Author Topic: Case Study: Upcoming Windfall  (Read 3939 times)

BuckeyeMustache

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Case Study: Upcoming Windfall
« on: March 08, 2015, 11:55:29 AM »
Greetings all-I'm a long time lurker, first time poster.

Situation: My wife (25 years old) and I (26) are in a very fortunate position where I will be inheriting a good chunk of money (150k) at some point in the relative short-term future from my grandparents. My grandpa has passed away and my grandma is 95. While I hope she lives for many more years, given her age and deteriorating health, I think it's prudent to begin planning for the best use of funds.

About us:
-I make 85k/yr, plus a 20% bonus target. My wife is a Pre-school teacher and makes 28k.
-We have 70k in retirement accounts right now, 20k in cash. 2015 is the first yr we will have maxed out our Roth IRAs, we contribute 15% to our 401k accounts right now.
-No debts outside of our mortgage; owe 155k on a 210k house, financed at 3% for 15 yrs.

Goals:
-Be able to have my wife stay at home when we start a family in hopefully the next 1-2 yrs.
-Be FI by the time I'm 45.

Qstn: What are your suggestions for allocating the 150k when we recvieve  the inheritance? We have a comfortable lifestyle now and don't need any of it for the short term.

Options im considering: Throw all the money in a Vanguard index fund, let it grow and forget about it.
-Pay off the house and allocate my previous payment to index funds.
-A mix of the above two options.
-My wife and I've always been interested in real estate. I'm researching multi unit properties to use as rentals as a diversification play. I also think the property management function would be a good job my wife can do when she is a stay at home mom.

What are other ideas? I realize how fortunate I am to be inheriting a lot of money (to me at least) at a young age and I want to use it as wisely as possible. I will also be donating some money to some organizations that my grandparents have supported.

SantaFeSteve

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Re: Case Study: Upcoming Windfall
« Reply #1 on: March 08, 2015, 12:46:28 PM »
Greetings all-I'm a long time lurker, first time poster.

Situation: My wife (25 years old) and I (26) are in a very fortunate position where I will be inheriting a good chunk of money (150k) at some point in the relative short-term future from my grandparents. My grandpa has passed away and my grandma is 95. While I hope she lives for many more years, given her age and deteriorating health, I think it's prudent to begin planning for the best use of funds.

About us:
-I make 85k/yr, plus a 20% bonus target. My wife is a Pre-school teacher and makes 28k.
-We have 70k in retirement accounts right now, 20k in cash. 2015 is the first yr we will have maxed out our Roth IRAs, we contribute 15% to our 401k accounts right now.
-No debts outside of our mortgage; owe 155k on a 210k house, financed at 3% for 15 yrs.

Goals:
-Be able to have my wife stay at home when we start a family in hopefully the next 1-2 yrs.
-Be FI by the time I'm 45.

Qstn: What are your suggestions for allocating the 150k when we recvieve  the inheritance? We have a comfortable lifestyle now and don't need any of it for the short term.

Options im considering: Throw all the money in a Vanguard index fund, let it grow and forget about it.
-Pay off the house and allocate my previous payment to index funds.
-A mix of the above two options.
-My wife and I've always been interested in real estate. I'm researching multi unit properties to use as rentals as a diversification play. I also think the property management function would be a good job my wife can do when she is a stay at home mom.

What are other ideas? I realize how fortunate I am to be inheriting a lot of money (to me at least) at a young age and I want to use it as wisely as possible. I will also be donating some money to some organizations that my grandparents have supported.

Sorry for the loss of your grandfather, and wishing you much quality time with your grandmother while she is still around.

Pay off the mortgage (I realize its a little short but close enough).  I like this option.  I think it puts you in a position for your wife to become a SAHM, has a 100% guaranteed return on the 'investment', and (for me) would be a concrete thing I could point to and remember that my grandparents paid off my house for me. 
The math folks will most likely show that investing the money will provide a greater return, but sometimes the math is not the most important part for me. 

thedayisbrave

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Re: Case Study: Upcoming Windfall
« Reply #2 on: March 08, 2015, 12:53:23 PM »
I would not pay off the house.  You could consider using a chunk of the money for a down payment on a rental property, and investing the rest. 

