$250,000 inheritance at age 49 -- What would you do?

[timbit]

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 from 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

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! :)

[frugaldrummer]

I'm curious - how much is this small government pension? And how on earth do they enforce where you live? Assuming it would be direct deposit into your account, couldn't you maintain a mailing address in Vancouver and live overseas? How would they know you weren't traveling?

[timbit]

I'm curious - how much is this small government pension? And how on earth do they enforce where you live? Assuming it would be direct deposit into your account, couldn't you maintain a mailing address in Vancouver and live overseas? How would they know you weren't traveling?

My wife is a government employee working in Vancouver. She gets some sort of employee pension from this, which is on top of the usual social benefits pension everyone gets. Don't know the sunken cost yet, but she has been in position for 5 years, and potentially 15 more years if we stay put in Vancouver where we could probably never buy real estate, and rent is high. Cheers

[six-car-habit]

 Jump for joy, as I expect zero inheritance - Than pay off my mortgage.  But thats if it were me.

 For you -
 - pay off student loan asap
 - Extra $20K into emergency savings
  - Get the majority of it into a retirement saving vehicle somehow, even if you have to sit on it in Cd's / money market account / etc over a few years, as you shovel more of your regular income into retirement / tax advantaged accounts,  and use the windfall to meet your current spending obligations.
 - Go on a nice , but budgeted and semi cheap vacation.  Something you all have wanted to do but haven't , or something the benefactor of this inheritance would have wanted you to have seen/ experienced.
  -  Figure out how to stay in the pension program , maybe your wife could get a transfer to somewhere else in British Columbia where she could work for the province / school system still, key part being the future town is cheaper overall.
  -  Don't try to buy real estate within Vancouver proper, too expensive, -once the windfall is gone and you are back to living on 90K a year = problems. You can't control the tax rate in real estate.

[11ducks]

I would seriously consider some money management seminar/ something like a Dave Ramsey course. For two adults at your ages making a decent wage without huge expenses, you don’t have a lot of savings behind you? Adding a bankruptcy to that suggests that possibly one or both of you aren’t great with money? Sorry if I am off base here.  If you can figure out where you have gone wrong in the past, hopefully you can stop this cash from disappearing, and use it for a really great springboard into retirement.

[Goldielocks]

I think there are a couple of steps.
1)  Be ok with waiting to decide what to do, if this comes from the death of someone you loved.  Hard to make decisions quickly.
2) Double check that the amount you will get will be $250k.  Will there be any taxes?  Was this a primary residence for the previous person?  Sales fees / maintenance or HOA fees to pay while you wait for the sale?

Next, realize that you will have $90k x 16 years = $1.44 Million dollars in income coming your way, at an average to lower than average tax rate.  THAT is your windfall.  :-)  It's you!  YOU ARE YOUR OWN WINDFALL.

My two cents is to put it into a savings / conserative investment account in your own name, don't blend with the household finances.*   If you are not used to investing, just put it into a Tangerine fund or into a Vanguard fund like VCONS for now.


Pay off your student loans using this fund, normal rate of pay off.

Don't touch it until you are ready to retire, then retire (don't need a job), move and buy a small place out of town with it, in an area that you will love at that time.

In the meantime, pay your normal day to day expenses, rent and max out your TFSA's with your income.   Building an emergency fund  of 6 months value instead of taking vacations (if you take vacations), etc.  from your current income.

--- Pension for your wife is vested after 2 years.   If she leaves the job, she will get her own contributions, plus the employer contributions.  So no worries there.  After 5years, she will get the "commuted value" of 5 years of pension contributions.  If she works there 20 years, she gets 20 years commuted value, etc.

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 from 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

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! :)

[timbit]

You don’t have a lot of savings behind you? Adding a bankruptcy to that suggests that possibly one or both of you aren’t great with money? Sorry if I am off base here.  If you can figure out where you have gone wrong in the past, hopefully you can stop this cash from disappearing, and use it for a really great springboard into retirement.

The bankruptcy was mainly caused by being part-way through heavy house renovation coinciding with oil crash. Also very hard to find good building contractors. I got laid off along with half of Alberta. The house couldn't be sold or rented. We were f'd. We lost our remaining savings, except for RRSP, in the bankruptcy. We moved back to BC.

This is a good lesson for anyone: if you are doing a big reno job, your house cannot be sold or rented if you suddenly needed to, which can put you at great risk until the reno is completed. Add to this uncertainties of cost and time to complete a big reno, family emergencies, crashing economy, etc.

We are wiser now because of these experiences. We are not materialistic. Thanks for the suggesting the Dave Ramsey course. Cheers

[timbit]

I think there are a couple of steps.
1)  Be ok with waiting to decide what to do, if this comes from the death of someone you loved.  Hard to make decisions quickly.
2) Double check that the amount you will get will be $250k.  Will there be any taxes?  Was this a primary residence for the previous person?  Sales fees / maintenance or HOA fees to pay while you wait for the sale?

