Author Topic: $250,000 inheritance at age 49 -- What would you do?  (Read 1386 times)

timbit

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$250,000 inheritance at age 49 -- What would you do?
« on: April 14, 2019, 09:40:53 AM »
Greetings! What would do in the following situation of inheriting $250,000 CDN?

Here's the facts:
    Canadian
    Inheriting $250,000 CDN from sale of condo we co-inherited. We must sell.
    $50,000 RRSP
    $10,000 savings
    $6000 student loan
    No other assets. No home (renters)
    Married couple, no kids. 49 years old
    Household income of $90,000
    Live in crazy real-estate bubble market of Vancouver, Canada
    Can't borrow money due to earlier personal bankruptcy
    Ideally want to retire at 65 (in 16 years)
    Wife could get small government-employee pension if we continued to live in Vancouver or maybe Victoria[/li]

This will be the only windfall of our lives, so we want to make the most of this opportunity.

We could move to a cheaper/smaller city and buy a condo. Our monthly expenses of owning a paid-off condo would be cheaper than rent. An alternative to this is to invest the inheritance, and rent for the rest of our lives, including elderly years.

Other alternatives might include investing to wait for market correction and cheaper real estate prices. In this case we could invest in a tax-fee savings account (TFSA) rather than an RRSP so our investments are liquid without tax penalty (we have combined TFSA contribution room of $125,000). But, no one knows when a real estate market correction might occur.

More radical alternatives might include living overseas, which we have done in the past, but this would involve my wife losing small government-employee pension.

I am excited to hear what you would do in our situation. Thanks so much for helping out! :)

PDXTabs

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #1 on: April 14, 2019, 09:45:41 AM »
Other alternatives might include investing to wait for market correction and cheaper real estate prices. In this case we could invest in a tax-fee savings account (TFSA) rather than an RRSP so our investments are liquid without tax penalty (we have combined TFSA contribution room of $125,000). But, no one knows when a real estate market correction might occur.

More radical alternatives might include living overseas, which we have done in the past, but this would involve my wife losing small government-employee pension.

I would max out the TFSA, put the rest into a taxable brokerage account, and know that by the time you get to retirement age you will have enough money to live somewhere nice (possibly overseas).

Xlar

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #2 on: April 14, 2019, 09:48:21 AM »
Other alternatives might include investing to wait for market correction and cheaper real estate prices. In this case we could invest in a tax-fee savings account (TFSA) rather than an RRSP so our investments are liquid without tax penalty (we have combined TFSA contribution room of $125,000). But, no one knows when a real estate market correction might occur.

More radical alternatives might include living overseas, which we have done in the past, but this would involve my wife losing small government-employee pension.

I would max out the TFSA, put the rest into a taxable brokerage account, and know that by the time you get to retirement age you will have enough money to live somewhere nice (possibly overseas).

I would also do the same. I would also highly recommend putting together an Investment Policy Statement and sticking to it. That way you know what to do with future savings! https://www.bogleheads.org/wiki/Investment_policy_statement

OneCoolCat

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #3 on: April 14, 2019, 09:53:25 AM »
I'm leaning towards moving to a smaller city and buying a condo outright if that means you keep the pension.

PDXTabs

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #4 on: April 14, 2019, 10:28:02 AM »
I'm leaning towards moving to a smaller city and buying a condo outright if that means you keep the pension.

I think that we would need to know how big the pension is, but we're talking about having $300K invested with 16 years to grow while still being employed (that is, presumably, more savings). Also, with some of the money in a taxable account they could take advantage in a future drop in real estate prices (if it ever comes).

Finances_With_Purpose

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #5 on: April 14, 2019, 11:02:27 AM »
One practical consideration: are you really going to want to own and maintain a home with all that involves once you reach age 65/70/75/___?  At some point, you may well prefer renting.  And you pay transaction costs at both ends: to get into the condo and then again to get out of it.  In your situation, I would lean towards renting.

JAYSLOL

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #6 on: April 14, 2019, 11:17:55 AM »

Other alternatives might include investing to wait for market correction and cheaper real estate prices


Good luck with that.  Am in BC myself and my parents have been doing that for 10+ years and now will never be able to afford a home.  This doesn't mean you should buy a home, you should look around and figure out where you would like to live long term and figure out if renting or buying is a better option in that area.  Peronally I rent, but would buy a place if I found the right deal.  Victoria is lovely, but honestly only a little cheaper than Vancouver for renters, and way over budget for buying anything.   

I'm going to second the advice to pay off loan, then max out the TFSAs, and then top up your RRSPs.  Make sure you have decent funds that match your risk tolerance.  Don't go too aggressive or too conservative.  If I were you would stay working and renting in expensiveville and save up as much as you can, if it works out to buy a place somewhere later or at retirement great, but I wouldn't count on it. 

timbit

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #7 on: April 14, 2019, 02:21:27 PM »
Other alternatives might include investing to wait for market correction and cheaper real estate prices. In this case we could invest in a tax-fee savings account (TFSA) rather than an RRSP so our investments are liquid without tax penalty (we have combined TFSA contribution room of $125,000). But, no one knows when a real estate market correction might occur.

More radical alternatives might include living overseas, which we have done in the past, but this would involve my wife losing small government-employee pension.

I would max out the TFSA, put the rest into a taxable brokerage account, and know that by the time you get to retirement age you will have enough money to live somewhere nice (possibly overseas).


Anyone have an idea what the numbers look like? Two scenarios:
  • Scenario 1 is investing it all now. How valuable will the investments be in 15 years? We pay rent for the rest of our lives and have all investment money spent by age 90.
  • Scenario 2 is spending the $250K inheritance on a condo now to have cheaper monthly costs and avoiding to pay rent forever. What would we have to invest per month to get the same place at age 65? Alternatively, what would we have to invest per month to age 65 to have the same monthly retirement investment income as in scenario 1?