Retired To Win

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Re: Case Study: Upcoming Windfall
« Reply #3 on: March 08, 2015, 01:04:54 PM »
I would not pay off the house.  You could consider using a chunk of the money for a down payment on a rental property, and investing the rest.

THIS.  Using the leverage that mortgage financing would give you, you could use the $150,000 to purchase $750,000 worth of rental properties.  How many properties that would be would depend on the real estate market in your area, of course.  But hopefully (and based on your own home), you could end up with 3 rental properties to start generating a new stream of income for you RIGHT AWAY.

And that stream of income could liberate your wife from her teaching job, as she puts on her new "rental manager" hat and works that angle from home... even with the kiddies.

Good luck.

Catbert

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Re: Case Study: Upcoming Windfall
« Reply #4 on: March 08, 2015, 01:42:28 PM »
Given the age of your grandparents, I'm assuming that none of this money will be in an IRA, 401k or similar.  If it is in retirement accounts, realize that you'll have to pay taxes as you take money out and that there will be RMDs.  If this is the situation then post more so you can strategize withdrawal strategies. 

With regard to paying off the house in anticipation of DW being a SAHM:  Can you reasonably live on just your salary and continue to make the house payment?  If you paid off the house could you live on your salary alone and fund max 401k and IRA?

Generally paying off a mortgage at 3% will be a loser in the long run compared to averaging 7% in the stock market.   But you may need to pay it off in order to afford a SAHM in a year or two.

MooseOutFront

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Re: Case Study: Upcoming Windfall
« Reply #5 on: March 08, 2015, 01:53:43 PM »
I like both ideas, throw it all in Vanguard and/or buy rental properties.  Would not pay off the house at your age and the interest rate you have on it.

I would personally just invest it in index funds, but I don't have time to do the rental thing right yet and my wife already has part time work while staying at home with the kids.  I can see the appeal of your wife taking that on as a bit of a project in her "spare" time in a couple years.

cynthia1848

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Re: Case Study: Upcoming Windfall
« Reply #6 on: March 08, 2015, 02:08:25 PM »
If your grandmother is still in relatively good health, I wouldn't count on receiving much.  Grandparents can live for a long time in very expensive nursing homes - I speak from experience.  My grandparents each ran through easily $100K in nursing home costs before they passed away.

MooseOutFront

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Re: Case Study: Upcoming Windfall
« Reply #7 on: March 08, 2015, 02:17:37 PM »
If your grandmother is still in relatively good health, I wouldn't count on receiving much.  Grandparents can live for a long time in very expensive nursing homes - I speak from experience.  My grandparents each ran through easily $100K in nursing home costs before they passed away.
A very good point.  My grandmother lived in a nice nursing home for 4-5 years and went through several hundred thousand in the process.

BuckeyeMustache

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Re: Case Study: Upcoming Windfall
« Reply #8 on: March 08, 2015, 03:21:49 PM »
Thank you for all the thoughts-hopefully its a few years before I need to make a move.

Good point on the cost of nursing homes. Grandma has a large nest egg and quite a few assets, but regardless, you never know what could happen.

On a side note--I think many of us could learn a ton from people like my grandparents who grew up in the Great Depression era. Even when many in that generation ended up making a very good living for themselves, generally speaking, they lived well below their means as they knew what it was like to have nothing. My grandparents were mustachians before MMM himself was even born.

Yankuba

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Re: Case Study: Upcoming Windfall
« Reply #9 on: March 08, 2015, 04:29:58 PM »
I would invest some and also pay down the mortgage. If you really want to own a rental property then you can do that too.

surfhb

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Re: Case Study: Upcoming Windfall
« Reply #10 on: March 08, 2015, 05:57:58 PM »
I'm surprised people here are offering suggestion to roll it into real estate investing.   If your intent is early retirement, you're well on your way without the added risk and hassles of real estate investments.   

Do you think you can put up with the hassles it comes with, the costs and the risks?   All this with 2 young children and a FT job?   

I'm sure your grandad would be proud whatever you decide :)

If it were me with your numbers, I'd pay off the home, save like crazy and enjoy seeing your kids grow up.   You're a very lucky man.    I'm all about securing your nut first.....if you guys want to invest in real estate there plenty of time!
« Last Edit: March 08, 2015, 06:03:19 PM by surfhb »