Next, realize that you will have $90k x 16 years = $1.44 Million dollars in income coming your way, at an average to lower than average tax rate.  THAT is your windfall.  :-)  It's you!  YOU ARE YOUR OWN WINDFALL.

My two cents is to put it into a savings / conserative investment account in your own name, don't blend with the household finances.*   If you are not used to investing, just put it into a Tangerine fund or into a Vanguard fund like VCONS for now.


Pay off your student loans using this fund, normal rate of pay off.

Don't touch it until you are ready to retire, then retire (don't need a job), move and buy a small place out of town with it, in an area that you will love at that time.

In the meantime, pay your normal day to day expenses, rent and max out your TFSA's with your income.   Building an emergency fund  of 6 months value instead of taking vacations (if you take vacations), etc.  from your current income.

--- Pension for your wife is vested after 2 years.   If she leaves the job, she will get her own contributions, plus the employer contributions.  So no worries there.  After 5years, she will get the "commuted value" of 5 years of pension contributions.  If she works there 20 years, she gets 20 years commuted value, etc.

Awesome points you make. Thanks so much!

The $250K inheritance is perhaps conservative. Condo should sell for $550K or better - we get half. Was primary residence for deceased and for us. Deceased was owner. Even if we get $200K, our strategy probably wouldn't change.

Wonderful reminder you stated about our household income being the windfall too. :)  Rough calculation on investing $300K, 7% interest, 2% inflation, grows to about $615K in 15 years. This is pretty nice growth from inheritance too. 5% interest gives $460K. If we invest for 20 years (to age 70) then growth even better.

I am above average in investing knowledge and skill. Although much of the readership here is way above average. If we invest conservatively, then the investment growth would be low to what I estimated above, potentially risking growth of maybe $200K. I guess it depends what you mean by conservative. I am looking at low management fee ETFs through well-known broker.

Great news about pension. I'll hopefully learn more from her employer soon.

Cheers!

[timbit]

Pay off your student loans using this fund, normal rate of pay off.

Is there a disadvantage to paying off the whole student loan debt of $6000 at once, rather than sticking to minimum payment? I suppose it might help to repair our credit rating? Any other reason?

[timbit]

- Go on a nice , but budgeted and semi cheap vacation.  Something you all have wanted to do but haven't , or something the benefactor of this inheritance would have wanted you to have seen/ experienced.

Very thoughtful idea. Thank you

[FIPurpose]

Pay off your student loans using this fund, normal rate of pay off.

Is there a disadvantage to paying off the whole student loan debt of $6000 at once, rather than sticking to minimum payment? I suppose it might help to repair our credit rating? Any other reason?

Other than the interest savings, it's like 2% of the value of your inheritance. I'd pay it off just to have it off of your (mental) plate. At this point in your life stop worrying about maximizing every dollar, and start simplifying.

[Prairie Stash]

Inheritance - do both parties want to share it? If kept separate its outside marital assets in a separation. Its an unfortunate thing to have to point out, but you deserve all the information.

Heres where the money goes:
1) Max TFSA - $125,000
2) Student Loan $6,000 - assuming 5-7% interest
3) Self Directed investment account $119,000
4) Over time transfer the Investment account into the RRSP accounts and TFSA

Currently TFSA gains $6000year/person so that's a $12k a year hole to fill. RRSP grows at 18% of $90k - wifes empluer contributions;  that's 18%*90K-pension=about $14k, but you get 30% back in taxes so about $10K out of pocket . Between the two they could suck up all the money in the next 7-9 years. Thats reality, unless you start saving this is your retirement fund/

By my calulcations if you want to retire in 16 years all this money wil be inside TFSA and RRSP accounts before you retire. By retirement it should grow to $700-800k, providing enough to supplement CPP and your wifes pension. Without acess to all your details I woud guess you're looking at a potential retirement income in the $60k range.

Because of the bankruptcy, you have some catching up to do, you are behind the average NW for two people at 49 at this point. The median net worth for canadian households age 45-54 is $432,000. The inheritance will bring you close. Most NW is in real estate, its okay if you do it all in cash instead. I say this so that you can see how important it is to use this one-time windfall to maximum advantage.

https://www150.statcan.gc.ca/n1/daily-quotidien/171207/t001b-eng.htm

[Goldielocks]

Pay off your student loans using this fund, normal rate of pay off.

Is there a disadvantage to paying off the whole student loan debt of $6000 at once, rather than sticking to minimum payment? I suppose it might help to repair our credit rating? Any other reason?

In general, I saw the bankruptcy comment and the fact that they haven't looked up her pension in the past 5 years as signs of someone who is not finance savvy (or just beginning to be). Yeah, assumptions aren't always correct.  Not doing things fast with an inheritance is a good thing for people just starting out, and I actually think that there is no problem paying off current student loan using cash flow from the income and protecting the inheritance for future retirements.

