Tl;dr: Would a windfall that doubled your (age appropriate but not amazing) savings overnight change your savings/investment strategy?
My dad died recently; my mom died a while ago. They were both relatively young and had saved extensively. The bulk of his assets, around 300k, are in various types of IRAs and we plan to roll them over as inherited IRAs and opt for option to take the required minimum distribution over my life expectancy, with the understanding that we can draw down more if we wish. These assets are currently split nearly evenly between various stocks and bond funds. Additional property based assets also exist but the valuation is less clear – this will likely come to us as cash but at a much later date.
Having been saving appropriately ourselves for retirement, my spouse and I, at 40, have around $350k in various index funds through TIAA CREF and Vanguard – we have in the past several years fully funded our Roths, made our maximum contributions to our own IRAs, and done some “catch up” saving to offset the time my spouse spent in grad school/not working to his full potential. We have planned/budgeted to continue to do so for the foreseeable future. We also had planned to pay off our house over the next 2-4 years in lieu of investing in bonds. Our allocations are nearly all in small set of mid-large cap domestic and international index funds.
My question is, given this windfall, which nearly doubles our total savings, should we simply allocate the new funds into our existing allocation? Should we reconsider our savings rate into IRAs? Should we change our financial goals ~ 1) pay off house 2) save for retirement 3) save for other things (kids’ college/travel/etc). We both like our careers but we also view savings as a means of having choices – to quit a job, to take a leave of absence, or to stay in a job we love that isn’t paying what it should.
We are getting some pressure (from family/from our tax attorney) to find a financial advisor and engage in more expensive actively managed investing. We aren’t sure about this – should we engage someone for short term advice and pay for it? Should we keep doing what we are doing, which is reading up and figuring it out ourselves? Neither of us works in this area…
Thoughts and advice?
So sorry to hear about your loss.
This is a tough one. If it were me, 300k isn’t so much that it seems like it needs special financial planning above and beyond what you are already doing. On the other hand this whole inherited IRA thing could be tricky and have tax consequences that I don’t understand but you sound like you’ve looked into them.
When #2’s husband got a large lump sum from stock options he just added more to the investments he already had using the same strategy as before (also some of that went towards a wedding and moving expenses– they still can’t afford a house where they live).
If it were me I would do 1. Retirement 2. House 3. Other. You also want as much of that as possible put into vehicles that you can hide from colleges (like retirement and your house) because 300k in cash means you pay 100% tuition etc. while 650k in retirement doesn’t, depending on your income. So if making those moves is complicated or you don’t know how colleges are going to treat different assets, it might be worth it to talk to a professional. But that seems more in the realm of your tax person than a financial planner.
Active investing is almost never a good thing and I can’t see 300k being so big that you need it. It’s not like you’re trying to dodge an inheritance tax at age 40 with less than 700k plus a home. It’s not a big enough portfolio to really benefit from munis. So I’m not really sure what active management would add.
On the other hand, when my father dies, my mom already has a firm (apparently a branch of Charles Schwab does this) picked out to forensically untangle all of his investments. Simplifying them in a way that doesn’t create massive taxes will be the next step. That’s not active management but it will take a professional in the short term.
So I guess a fee only financial planner might be worth it if this is beyond your tax person’s abilities, but not one who is going to encourage active management. Instead someone who will help your figure out how to get the right asset mix (which you probably already know), how to avoid excess taxes, and how to maximize financial aid. So like one or two meetings rather than them taking over your portfolio.
Grumpy Nation, what would you do in A’s situation?