don't need a lot of extra income but if I can have it, I was thinking why not take it. Once both my DW and I start taking SS we will be awash in more money than we normally would spend. So the choice is give the kids a larger inheritance or up our standards of living and travel. I'm inclining towards the latter

 

[Meadbh]

I agree all money is fungible and it's all in my brokerage account. At present my WR is reduced to 3% because I haven't changed my WR yet. I really don't need a lot of extra income but if I can have it, I was thinking why not take it. Once both my DW and I start taking SS we will be awash in more money than we normally would spend. So the choice is give the kids a larger inheritance or up our standards of living and travel. I'm inclining towards the latter

My thoughts exactly.

 

[audreyh1]

All money is fungible but goals and time frames are not. It makes perfect sense to have money earmarked for certain things and invest it differently depending on the goal and timeframe.

 

[dtbach]

All money is fungible but goals and time frames are not. It makes perfect sense to have money earmarked for certain things and invest it differently depending on the goal and timeframe.

"Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!"



I like your signature. Perhaps I should take the extra dough and emulate you!

 

[audreyh1]

"Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!"



I like your signature. Perhaps I should take the extra dough and emulate you!

I wrote that new sig line in early 2016 when I realized I was approaching about 40 hours a week for 3 months straight working on planning the details of our 3.5 week Southern France/Barcelona trip. It was a great trip, and super smooth in spite of many complications due to my thorough preparation, but dang it was a huge amount of work! I really wish I could hire someone to do it for me but probably won't delegate such a task for several more years, and it won't be nearly as thorough and customized to us.

On options for extra dough.....

There is no reason some funds can't be set aside for something other than funding annual living expenses, especially when faced with a windfall (by definition unexpected?). Just before we retired we set aside a goodly chunk for travel apart from our retirement fund that we planned to live off of, because we wanted to be able travel heavily the first few years, and expected that once the pent up desire eased, and the funds were exhausted we would settle into a more routine annual travel and spending pattern.

Other people may set aside funds for buying an RV or boat, or maybe even a second home or some other highly desired toy.

Similarly other folks may set aside a chunk, kind of like creating their own annuity for X years or month, to bridge them until new sources of income come on line, like SS or a pension.

The only "rule" is that you should not violate your self-determined withdrawal rate on the pile of money that you have earmarked as your retirement fund. Those funds are for drawing your annual income, and if you decide to pull a big chunk out to spend on something else you had better recalculate the annual income the smaller fund will support and abide by your new annual income.

 

[Hermit]

I'm thinking of figuring out my SS rate at 70, and take the amount out of my inheritance yearly which would bring the WR up to about 4.2%. But then delay taking SS so that DW would be able to trade up to mine if necessary.

I take an equivalent amount out of my 401k each year to bump by annual income up to what I will get when I turn 70 and start collecting SS on my account. It seemed like a good thing to do to smooth out the income flow.

 

[Aggie1999]

To strictly follow the standard 4% plus inflation rule you would not reset to have the 4% be equal to your total portfolio. You would stick with your current withdraw percentage for the balance that doesn't include the inheritance. Then start the 4% rule plus inflation for the inheritance balance.

 

[RobbieB]

That would be the same number.

(.04 x A) + (.04 x B) = .04 x (A+B)

 

[dtbach]

To strictly follow the standard 4% plus inflation rule you would not reset to have the 4% be equal to your total portfolio. You would stick with your current withdraw percentage for the balance that doesn't include the inheritance. Then start the 4% rule plus inflation for the inheritance balance.

I think I'll just lump it all together and take 4.2% out (which would be adding what my SS would be at 70) and then at SS age, reduce WR by an equal amount which would probably drop the WR to 3.7%. I look at it like having my cake and eating it too.

 

[RunningBum]

That would be the same number.

(.04 x A) + (.04 x B) = .04 x (A+B)

Sounds like it, but it really wouldn't be.

IF the OP started with 4% and increased the amount by inflation each year, he wouldn't be taking out 4% right now. Since the market has been good, it's likely to be less than 4%.

With the inheritance, start a new bucket at 4%, and increase that amount by inflation.

Seems unnecessary, but it would reduce sequence of returns risk because you'd have 2 different starting points instead of 1.

It doesn't sound like the OP is actually doing 4% + inflation.

 

[kcowan]

"Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!"

I like your signature. Perhaps I should take the extra dough and emulate you!

If you and DW enjoy travel, then why not earmark part of the inheritance for travel while you are young enough to enjoy it. As Robbie might say, blow some of that dough!

 

[Meadbh]

With an inheritance, you may feel the need to compartmentalise the money. Eventually, you will realize that it is really yours. Your dead relative won’t be asking for it back. They left it to you to enjoy, so just enjoy it. No need to overthink it with formulas.

 

[dtbach]

It was mostly good dividend paying stock so it just got added to the brokerage portfolio. I sold some to raise cash and add to some of my other positions (also dividend paying stocks). So basically going to buy a few things outright (new 3 row SUV, OLED TV and washer/dryer) with some cash and then leave things alone. I don't do the inflation thing with withdrawals as long as it's enough to live well. I figure I can always raise it at a later point to catch up.

 

[jonat]

I received a nice inheritance from my uncle (and eventually I expect to receive a bigger one from my aunt, though as I told both of them, I would prefer to put that off as long as possible - I adore them both.) I simply deposited the check into our managed portfolio account and didn't adjust the WR. That will adjust over time anyway.

Our circumstance may be different from others - we were well positioned before the inheritance and are now "even more" well positioned. We don't spend a lot, but it's nice to know the money is there if we need it.

 

[audreyh1]

If you have way more than you need to fund your annual expenses even when padded by lots of discretionary stuff, then you can set aside the chunk needed to fund those annual expenses and draw from that.

The excess can be used for whatever you like.

The problem with putting absolutely everything in one pot that you draw from annually, even when new funds show up unexpectedly, is that the money is spread out for the rest of your life. That is: you can only spend 4% of the new funds for the rest of your life. Maybe you'd like to spend a good chunk of it now, or in the near future, when you are younger, healthier, and alive. Maybe there are a couple of big splurges you have been putting off because they didn't fit within your prior annual income.

IMO as long as the retirement fund is large enough to cover your desired annual spending level, anything above that can be used however you like. It doesn't all have to be doled out 4% a year.

 

[Brat]

First update your estate documents.

Were I in your position I would put as much in a Roth IRA as the tax code allows, fill up my regular IRA and let it run, postpone taking SS. If your children (or grandchildren) are years away from entering college fund their 529 accounts. Spend down your inheritance because your IRA investments will grow tax free. Eventually you will be forced to take minimum required distributions which will fill up your cash account.

You and your significant other should make a spending plan. What do you need for daily expenses and experiences on your bucket list. You can always tap your IRAs if s..t happens and you need cash for an unexpected expense. If you really have excess cash then invest a portion that you don't think you will need for about 5 years.

One personal opinion about paying for your children's education: make sure they have skin in the game. After they have completed the education that s/he is willing to pay for you can always pay off their school loans.