Here in BC, the idea of renting in Vancouver / Victoria you have a job with a strong salary, and retiring and moving (buyin) somewhere cheaper, (where jobs are hard to get anyway) is a great strategy, and having a large lump of money to make that happen in future is ideal.   I would be tempted to invest the "windfall" for the future, as a lump sum and sleep a lot easier at night, knowing there is a good plan.   There is enough monthly income to not have to use this lump sum / seed money to pay off credit cards or other short term needs, even if the rates being paid are high.   For many people paying off those types of small debts with a windfall just ends up with more spending again.

Lastly, an inheritance is usually given to just one person in a marriage, so my default is for that person to hold onto it as long as possible in their own name, until closer to retirement.   If the inheritance is actually given to them jointly (both names), then this is a moot point.

[timbit]

Lastly, an inheritance is usually given to just one person in a marriage, so my default is for that person to hold onto it as long as possible in their own name, until closer to retirement.

Thanks for the help. My wife inherited the property. Can you expand on the pros/cons to having the inheritance kept in her name until retirement? One detail is that TFSA's can only be in one person's name. Each of us have about $60K in contribution room in each of our TFSA's (combined about $120K). Cheers

[Prairie Stash]

Lastly, an inheritance is usually given to just one person in a marriage, so my default is for that person to hold onto it as long as possible in their own name, until closer to retirement.

Thanks for the help. My wife inherited the property. Can you expand on the pros/cons to having the inheritance kept in her name until retirement? One detail is that TFSA's can only be in one person's name. Each of us have about $60K in contribution room in each of our TFSA's (combined about $120K). Cheers

If its kept outside of shared marital assets it remains 100% hers if you separate.

That is the only catch, who gets the money in separation. If its used to fund both of your TFSA's, for example, then she loses 50% to you in a divorce.

If the money is invested only the principle is exempt. so if the value increases from $250kk to $400k the first $250 is hers, the remainng $150 is split 50/50 (you get $75k she gets $325).

However, does your wife want to share it? Long term, it makes no difference, in retirement it will be used to fund both of you (who cares who has control). Its only in the short term that it matters (5-10 years), retirement doesn't change the rules, it just changes the money from being used fro savings to being used for spending.

My solution is to let your wife decide and not worry about it. If you worry, it causes arguments that hurt the marriage. If you don't care, you'll stay married and the money will be used to support you. Its a funny quirk, a self fulfilling prohecy, you can decide now which way your marriage and the money will go.

[Goldielocks]

Lastly, an inheritance is usually given to just one person in a marriage, so my default is for that person to hold onto it as long as possible in their own name, until closer to retirement.

Thanks for the help. My wife inherited the property. Can you expand on the pros/cons to having the inheritance kept in her name until retirement? One detail is that TFSA's can only be in one person's name. Each of us have about $60K in contribution room in each of our TFSA's (combined about $120K). Cheers

What Prairie Stash said.   Emtionally, it is like a nest egg, made from a present directly to one person alone.  It is nice to have control over one's own presents.   I get warm fuzzy feelings when I think about having a nest egg and a plan for retirement (such as buying a home outright with my nest egg), and one that I can rely on.  For me, that warm fuzzy feeling would be doubly strong after a shitty few years in Calgary trying to finance a spiraling home renovation.  ( I did a major renovation, too, i think it cost $250k and creative mortgages by the time the money stopped gushing out of our pockets long enough for me to measue the hole it left behind.  I can empathize a lot here).

[timbit]

Lastly, an inheritance is usually given to just one person in a marriage, so my default is for that person to hold onto it as long as possible in their own name, until closer to retirement.

Thanks for the help. My wife inherited the property. Can you expand on the pros/cons to having the inheritance kept in her name until retirement? One detail is that TFSA's can only be in one person's name. Each of us have about $60K in contribution room in each of our TFSA's (combined about $120K). Cheers

What Prairie Stash said.   Emotionally, it is like a nest egg, made from a present directly to one person alone.  It is nice to have control over one's own presents.   I get warm fuzzy feelings when I think about having a nest egg and a plan for retirement (such as buying a home outright with my nest egg), and one that I can rely on.  For me, that warm fuzzy feeling would be doubly strong after a shitty few years in Calgary trying to finance a spiralling home renovation.  ( I did a major renovation, too, i think it cost $250k and creative mortgages by the time the money stopped gushing out of our pockets long enough for me to measure the hole it left behind.  I can empathize a lot here).

We both have graduate degrees from the school of hard knocks :)

[talltexan]

Do you have some kind of family goal or expense that would be nicely met by $7,500-$10,000 per year? Some way of matching that need with this money might be a nice way to remember the deceased.

An extreme version of this would be the case in which your rent was roughly $830 per month. Then the income from this inheritance could be paying your rent without you bearing the real estate risk.