Perhaps you know of a user-friendly online calculator to test out these and other scenarios?

Cheers!
« Last Edit: April 14, 2019, 02:31:55 PM by timbit »

BNgarden

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #8 on: April 14, 2019, 03:54:29 PM »
Two parts of your questions (Q1 and latter question in scenario 2) can be addressed in calculators like this one (you have to choose your rate of investment returns and the overall expected rate of inflation):
https://www.bankofcanada.ca/rates/related/investment-calculator/


I'm a red panda

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #9 on: April 14, 2019, 04:13:36 PM »
I would not move anywhere, or do anything major with a windfall for at least a year. Unless you had already planned this move.

timbit

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #10 on: April 15, 2019, 12:55:56 AM »
I would not move anywhere, or do anything major with a windfall for at least a year. Unless you had already planned this move.

I hear ya on postponing big life changes after a sudden windfall.

A little more detail: We lived with the deceased in their condo. We have now inherited half the condo. We must sell and move out. So the biggish life change of moving can't be avoided. This brings up questions of where we move to and renting vs owning, and affordability differences of other cities. Cheers
« Last Edit: April 15, 2019, 12:59:09 AM by timbit »

JAYSLOL

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #11 on: April 15, 2019, 08:55:42 AM »
Not really sure how you plan to buy a condo for $250k when you are in Vancouver, are you talking about buying somewhere else?  Can you both earn the same money somewhere else?  If you invested it and rented, even with a fairly conservative 5% gain on your 250k, as well as assuming you plan to save $1500/month as long as you are working, you will have $1 million in the bank in 16 years, along with the government pension, CPP and OAS you could easily live on $50k/year inflation-adjusted for 2019 dollars without ever running out of money no matter how old you live. 

timbit

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #12 on: April 15, 2019, 10:59:05 AM »
Not really sure how you plan to buy a condo for $250k when you are in Vancouver, are you talking about buying somewhere else?  Can you both earn the same money somewhere else?

One idea we had was to use the money to buy a tiny condo in Victoria where my wife could still find work. This is doable, but then all our eggs are in real estate with live in, and not growing in investments.

Income is lower in Victoria than Vancouver. However, I just got a ton of computer skills training (Web Development and Data Science). I have also worked as a geology consultant remotely, so I could go back to that. I am also entrepreneurial-minded. So I am looking into creating web-based businesses that are not tied my geography and eventually generate income that can scale beyond the limits of my time. My wife is employee-focussed.



JAYSLOL

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #13 on: April 15, 2019, 01:28:06 PM »
Not really sure how you plan to buy a condo for $250k when you are in Vancouver, are you talking about buying somewhere else?  Can you both earn the same money somewhere else?

One idea we had was to use the money to buy a tiny condo in Victoria where my wife could still find work. This is doable, but then all our eggs are in real estate with live in, and not growing in investments.

Income is lower in Victoria than Vancouver. However, I just got a ton of computer skills training (Web Development and Data Science). I have also worked as a geology consultant remotely, so I could go back to that. I am also entrepreneurial-minded. So I am looking into creating web-based businesses that are not tied my geography and eventually generate income that can scale beyond the limits of my time. My wife is employee-focussed.


So, just checking if that would include selling off your RRSPs as well to get a condo in Vic?  I don't like the idea of no safety margin, so I'd avoid doing that if that was your plan.  Save up another couple years at least so you can weather a storm.  I'd suggest you consider writing a full case study to get on track with saving/spending.  If you plan on buying a place, you better have a great plan/budget and save enough that you can retire without having to sell that place to buy food after a few years into retirement.

PDXTabs

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #14 on: April 15, 2019, 04:13:51 PM »
Scenario 1 is investing it all now. How valuable will the investments be in 15 years? We pay rent for the rest of our lives and have all investment money spent by age 90.

I can't tell you how your returns will be over the next 15 years. To pick a completely arbitrary timeframe (the last 40 years), adjusted for inflation and reinvesting dividends, the SP500 returned 7.70%. You can play around with some numbers here or here here. For my own investing I assume that I can average 7% after inflation, but I also wouldn't be crushed if it turned out to be less, so you shouldn't necessarily follow my lead. I also have a stomach that is well prepared for volatility. But since WWII, on average, there hasn't been a better place to put your money than the stock market. It also lets you be very diversified, which I am a huge fan of. Politicians on either side of the isle could run the US into the ground, we could have a war and my house could get bombed while I'm away, etc, and a large portion of my retirement savings would be intact (I have a globally diverse portfolio).
« Last Edit: April 15, 2019, 07:26:40 PM by PDXTabs »

Wintergreen78

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #15 on: April 18, 2019, 06:49:12 PM »
The New York Times has a great rent vs buy calculator. You can enter rental rates and house prices for your area to get a sense of which makes the most sense financially.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Donít forget to factor in local property taxes and insurance.

timbit

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #16 on: April 18, 2019, 10:14:52 PM »
The New York Times has a great rent vs buy calculator. You can enter rental rates and house prices for your area to get a sense of which makes the most sense financially.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Donít forget to factor in local property taxes and insurance.

That's a really cool calculator. Just what I needed! Thanks so much :)

K-ice

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Re: $250,000 inheritance at age 49 -- What would you do?
« Reply #17 on: April 18, 2019, 11:20:00 PM »
How long ago was the bankruptcy? I don't really know how that works but I thought after a certain time (8years or so) you could start again.

Someone might be willing to lend to you especially if you have 50% down.

That way you could maybe invest 1/2 and put 1/2 towards a condo in a LCOL area.